17/02/2021

MULTINATIONAL CORPORATION
FINANCIAL MANAGEMENT
 Some Company finance basics
CHAPTER 1  Financial report
OVERVIEW CORPORATE FINANCE  Financial ratio analysis

MBA Phùng Tuấn Thành

Phone: 0989.617.888
Email: phungtuanthanh070585@gmail.com
thanhpt@uel.edu.vn Tp Hồ Chí Minh, 17/02/2021 MAIN OUTLINE CORPORATE FINANCE

 Company
According to Enterprise Law No.59/2020/QH14 dated June 17, 2020,
Enterprises are:

- A legally established economic organization

- There is a name

- Allowed to do business in certain fields

- Have one or more owners and guarantee before the law all of their assets in
accordance with the law for the purpose of carrying out business activities.

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1. What long-term investments should you make? That is, what kind of
business will you enter into and what types of structures, machines and
equipment will you need?
2. Where will you get long-term finance to pay for your investments? Will you
bring other owners or will you borrow money?
3. How will you manage your daily financial activities, such as collecting
money from customers and paying suppliers?
 What is corporate finance?
Corporate finance is the process of raising capital (equity, loans) to invest
(short-term, long-term) to create new products with a value greater than the
cost spent, thereby increasing profits, increase the share value of shareholders
on the current market.

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Decide the optimal capital o Capital structure:

 The main decisions of corporate financial management structure - Liabilities,

- Decide the optimal capital structure o Asset structure: - Short term debts,

- Capital budgeting - Short term assets, - Long term debts,

- Regular spending - Long term assets - Equity

- Build a dividend policy

o Principle: Long term assets are financed by long term capital

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- The question for a finance manager relates to the ways in which a company
acquires and manages the long-term finance it needs to support its long Capital budgeting o Investment planning:
term investments.
o Capital raising plan: - Buying materials?
- A company's capital structure (or financial structure) is the particular mix
of long term debt and equity that a company uses to finance its operations. - Bank loan? - Buying goods?
Financial manager has two concerns in this area.
- Using equity? - Keeping cash?
+ First, how much should a company borrow? That is, the best mix of debt
and equity? The chosen mix will affect both risk and value for the - Issuing shares? - Short term stock investment?
company. - Release Stock? - Deferred sale policy?
+ Second, what are the least expensive sources of capital for the company?

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- Questions related to the company's long-term investments. Its process of

planning and managing a firm's long-term investment is called a capital
Regular spending
budgeting.
- Cash in and cash out flow match
- In the capital budget, the financial manager tries to identify investment
- Achieve profitability and liquidity goals
opportunities that are more valuable to the company than they would be at
the costs.

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- Questions related to working capital management.

Develop dividend policy

- The term working capital refers to a company's short-term assets, such as

o Profit after tax:

its inventory and its short-term liabilities, such as money owed to suppliers. - Capital preservation

- Managing a company's working capital is a day-to-day activity to ensure - Formation of funds

that the company has the resources to continue operations and avoid costly - Dividends to shareholders
disruptions. This involves a number of activities related to the receipt and
o Develop a reasonable dividend policy to submit to the General Meeting of
disbursement of cash by the company.
Shareholders for decision

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- Stand firm and develop in the market

- Avoid financial hardship and bankruptcy

 The goal of Corporate Finance - Improve the competitive ability

Maximize business value or maximize equity for shareholders or maximize - Maximize revenue

the present value of a stock in the market - Minimize costs

- Profit maximization

- Maintain profit growth

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Profitable goals
Maintain and increase profits
- Reasonable price policy
- Increase revenue
- Tightly control costs
- Accounts receivable
inventory management
- Capital investment management
COMPANY FINANCE BASICS
Property ownership aspect:
- State enterprises
- Private enterprise
- Foreign-invested enterprises (100% capital, joint venture or cooperation)
Capital supply-demand aspect
- Finance enterprises
- Non-financial business
COMPANY FINANCE BASICS
Liquidity target
Meet spending needs
- Cash revenue and expenditure
forecasting and planning
- Maintain trust and reputation
with creditors and banks
and
- Pre-arrange short-term grants to
fix the temporary cash shortage
- Avoid financial risks
CORPORATE FINANCE
CORPORATE FINANCE
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 Types of business organizations:
The perspective of the business subject
- Limited liability: Limited liability enterprises, joint stock enterprises
- Unlimited Liability: Private businesses, Partnerships
- Group of companies: Parent company - subsidiary, Group
COMPANY FINANCE BASICS CORPORATE FINANCE
Joint stock company:
o Stock: Certificate of ownership of capital and the right to receive interest
from the rate of capital contribution (dividends).
o Shares: The amount of capital that investors contribute to a production and
business organization.
o Shareholders: An individual or collective holding shares of a production
and business organization.
o Types of joint stock companies: internal joint stock companies, public joint
stock companies and listed joint stock companies.
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 What is a financial manager?

o Charter: A "contract" of its founders. It is a contract between the company
and its members, shareholders and between shareholders and members.
o General meeting of shareholders: Regular meeting (usually one year) or
extraordinary meeting of the shareholders of a joint stock company to
summarize the production and business situation; vote on company
development strategies and plans; elect a new Chairman of the Board of
Directors when the old Chairman of the Board of Directors has expired.
Owners (shareholders) are generally not directly involved in making business
decisions, especially on a daily basis.
Financial manager on behalf of the corporate financial manager The
financial management function coordinates the activities of the cashier and
controller.

o Board of Directors: The agency governing the company, has full authority
on behalf of the company to decide and exercise the rights and obligations
of the company that are not within the authority of the General Meeting of
Shareholders.
COMPANY FINANCE BASICS CORPORATE FINANCE
o The controller handles cost accounting and finance, tax payments and
management information systems.
o The cashier's office is responsible for managing the company's cash and
credit, its financial planning and capital spending.
COMPANY FINANCE BASICS CORPORATE FINANCE

 Financial relationships:

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 Financial decision-making process:

Example: Make a sales decision with deferred payment:
- Analysis data?

- Analysis tools?

- Economic information?

- Conclude

- Decision: whether to sell with deferred payment or not to sell?

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- Agency cost: costs due to conflicts of interests between shareholders and

 Company Representative and Control issue
managers:
- Agency relationship: When a party hires another person to represent its
+ Cost of direct representation: (1) expenses that benefit managers without
interests
increasing the value of the business, and (2) costs incurred to supervise
- Agency problems: the conflict of interests between the principal and the
managers
proxy
+ Indirect agency cost: lost opportunities or other intangible costs emerge

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Business Representation and Control Issues  The company's goals:

Does the manager act in the interests of shareholders?
- First: is the manager's goal tied to the shareholder goal?
 Salary and bonus regime: (1) often associated with financial performance
and stock prices (bonuses on stock options, convertible bonds, often according
to financial performance) (2) managers with achievements Good wages are
usually given to higher wages in the labor market Maximize value Minimize Corporate social
- Second: managers can be easily replaced if they do not act for the benefit Agency costs responsibility
of shareholders
 Control of the company: administrators can be replaced through:
authorization, acquisition

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 Definition of Financial statements:  Financial statements and Stakeholders

- Financial statements are both an accounting method and a form of
expressing and conveying financial accounting information to users to
make economic decisions.
- Summarizing and presenting a general and comprehensive situation of
assets, capital sources, liabilities, situation and business results of the
enterprise in an accounting period.
- Provide major economic and financial information for assessing the
performance and performance of an enterprise, assessing the financial
status of the enterprise in the past operating period and forecasts in the
future.
- For managers: Financial statements provide information about the situation
of assets, the source of assets, the situation and Business Results =>
analysis and evaluation => timely solutions and decisions.
- For state agencies, financial statements are an important document to
inspect, supervise, guide, and advise the implementation of economic and
financial policies and regimes.
- With investors, lenders: awareness of financial capacity, the use of assets,
capital, profitability, efficiency of production and business activities, level
of risks ... => consider, choose and make the right decision.

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- With suppliers: identify the solvency, payment method, from which they
 Requirements of Financial Statements
decide to sell to the business again, or to apply the payment method
reasonably.
- Accurate, truthful, correct form prescribed, with all signatures of the
related persons and certified by the agency or unit to ensure the legality of
- With customers: information about the ability, production capacity and
the report.
consumption of products, the reputation of the business, customer
remuneration policy ... for them to make the right decision in the purchase
- Consistency of content, order and method according to the decision of the
state.
of the business.
- For shareholders, employees: the ability as well as the policy of paying
- Data must be clear, reliable and easy to understand, to ensure that it is
convenient for those using information on financial statements to achieve
dividends, salaries, social insurance, and other issues related to their
their goals.
interests reflected in the financial statements.

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 Financial manage and balance sheet:

- Financial statements must be prepared and sent on schedule.

- Compliance with new recognized and issued accounting concepts,
principles and standards ensures that the requirements of the users are met
to make appropriate decisions.

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•Balance Sheets
•Income Statements
•Cash Flow Statements
•Read the Footnotes

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Advantages - Disadvantages:
Advantages Disadvantages

Performance and performance Does not recognize inaccurate

Definition of Method of Analysis of Financial Ratios: evaluation financial statements
- Use different techniques to analyze a company's financial statements Improved and more fully provided The time factor has not been
source of accounting and financial mentioned
- Capture the actual financial situation of your business information
Accumulate data and accelerate the Difficult to conclude whether a
- Make the right decisions, promptly, and effectively calculation of a series of ratios financial situation is good or bad
Systematically analyze a series of Feasible planning for
ratios over a continuous time series multidisciplinary businesses
or in phases
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Classification of financial ratios:

Remedies:
- Short term solvency or liquidity ratios.
- Conducting many different methods of comparative analysis at the same
- Asset management or turnover ratios.
time: Financial ratio analysis over time.
- Long term solvency or financial leverage ratios.
- Analyze the ratio compared with competitors.
- Profitability ratios.
- Analysis of volatility in financial statements.
- Market value ratios.

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1. Short-term solvency or liquidity measures:

2. Asset management or turnover ratios:
- Current payment rate
- Accounts receivable turnover ratio
Rc = Current Assets / Current Liabilities
- Inventory rotation number
- Quick payout ratio
- Performance of using fixed assets
Rq = (Current Assets - Inventories) / Current Liabilities
- Performance using the entire property
- Instant payout ratio (cash ratio)
- Equity performance
Ri = Cash and cash equivalents / Short-term debt

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- Accounts receivable turnover

Accounts receivable turnover = Net revenue / Accounts receivable

- Inventory turnover - Equity performance

Inventory turnover = Net revenue / Inventory Equity efficiency = Net revenue / Equity = (Net revenue / Total assets) x
- Performance of using fixed assets (Total assets / Equity) = Performance of total assets x Multiple of total assets
Fixed asset utilization = Net revenue / Fixed assets compared to equity

- Performance using the entire property

Utilization of all assets = Net revenue / Total assets
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- Debt-to-assets ratio
3. Debt to assets ratio
Debt to assets ratio = Total liabilities / Total assets
- Debt to equity ratio
- Debt to equity ratio
- The ratio of total assets to equity
Debt to equity ratio = Total debt / Equity
- Ability to pay interest
Long-term debt to equity ratio = Total long-term debt / Equity

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- The ratio of total assets to equity 4. Profitability ratio:

Total assets to equity ratio = Total assets / Equity - Return on revenue (ROS)
- Ability to pay interest - Return on assets (ROA)
Interest coverage ratio = EBIT / Interest - Return on equity (ROE)

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5. Ratio of market value:

- ROS = Profit after tax / Net revenue - Earnings per share (EPS)
- ROA = Profit after tax / Total assets - Dividend payout ratio
- ROE = Profit after tax / Equity - Market price to earnings ratio (P / E)
- Dividend yield

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- Earnings per share (EPS) = (Net profit - Preferred dividend) / Number of

shares  Method of evaluating the ratios:
- Dividend payout ratio = Dividend per share / Earnings per share - Industry average
- The ratio of market price to income P / E = Market price per share / - Companies operating in the same field
Earnings per share - Trend analysis
- Dividend yield = Dividend per share / Market price per share

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- Financial indicators rarely give answers, but help you ask the right
 Tips for using financial indicators:
questions.
- The difference between the book value and the market value of the assets
- There is no international standard for financial indicators. Thinking a little
and capital sources distorts the financial statements and leads to the
and feeling is worth a lot more than applying formulas blindly.
inaccuracies of financial indicators.
- You need a benchmark to evaluate the financial position of a company:
- The accounting principles used make the determination of a company's
Comparing financial metrics with the previous year or comparing with
income inconsistent with its true value.
metrics of companies in the same industry

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