The Scope of International

Corporate Finance

- Introduction

Dr hab. Jan Komorowski, prof. SGH

Faculty of Managemnt and Finance

Consultions: Tuesdays, 14- 16.oo Cathedra of
Finance, Build. M

Introduction to the course

 Bibliography:

1. Alan C.Shapiro: Foundations of Multinational

Financial Management, John Wiley and Sons,
NY, 1999, 2004,

2. Terry S. Maness: “Introduction to corporate

finance”, Mc Graw-Hill Inc. N.York 1998

3. Leslie Chadwick, Donald Kirkby: “Financial

management”, Routledge, London 1995

4. J. Ostaszewski „Finanse”, SGH, Warszawa2008

5. Other academic handbooks titled ”Intl.

Corporate Finance” or „Financial
management”

2

Contents of the Lecture

 1. Environment of International Financial Management

2. Integration of short therm and long therm Financial Management in

STRAC Model

3. Goals of the international Corporation

4. Risk evaluation and assurance

5. Foreign currency problems and money market,

6. Capital market and the world business centres

7. Capital Sources, Acquisition and Costs of Capital

8.

Investment Projects Analysis, rentability and risk

9.

Leverage and Gearing, Working Capital

10. Cash Flow and Liquidity Control

11. Instruments of Financial Planning and Budgeting

12. Budgeting operations in practice

13. Financial Strategy in international scale of operations

14. 14.Mergers and Takeovers

15. Final Exam

3

Rules of effective study and teaching

1.

Not exams, but competences and skills are the goals of study,

Reduction of high intelligence population to the curve of
a normal dispersion can bring destructive effects and stress.
(MIT - no exams)

2. Recomendation of Active Participation in the Lectures.

It supports understanding abstractive objects, is helpful to
record their description and image of relations among them.

3. Trustful relations in frame of multinational culture.

It helps to understand, accept the values, and absorb information.

4. Relaxed mode and club discipline.

enforce selfdiscipline, engagement, heritage and creativity.

4

Form of Examination

- written form:
3 guestions concerning sellected topics of
lectures,
3 questions concerning main problems
of International Corporate Financial
Management,

- additional duties:
Short presentations of actual ventures
and events
concerning economic sytuation of
country of origin and the after crisis
business units (10-15 min.)

- Welcomed discussion and active
participation

5

Topics of the Lecture Today

1.Contemporary Business Environment

2.Focus on Finance as Science Discipline

3.Finance in frames of Economic Doctrines

4.International Corporate Finance as the field of
research

5.Main Dimensions of Financial Decisions

6. The features describing financial position of
the business

6

 International Busines Envirnonment

 What are the main features and

tendencies in the world economy of XXI c.:

7

Main tendencies in the World Economy of

XXI c.:

 Demografic and health problems, (age

structure, migrations, multinational
countries, pandemias)

 Unequilibrium of natural environment,

energy, trade, production and consumption,
environment unequilibrum,

 Informatics, automatisation , new materials

and technologies,

 Globalization of markets, assets and

production

 Expansion of massive scale production from

Asia

 Terrorism as a main enemy in place of the

Soviet Block collapse

 Arab Countries Revolution

8

Contemporary Environment of Business Units :

 Interdependence of globalisation (social,

psichological , political, cultural, economic )

 Economic integration,

 Internationalisation of branches, organisations,

people and trends (financial, economic, social,
demographic crisis)

 Electronic money and currencies exchange

 Dependence on knowledge, information and

computers

9

Tendencies in Economic Sciences

 Domination of the Free Market Economy

Doctrines,

 Critics of Keynesian Economy
 Critics of Neoliberal Economy (Monetarism) ,
 Critics of the Eclecticical Main Stream

Economy,

 Decreasing popularity of quantitative methods

in Economy

 Growing popularity of Behavioural Approach

to social sciences,

 Focus on human, social and economic values
 (social responsibility, ethics, sustainable

development etc.)

10

Traditional Economics approach to business

environment

1. Rality reduces economy to the model of

market ,

2. Human behaviour - roles of supliers,

customers, consumers

3. Business units reduced to the portfolio

management.

4. Approach to business – competition as a

faith and war of individualists aimed to
leadership,

5. Currency reduced to inflationary goals,

6. Focus on quantitative analysis

- turnover, niches, capacity , corelations, dynamics,

elasticity,

7. Financial goals and criterions of business

decisions

- max. profit, share value, EVA, NPV, IRR, PP, residual

value etc.

11

Weak points of the post-crisis business
environment:

Market competition is a form of economic war,
 Unequilibrium versus sustainable development,
Social and business relations are reduced to
money value,
Ignorance of low, social respons. and ethics
standards,
Lack of regulations and accounting standards
( tax paradises, fiscalism, protectionism, corruption,
black market),
Sensitivity for manipulation and speculation
(creative accounting, afected by politics, social
conflicts etc.)

Finally, quantitative, formalistic,
simplificated picture,

12

Social dimension of business environment

1. Acceptance of the market economy rules

2. Historical, ethnic, legal, individual, social

and cultural determinants of doing business,

3. Cooperative approach to grups of interests

involved in business unit

4. Business units are drived by social values as

knowledge, identity, trustability, trustworthy,
experience, origin,

5. Corporations are oriented for long horizon

goals,

development, internal culture and social

responsibility,

6. Focus on qualitative aspects of management,

13

What means the Economic

Approach

 

Economics

– a discipline which researches

and describes:
material aspects of welfare,
economic relations among people and
business units,
the allocation of scarce resources within a
society,

business units and households.



Rationalisation and optimalisation of

business activity,

Economists approach to real life:

- max. effects, min. costs at a particular
risk

14

Finance -

definition:

Finance reflects economic relations by
involving money (financial instruments)

and expressed by the formal language
of accounting.

15

Finance

 a simplificated picture of business units
and economy seen by a money glasses.

Recquires responsibility and
professionalism,

(personality of CFO, treasurers, bankers,
accountants)

should be supported by law (state), etics
(social standards) and human relations
(values).

16

Finance Elements in Business Management

Common language

for professionals and managers in

enterprise

consists of:
-         Financial problems (disfunctions)
- Financial categories (features)
-         Financial terms (language)
-         Financial law (regulations)
-         Financial institutions (tools)
-         Tools and instruments (metodology)
 Financial engineering (mechanisms)
- Proffesionals ( managers, analitics
(decisions takers )

Above listed elements constitute a system and
discipline of science.

17

Macro - finance

-financial process within market environment,
which affect People, Enterprises and
Economies,

- market supply and demand, economies, states policy , central banks,

Micro - finance

– financial decision processes within all form of
Objects, from Big Corporations to Small
Business Units and Individuals.

18

PUBLIC

FINANCE

State
Finance

Local and
Regional
Fin.

Non-gov. Org
F

Non–profit
O.Fin

Internatio
nal
Finance

Finance
of Centr.
Bank

FINANCIAL
MARKET

Money
Market

Kapital
Market

PRIVATE
FINANCE

Business units

Sole Proprietorship

Partenship

Limited Company

PLC
Joint Stock

Co.

State enterpr.

Insurance
Corporatio
ns

- Treasury
I.

- Personal
I.

Commerci
al Banks

Investment
Founds

Private Banking,
Savings, Retail,

Universal

Coope-
ratives

Retail,

Farmers

House-
holding
Financ
e

19

Financial Law,
Finance,

Normative approach,
describes financial institutions,
terms and standards as it should
work correctly

Financial
Management

How to take effective financial
decisions
(capital acquisition and alocation)

Financial Planning
and Budgeting

How to prepare plans and execute
them
in time horizon

Financial
Controlling

How to support decisions by
creation, flow and controll of
information

Financial Analysis

Research of financial situation ,

processes and details

Treasury and
Accounting
Financial A
Cost A.
Ballance A.
Management
A

Financial language of clasification,
recording, calculating, presentation,

raporting
of financial datas,
GAAP – Generally Accepted
Acounting Practice – American
Standards of Accounting

Sections of Financial Management

20

Corporate Form of Business Units

( osobowość prawna podmiotów gospodarczych)

•Incorporated Business Units

with legal

personality

corporations

– spółki prawa handlowego

- have got legal identity, separate from its
owners.

Limited Company (Ltd), - sp. z o.o.

Public Limited Company (PLC) – spółka akcyjna

Joint Stock Company (JSC)

–

spółka giełdowa

•Unincorporated Business Units

- have a legal identity the same as its owners.

- Sole Proprietorship –

indywidualna przedsiębiorczość

- Partenship –

spółka cywilna

International Corporate
Finance

21

International Corporate
Finance

Knowledge concerning
Financial Management of
Corporation involved in
International Scale of
operations,

Metodology of Financial
Decisions,

Approach of the Chief Fnancial

Officer (CFO).

22

Multi Dimensions of Financial

Decisions

- affect business by flows of cash and founds

Currency exchange for imports
payments,
Negotiations of delivery and terms of
credit,
Price reductions for manufactured
products,
Structure of workers wages,bonuses
and premiums,
Discount purchase of new machinery,
Date of Credit rate payments,
Dividend policy,

Flowers for a secretary at her birthday,

23

Multi Dimensions of Financial

Decisions:

1. Engagement value,

( minimum engagement value)

2. Period of engagement

(minimum period of

engagement)

3. Cost of capital engaged

p.a.

4. Cost of transaction

( minimum cost of transaction)

5. Calculation od Profit

(or

Loss

) as a difference

between income and costs (and profitability)

6. Cash net effect

as a difference between inflow and

autflow of money

7. Tax effects

( forms of incerease and reduction of

tax paymnents)

8. Risk effects

( individual, corporate, market,

political, financial, currency etc.)

9. Influence for total

business liquidity

10. Influence for total

business rentability,

11. Influence for overall

busines value,

12. Influence for

other areas affecting business

, like

market position, competitivity, motivations of staff,

satisfaction of management and owners, general

opinion about business.

24

Types of Financial Decisions:

 

1. Operational

financial decisions

- concern current operational and commercial activity,
- affect incomes and costs, liquidity, structure of current

assets and current liabilities in frames of a present year.

2. Investment

decisions

- increase of fixed assets intending to enlarge of business

potential
- affests financial condition of business unit for a long time,

3. Divestment

decisions

- sale out of unwanted fixed assets to improve productivity

of assets ,
- improvement of short liquidity and fixed costs reduction,
 

4. Capital structure

decisions

- concern resources of capital,
- affect structure of financing expressed in balance sheet

report

5. Restructuration

decisions

- concern allocation of capital and improvement of business

organization
- affect structure of ownership ,

25

Comparative analysis of

corporations

 

It is difficult to compare financial results of
different business units, if they:

represent different identity, (history,
branch, size, employment, scale of operations,
technology, culture etc.),

belong to different states or sectors of
economy,

operate in different environment ( time,
legal, aethnic, market, business , cultural)

26

Six criterions of diagnosis

and comparison of business

units

 value of enterprise (book, market, capital)
satisfactory return on capital (ROI)
business potential presented by structure of
assets
solid financial base and accepted financial
risk expressed by structure of capital,
scale of investments, what expresses a
business expansion
market share (for the offered goods and
services)

 

27

Key Position of Chief Financial

Officer

Professional,

highly skilled position with

precisely defined competences,

Leadership

ability and decision orientation to

achieve enterprise goals,

Integrating

all business areas and processes in

financial frames,

 Responsible

for all functions of management:

planning, taking decisions, controlling and
motivating.

Supported

by depts. of strategy, risk,

accounting, marketing, operations and
personnel management.

28

Thank You

for
attention!

29