Year 2 · Core Finance · Corporate Finance & Valuation
Corporate Finance
Understand how companies create value by investing capital, financing the business, managing liquidity and returning capital to investors.
LEARNING OBJECTIVES
What you should be able to explain after this lesson
01
Explain value creation through return on invested capital relative to cost of capital.
02
Evaluate investment projects using NPV, IRR and payback logic.
03
Understand debt versus equity financing and the trade-offs of leverage.
04
Interpret WACC and how financing choices affect required returns.
05
Analyze dividends, buybacks and reinvestment as capital-allocation decisions.
06
Connect working capital, liquidity and cash conversion to operating finance.
CONCEPT MAPThe corporate-finance decision loop
Growth creates value only when returns exceed the cost of capital
CORE FACTS · SAME IN EVERY MODE
A company creates economic value when the return earned on incremental invested capital exceeds the return required by capital providers.
Growth can destroy value if the company reinvests at returns below its cost of capital.
ROIC focuses on operating profit after tax relative to operating capital invested.
Value creation depends on both spread and scale: ROIC minus WACC, multiplied by capital deployed.
BeginnerTeaching style changes, knowledge does not.
If a company invests $100 and earns $15 after tax, the return is 15%. If investors require only 10%, the project creates value. If the company earns 7% while investors require 10%, it destroys value even if revenue grows.
FORMULAROIC
ROIC = NOPAT ÷ Invested CapitalNOPAT is net operating profit after tax; definitions of invested capital should remain consistent.
Worked example
NOPAT $15, invested capital $100 → ROIC = 15%. If WACC is 10%, the spread is +5 percentage points.
PROFESSIONAL VOCABULARYNOPAT / résultat opérationnel net après impôt / NOPAT Invested capital / capital investi / invested capital
Operating profit after applying an operating tax rate, before financing effects.
Capital committed to operating assets, defined consistently for the analysis.