Family Business Advisory Services

May 30, 2017

Corporate Finance Basics for Directors and Shareholders

To craft an effective corporate strategy, management and directors must answer the three fundamental questions of corporate finance.

  1. The Capital Structure question:  What is the most efficient mix of capital?
  2. The Capital Budgeting question:  Which projects merit investment?
  3. The Dividend Policy question:  What mix of returns do shareholders desire?

These questions should not be viewed as the special preserve of the finance team.  To maintain a healthy governance culture, all directors and shareholders need to have a voice in how these long-term decisions are made.  This presentation is an example of the topics that we cover in education sessions with directors and shareholders.  The purpose of the presentation is to provide directors and shareholders with a conceptual framework and vocabulary to help contribute to answering the three fundamental questions.

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What Family Business Directors and Shareholders Can Learn from an Annual Valuation
What Family Business Directors and Shareholders Can Learn from an Annual Valuation
Annual business valuations provide family business directors and shareholders with insight into the factors driving changes in company value, helping inform capital allocation, shareholder policies, and long-term financial planning. Establishing a consistent valuation process also supports more informed decisions and realistic expectations regarding future ownership transactions.
Why Dividend Payout Ratios Don't Tell the Whole Story
Why Dividend Payout Ratios Don't Tell the Whole Story
Dividend payout ratios offer a useful benchmark, but they do not explain whether distributions are sustainable or aligned with a company’s broader capital allocation priorities. Directors should evaluate dividends alongside reinvestment opportunities, balance sheet needs, and shareholder expectations.
Does Your Family Business Have the Right Mix of Cash and Debt?
Does Your Family Business Have the Right Mix of Cash and Debt?
Family business directors should evaluate cash and debt together, balancing liquidity needs, borrowing capacity, financial risk, and strategic flexibility. Board-approved ranges and downside stress testing can provide a disciplined framework for capital allocation decisions.

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