Manegerial Finance

finanChapter 14

Principles of

Corporate Finance

Tenth Edition

An Overview of

Corporate

Financing

Topics Covered

 Patterns of Corporate Financing

 Common Stock

 Debt

 Financial Markets and Institutions

14-2

Patterns of Corporate Financing

 Firms may raise funds from external

sources or plow back profits rather than

distribute them to shareholders.

 Should a firm elect external financing, they

may choose between debt or equity sources.

14-3

Patterns of Corporate Financing

Internal funds

100%

50%

0%

-50%

-100%

Net equity issues

Net borrowing

14-4

14-5

Patterns of Corporate Financing

Aggregate balance sheet for manufacturing corporations

in the United States, 2008 (figures in Billions).

Current assets

Fixed assets

Less

deprecication

Net fixed assets

Other long term

Total assets

$

2,037

2,749

1,459

1,291

Current liabilities

Long term debt

Other long term

liabilities

Total long term liabilities

$ 1,578

1,385

1,105

2,490

3,515

Stockholders' equity

2,775

6,843

Total liabilities and

stockholders' equity

6,843

Patterns of Corporate Financing

14-6

How do we define debt ?

Debt

1,578 + 2,490

=

= .59

Total assets

6,843

Long term liabilities

1,385

=

= .33

Long term liabilities + equity 1,385 + 2,775

14-7

Debt Ratios

Debt to Net Worth for Non-Financial Firms, 1950-2008

Book Debt Ratio

60%

50%

40%

30%

20%

10%

Source: Board of Governors of the Federal Reserve System, Flow of Funds Table B.102

2007

2005

2003

2001

1999

1997

1995

1993

1991

1989

1987

1985

1983

1981

1979

1977

1975

1973

1971

1969

1967

1965

1963

1961

1959

1957

0%

1955

Debt Ratio, %

Market Debt Ratio

0

Netherlands

Belgium

Finland (2005)

U.S.A (2005)

Austria

Portugal

Spain

France

Germany

Japan (2005)

Italy

Debt Ratio (%)

Patterns of...