Summary of Session 1: Corporate Finance: What is it?

00:00:00 - 00:15:00

This video introduces the concept of corporate finance as any decision that involves the use of money and outlines objectives for the 36-session course, including providing tools and methods, showing how they work together and that corporate finance can be enjoyable. The three principles that govern corporate finance are discussed, including investment, financing, and dividend principles. Additionally, the speaker emphasizes the importance of establishing first principles in corporate finance, applying them to real companies, and avoiding violating them. Six companies were chosen to illustrate the principles of corporate finance throughout the course. The speaker provides a roadmap of the topics to be covered, including investment principles, financing principles, and dividend principles.

• 00:00:00 In this section, the speaker introduces the concept of corporate finance and lays out his vision for the course. He defines corporate finance as any decision that involves the use of money and sees it as a set of first principles that govern how businesses run. The speaker has three objectives for the 36-session course: to provide tools, techniques, methods, and models of modern corporate finance; to give a big picture of how these tools fit and work together; and to show that corporate finance can be enjoyable. The speaker also introduces the financial balance sheet, which is forward-looking rather than backward-looking like the accounting balance sheet. It has two categories on the asset side: assets in place and growth assets.
• 00:05:00 In this section, the speaker introduces the three basic principles that govern corporate finance: the investment principle, the financing principle, and the dividend principle. The investment principle focuses on earning a return on investments that exceeds a minimum acceptable hurdle rate, while the financing principle aims to find a mix of debt and equity that maximizes a business's value. The dividend principle advises that if a business cannot find investments that make their hurdle rate, they should take the cash out of the business. The overarching objective of corporate finance is to maximize the value of the business, with a focus on common sense and a singular objective.
• 00:10:00 In this section of the video, the speaker discusses four things to think about in corporate finance. The first is the singular objective of maximizing the value of the business, which can get a company into trouble if it is not applied in the right way. The second is the life cycle of a business, with growth companies needing to prioritize funding investment decisions with equity, while mature companies can afford to borrow more and pay out dividends. The third is that corporate finance principles are universal and apply to all types of businesses, not just publicly traded corporations. Finally, the speaker emphasizes the importance of establishing first principles in corporate finance, applying them to real companies, and avoiding violating them as it can lead to costly consequences.
• 00:15:00 In this section, the speaker discusses the six companies he plans to use to illustrate the principles of corporate finance over the 35 sessions. These companies range from small to large, private to public, and they operate in various sectors, such as a commodity company, developing market company, and regulated financial service company. The speaker will also use a small independently owned private bookstore to illustrate how the principles of corporate finance apply to both small and large companies. Overall, the speaker provides a roadmap outlining the topics he plans to cover in the upcoming sessions, including investment principles, financing principles, and dividend principles.