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Company Financing , Start- up & Internationalization. Lesson May 28th 2013 - Università degli Studi di Torino Alberto Iodice e-mail firstname.lastname@example.org. Today’s AGENDA/1 st part. Profit & Loss Statement and Balance Sheet Corporate Finance area in a company
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Lesson May 28th 2013 - Università degli Studi di Torino
P&L statement summarizes the revenues, costs, and expenses incurred during a specific period of time, usually a year. These records provide information that shows the ability of a company to generate profit.
How is the money invested??
Where the money comes from??
Balance Sheet Statement summarizes company's assets, liabilities and shareholders' equity at a specific point in time. These three segments give investors an idea as to what the company owns and owes, as well as the amount invested by the shareholders.
Cost of Equity = Bond Yield + Additional Risk premium
Base interest rate plus some extra amount for the risk of investment, equity investments imply more risk than debt investments, equity investors need higher returns
Also retained earnings have cost of opportunity
What is the focus??
Research, acquisition, use of financial resources necessary for company’s activities
Operating Cash flow
Sources of Financing
Transfer of Assets
(Securitization and subprime bubble - USA)
Special Purpose vehicle
Securities on the financial market
Factors discount from 40% to 2% depending:
Discounted rate without recourse. Higher cost
WORKING CAPITAL/ACCOUNTS RECEIVABLE
CUSTOMERS of the COMPANY/ DEBTORS
Shorten time lag between the date of billing and payment collection
Discount and collection charges
by leasing Assets, company is able to use them without locking money in valuable capital for an extended period of time
Homogeneity, standardization, indivisibility, autonomy, free transferability
2) Subscribed capital increase
3) Private equity: investment by private individuals or institutions specialized / dynamic sectors
Interest expenses on the used ammount
Commission % applied on an annual basis on the amount granted
Medium- Long term financing (MLT)
Definition: Loan maturity extended . The beneficiary is obliged to pay interest and the gradual return of capital
Definition: similar to mortgage but without requiring to pledge any specific collateral to support the loan in case of default.
the arranger Bank bears the burden of the organization,
the leading bank (that often coincides with the arranger bank), which coordinates after the syndication
the agent bank that takes care of all administrative aspects of the loan after the operation
the participating bank which pays a portion of the loan.
Hybrid Forms of Financing:
It works especially well for:
Lenders: Interested in the quality of Assets used as pledge
High quality pledge: up to 85% advance rate
The company must be able to :
Structure of balance sheet
Managing cash flow (Coordination inflows- outflows)
Ideal mix of sources (different types of financing)
not normally tax deductible
intended to short-term investments
MEDIUM AND LONG-TERM DEBTS/ LIABILITIES
Balance Sheet example of an Italian bank at the end of 2011
Takes money from third parties
Lends money to third parties
Elementary components of the strategy for a start-up
combination of existing factors.
New and breaking
technical & scientific context
Response to the market
1) What produce, deliver and sell? Product system;
2) To whom sell? The market segment
3) How to produce and sell? The company structure
4) What image of itself transmit? Communication policy
5) How to finance the idea? Financing policy
Important: market analysis /SWOT analysis and Porter 5 Forces
Design tools and presentation to various stakeholders:
Idea, background of the project (management experience),
business model (competitive advantage), future perspectives
1) investments to develop the project
2) structural investments in productive capacity
3) investments in working capital
4) investments for further
- Difficulty in raising debt funding
- Often absence of collateral to offer
- Credit assessments made on the business plan and not on sure data.
Peculiarity : come into play support tools such as : confidi, business incubators, business angels e venture capitalists
external investors, seed capital but:
What are? are informal private investors who follow the young companies with high growth potential; they have entrepreneurial spirit and a good appetite for risk. They invest in business start-ups in exchange for equity takes
Usually: wealthy people, experiences in the field of business management (managers, entrepreneurs, professionals, financiers).
Personal interest & experience - willing to put money long before venture capital firms and institutional investors
What are? The venture capital companies are institutional investors, private, for profit organization that assembles pools of capital and then use: purchase equity positions in young businesses with high growth and high profit potential.
In the US they now represent 7% of all funding for private companies
Policies and investment strategies:
purchase 20 to 40% of stake
Early stages of development or growth phase
What are? Entities of different nature and emanation (profit oriented, non profit, public, universities, belonging to industrial groups), collect business ideas with high potential for economic return, but not yet ready to be funded, and provide for a limited period of time everything that can help them arise.
What are? Mutual guarantee funds consortia: associating in the form mutual consortia retail, cooperatives and small and medium-sized industrial and services enterprises are intended to guarantee each other in front of banks, limiting credit risk and increasing bargaining power.
Structural Funds, Foundations
Example “FondazioneFilarete”, Business accelerator for the development of biotechnology research http://www.fondazionefilarete.com/it/
According to the latest data released by Infocamere, Turin leads the ranking of the provinces with the highest number of start-up companies with high technological value.With few exceptions, Central and Southern Italy are still far away.
Data from Infocamere 03/28/2013
The economies with high profile technology and innovation that are more resistant to shock in the markets
I-com (Istituto per la Competitività- March 2013) presence of businesses created as start-ups since 1970 : 8 countries, Italy has not good positioning
Result: American market shows a greater incidence of start-ups(17% of total capitalization) followed by German stock exchange(7,3%), Tel Aviv (3,5%), South Corea (2,36%), Shangai (1,70%), Paris(1,27%), Santiago (0,26%) and at the end Milan stock exchange in which just the 0,17% of the total capitalization of the top 150 listed companies consists of successful start-ups.
Decretosviluppo 10/20/2012: new measure to facilitate start-ups
expansion of the company activities through
which the value chain is managed on a global scale.
The entry modes differ in the degree of commitment
LEVEL of COMMITMENT
justified because :
a) Market is too small
b) Country risk too high
c) Government does not allow direct presence
d) The company wants to test the market
1) Manufacturing contract
2) Licensing agreement (patented information & trademarks)
3 main reasons:
1) Joint ventures with local companies may be the only form of entry allowed (transfer knowledge, skills and technologies to the local economy)
2) Complementary resources and skills
3) reduce the risks
Main risk: failure of the agreement
Equity Joint Venture
It can occur in:
1) Acquisition of an existing business
2) Greenfield investment (foreign subsidiary)
Analysis of attractiveness of the international
Choice of the market affected by the following factors:
1) International strategic orientation of the company: willingness to engage in processes of growth / risk-taking.
Initially: countries similar in culture, language, level of economic development / less risk.
Enterprise already present in several markets: focus on interdependencies between new markets and one in which there is already.
2)Characteristics of the market and industry: market potential and integration between markets.
3) Nature of the competitive environment.
Firm’s strategy, Structure
Related and supporting industries
Early enters advantages: pioneering, Cost advantage, pre-emption of geographic space, adapting to local markets, differentiation advantages, political advantages
tendence: The born global firm
Not all businesses are ready to go abroad :
The factors underlying the motivation to go abroad
Contact: E-mail: email@example.com