Corporate Finance Lecture 1

Financial Statements and Business
Decisions
Users of Financial Information
•Internal Users
• Managers plan, organize and run a business
Users of Financial Information
•External Users
• Investors
• Creditors Primary users
• Others
• Taxing authorities
• Regulatory agencies
• Customers
• Labour unions
• Economic planners
Objective of Financial Reporting
•Provide the most useful financial information for decision making
•This is accomplished through the development of financial statements.
Accounting Equation
Assets = Liabilities + Shareholders’ Equity

Basic Terms
Assets - resources owned by a business
Liabilities - obligations of the business
Shareholders’ equity
• Share capital - representing the primary ownership interest in a corporation
• Retained earnings – accumulated earnings of corporation that have not been
distributed to shareholders
Financial Accounting Statements
•Income Statement
• Reports the results of operations for a specific period of time
•Statement of Retained Earnings
• Reports the changes in retained earnings for a specific period of time
•Balance Sheet
• Reports the assets, liabilities, and shareholders’ equity as at a specific
point in time
•Statement of Cash Flows
• Reports the cash receipts and payments for a specific period of time
CSU CORPORATION
Income Statement
For the Year Ended December 31, 2006
Revenues
Service revenue
$22,200
Expenses
Rent expense $9,000
Insurance expense 1,000
Supplies expense 200
Total expenses
10,200
Earnings before income tax
12,000
Subtract expenses from revenues to obtain
Income
net tax expense
earnings (loss)
5,200
CSU CORPORATION
Statement of Retained Earnings
For the Year Ended December 31, 2006
Retained earnings, January 1 $ 0

Add: Net earnings
6,800
6,800
Less: Dividends 0
Retained earnings, December 31 $ 6,800
Subtract current year’s

dividends (if any) and total
CSU CORPORATION
Balance Sheet / Statement of Financial Position
December 31, 2006
Assets
Cash $ 2,000
Accounts receivable 4,000
Supplies 1,800
Equipment 16,000
Total assets $23,800
Liabilities and Shareholders’ Equity
Liabilities
Accounts payable $ 2,000
Notes payable 5,000
Total liabilities 7,000
Shareholders’ equity
Common shares $10,000
Retained earnings 6,800
Total shareholders’ equity 16,800
Total liabilities and shareholders’ equity $23,800
Classified Balance Sheet
Generally contains the following standard classifications:
Assets Liabilities
•Current assets •Current liabilities
•Long-term investments •Long-term liabilities
•Capital assets Shareholders’ Equity
•Share capital
•Retained earnings
Financial Management and Corporate Finance
Financial management is the process of managing a company's financial resources to achieve its goals and objectives. It involves
activities such as budgeting, forecasting, and monitoring the performance of the company's investments.
Financial management also involves managing the company's cash flow, credit and collections, and financial reporting. The goal of
financial management is to ensure that the company has sufficient financial resources to meet its needs and to maximize shareholder
value.
Corporate finance, on the other hand, is the area of finance that deals with the financial decisions that business enterprises make and
the tools and analysis used to make these decisions. It involves identifying and managing the financial risks of a company, and
identifying opportunities to raise capital.
Corporate finance also involves the process of valuing a company, and the negotiation of mergers and acquisitions. The goal of
corporate finance is to ensure that a company's investments and activities are aligned with its overall strategic goals, and to
maximize the company's value to shareholders.
In summary, financial management is focused on day-to-day financial operations and ensuring the company has the resources to
meet its objectives, while corporate finance is focused on strategic financial decisions and maximizing shareholder value.
Thank You

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Financial Statements and Business

Assets = Liabilities + Shareholders’ Equity

Retained earnings, January 1 $ 0

Subtract current year’s

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