CH.

1 Introduction to Corporate Finance

❖ Finance:

➢ Can be defined as the art and science of managing money.

.‫ يمكن تعريفها عىل أنها فن وعلم إدارة األموال‬:‫المالية‬

❖ Financial management:

➢ Can be defined as the management of the finances of a firm in order to achieve

the financial objectives of that firm.

‫للشكة من أجل تحقيق األهداف المالية لتلك ر‬

.‫الشكة‬ ‫ يمكن تعريفها بأنها إدارة الشؤون المالية ر‬:‫اإلدارة المالية‬

WHAT IS CORPORATE FINANCE? ‫ما هو تمويل ر‬

‫الشكات؟‬

 What long-term investments should the firm take on ?

‫ما ه االستثمارات طويلة األجل الت ينبغ ر‬

‫للشكة أن تقوم بها؟‬

- Capital budgeting ‫ز‬

‫الميانية الراس مالية‬

 Where will we get the long-term financing to pay for the investment ?

‫أين سوف نحصل عىل التمويل طويل األجل لدفع ثمن االستثمار؟‬

-Capital structure ‫هيكل راس المال‬

 How will we manage the everyday financial activities of the firm ?

‫كيف سندير األنشطة المالية اليومية ر‬

‫للشكة؟‬

-Working Capital Management ‫إدارة راس المال العامل‬

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 ‫هو مخطط تنظيم مبسط يسلط الضوء عىل النشاط المال ف رشكة ر‬
‫كبية‪.‬‬
‫المالكي (أصحاب األسهم) ويتخذون القرارات نيابة عنهم‪ .‬وعادة ما ترتبط وظيفة اإلدارة المالية‬
‫ر‬ ‫يمثل المديرون مصالح‬
‫أمي الصندوق والمراقب المال‪.‬‬ ‫ر‬ ‫أنشطة‬ ‫يق‬‫بتنس‬ ‫المالية‬ ‫رئيس‬ ‫نائب‬ ‫يقوم‬ ‫‪.‬‬‫كة‬ ‫ر‬
‫الش‬ ‫مع أحد كبار موظف‬

‫‪❖ Capital budgeting The process of planning and managing a firm’s long term‬‬
‫‪investments.‬‬

‫ز‬
‫الميانية الراس مالية ‪:‬عملية تخطيط وإدارة استثمارات ر‬
‫الشكة طويلة األجل‪.‬‬

‫▪‬ ‫‪The financial manager tries to identify investment opportunities that are worth more to‬‬
‫‪the firm than they cost to acquire.‬‬

‫للشكة ر‬
‫أكي مما تكلف الحصول عليها‪.‬‬ ‫يحاول المدير المال تحديد فرص االستثمار الت تساوي ر‬

‫▪‬ ‫‪Financial managers must be concerned not only with how much cash they expect to‬‬
‫‪receive, but also with when they expect to receive it and how likely they are to receive‬‬
‫‪it.‬‬

‫ويجب أن يهتم المديرون الماليون ليس فقط بكمية النقد الذي يتوقعون الحصول عليه‪ ،‬ولكن أيضا عندما يتوقعون الحصول‬
‫عليها ومدى احتمال حصولهم عليها‪.‬‬

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❖ Capital structure The mixture of debt and equity maintained by a firm.

.‫هيكل راس المال مزي ج من الديون وأسهم تحتفظ بها رشكة‬

➢ First, how much should the firm borrow? That is, what mixture of debt and equity is
best? The mixture chosen will affect both the risk and the value of the firm.

ً
‫ كم ينبغ أن تقيض ر‬،‫أوال‬
‫الشكة؟ أي مزي ج من الديون و حقوق الملكية هو األفضل؟ الخليط المختار سوف يؤثر عىل كل من خطر‬
.‫الشكة‬
‫وقيمة ر‬

➢ Second, what are the least expensive sources of funds for the firm?

‫ ما ه أقل مصادر األموال تكلفة ر‬،‫ثانيا‬

‫للشكة؟‬

‫الفطية إل‬
‫ر‬ ‫ فإن هيكل رأس مال ر‬،‫كفطية‬
‫الشكة يحدد كيفية تقطيع تلك‬ ‫ر‬ ‫إذا تصورنا ر‬
‫الشكة‬
‫رشائح‬

B : is the value of the debt (Bond) )‫ه قيمة الدين (السند‬

‫ي‬

S : is the value of the equity (stock). )‫ه قيمة (السهم‬

‫ ي‬.

❖ Working capital management The term working capital refers to a firm’s short-
term assets, such as inventory, and its short-term liabilities, such as money owed to
suppliers

‫القصية‬
‫ر‬ ‫القصية األجل ر‬
‫ و الياماتها‬،‫ مثل المخزون‬،‫للشكة‬ ‫ر‬ ‫يشي مصطلح رأس المال العامل إل األصول‬‫إدارة راس المال العامل ر‬
‫ مثل األموال المستحقة للموردين‬،‫األجل‬

Some questions about working capital that must be answered are the following:

‫ه التالية‬
‫الت يجب اإلجابة عليها ي‬
‫بعض األسئلة حول رأس المال العامل ي‬

❖ How much cash and inventory should we keep on hand?

‫كم من النقد والمخزون يجب أن نحتفظ بها ف متناول اليد؟‬

❖ Should we sell on credit? If so, what terms will we offer, and to whom will we extend
them?

‫ فما ه ر‬،‫هل يجب أن نبيع عىل الحساب ؟ وإذا كان األمر كذلك‬
‫ ولمن سنمدها؟‬،‫الشوط الت سنقدمها‬

❖ How will we obtain any needed short-term financing? Will we purchase on credit or will
we borrow in the short term and pay cash

‫القصي‬
‫ر‬ ‫قصي األجل؟ هل سنشيي عىل االئتمان أم أننا سوف االقياض عىل المدى‬
‫كيف سنحصل عىل أي تمويل ر‬
‫ودفع النقدية‬

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1- Which one of the following terms is defined as the management of a firm's long-term

investments?

A. working capital management B. financial allocation C. agency cost analysis

D. capital budgeting E. capital structure

2- Which one of the following terms is defined as the mixture of a firm's debt and equity

financing?

A. working capital management B. cash management C. cost analysis

D. capital budgeting E. capital structure

3- Which one of the following is defined as a firm's short-term assets and its short-term

liabilities?

A. working capital B. debt C. investment capital D. net capital

1 2 3

D E A

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 Forms of Business Organization ‫أشكال من تنظيم األعمال‬

 Sole proprietorship : A business owned by a single individual.

.‫ رشكة مملوكة من قبل فرد واحد‬: ‫الملكية الفردية‬

 The Partnership : A business formed by two or more individuals or entities

‫ أ األعمال الت شكلها اثني أو ر‬: ‫الشاكة‬

. ‫أكي من األفراد‬ ‫ر‬
‫ر‬

 Corporation : A business created as a distinct legal entity composed of one or more

individuals or entities.

‫ منشأة تجارية ككيان قانون متمي يتألف من فرد أو ر‬: ‫رشكة مساهمة‬
.‫أكي من األفراد أو الكيانات‬ ‫ر‬

❖ A sole proprietorship Is a business owned by one person. Many businesses that later
become large corporations start out as small proprietorships.

.‫صغية‬
‫ر‬ ‫الكبية تبدأ كملكية‬
‫ر‬ ‫الشكات‬ ‫ العديد من ر‬.‫ ه رشكة مملوكة لشخص واحد‬: ‫الملكية الفردية‬
‫الشكات الت تصبح ف وقت الحق ر‬

Advantages ‫اإليجابيات‬

 Easy to start and less regulated.

.‫سهلة كبداية وأقل تنظيما‬

 Single owner keeps all the profits.

.‫مالك واحد يحتفظ بجميع األرباح‬

 Taxed once as personal income

‫شخص‬ ‫ز‬
‫الضائب تكون مرة واحدة كدخل‬
‫ي‬

Disadvantages ‫السلبيات‬

 The owner has unlimited liability for business debts.

.‫المالك لديه مسؤولية غي محدودة عن الديون التجارية‬

 Limited to life of owner.

.‫تقتض عىل حياة المالك‬

 Equity capital limited to owner’s personal wealth.

‫ر‬
.‫السهم يقتض عىل اليوة الشخصية للمالك‬ ‫رأس المال‬
‫ي‬

 Difficult to sell ownership interest ‫صعوبة بيع فوائد الملكية‬

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❖ partnership is similar to a proprietorship except that there are two or more owners

‫المشوع‬ ‫الشاكة ه مماثلة للملكية الفردية إال أن هناك اثني أو ر‬

‫أكي من أصحاب ر‬ ‫ر‬
‫ر‬

➢ Partnerships fall into two categories: ‫ تنقسم الشراكات إلى فئتين‬:

(1) General partnerships. All partners share in gains or losses; all have unlimited
liability for all partnership debts.
‫ حيث يتقاسم جميع ر‬.‫لشاكات العامة‬
‫الشكاء المكاسب أو الخسائر؛ جميعهم لديهم مسؤولية غي محدودة عن جميع ديون‬ ‫ا ر‬
‫ر‬
.‫الشاكة‬

(2) limited partnerships. Permit the liability of some of the partners to be limited to the
amount of cash each has contributed to the partnership and they cannot help in running
the business.
‫ السماح بأن تكون مسؤولية بعض ر‬.‫رشاكات محدودة‬
‫الشكاء محدودة بقيمة المبلغ الذي ساهم ف ر‬
‫الشاكة وال يمكنهم المساعدة‬
. ‫ف إدارة األعمال‬
‫ز‬
‫يعت اقص ما يمكن ان يخشه المساهم هو قيمة سهمه‬ 
‫ي‬

❖ corporation is a legal “person” separate and distinct from its owners , and it
has many of the rights, duties, and privileges of an actual person.

. ‫ وله العديد من الحقوق والواجبات واالمتيازات‬، ‫ومتمية عن مالكها‬

‫ر‬ ‫رشكة مساهمة "شخص" منفصل‬

Advantages ‫اإليجابيات‬

 Limited liability ‫مسؤلية محدودة‬

 Unlimited life ‫حياة غي محدودة فالعمل‬
 Transfer of ownership is easy ‫سهولة تحويل الملكية‬
 Easier to raise capital. ‫سهولة نمو راس المال‬
 Separation of ownership and management ‫ الفصل ز‬.
.‫بي الملكية واإلدارة‬

Disadvantages ‫السلبيات‬

 Not easy to start and more regulated ‫رسم‬ ‫ر‬

‫ليس من السهل البدء و يكون أكي تنظيما و‬
‫ي‬
 Double taxation (income taxed at the corporate rate and then dividends taxed at the
personal rate).

.)‫الشخص‬ ‫الشكات ومن ثم زضيبة أرباح األسهم عىل المعدل‬ ‫الضيت (الدخل الخاضع ز‬
‫للضيبة عىل معدل ر‬ ‫االزدواج ز‬
‫ي‬ ‫ي‬

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 sole proprietorship The Partnership corporation

Life of business limited limited unlimited

Income tax Personal income Personal income Double tax

Raise cash limited limited unlimited

1-A business owned by a solitary individual who has unlimited liability for its debt is called
a:

A. corporation. B. sole proprietorship. C. general partnership.

D. limited partnership. E. limited liability company.

2-A business formed by two or more individuals who each have unlimited liability for all of
the firm's business debts is called a:

A. corporation. B. sole proprietorship. C. general partnership.

D. limited partnership. E. limited liability company.

3-A business created as a distinct legal entity and treated as a legal "person" is called a:
A. corporation. B. sole proprietorship. C. general partnership. D. limited partnership

4-A business partner whose potential financial loss in the partnership will not exceed his or
her investment in that partnership is called a:

A. generally partner. B. sole proprietor. C. limited partner

1 2 3 4

b c a c

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The Goal of Financial Management ‫الهدف من اإلدارة المالية‬

A. POSSIBLE GOALS
o Avoid financial distress , bankruptcy and Survive

‫تجنب الضائقة المالية واإلفالس والبقاء عىل قيد الحياة‬

o Maximize sales or market share.

.‫تحقيق أقىص قدر من المبيعات أو الحصة السوقية‬

o Minimize costs and Maximize profits.

.‫تقليل التكاليف وتحقيق أقىص قدر من األرباح‬

o Maintain steady earnings growth and Beat the competition

‫الحفاظ عىل نمو ثابت ف األرباح وتغلب عىل المنافسة‬

• Maximize the market value of the existing owners’ equity (wealth)

‫تعظيم القيمة السوقية ألسهم المالكي الحاليي ( ر‬

)‫اليوة‬ ‫ر‬ ‫ر‬

4.1 The Agency Problem and Control of the Corporation

- We’ve seen that the financial manager acts in the best interests of the stockholders by
taking actions that increase the value of the stock. However, management might pursue its
own goals at the stockholders’ expense.

‫ قد تسغ‬،‫ ومع ذلك‬.‫لقد رأينا أن المدير المال يعمل ف مصلحة حملة األسهم من خالل اتخاذ إجراءات تزيد من قيمة السهم‬
.‫اإلدارة إل تحقيق أهدافها الخاصة عىل حساب حملة األسهم‬

 agency problem. The possibility of conflict of interest between the stockholders and
management of a firm

.‫مشكلة الوكالة إمكانية تضارب المصالح ربي حملة األسهم وإدارة رشكة‬

 agency relationship The relationship between stockholders and management is called an.

.‫عالقة الوكالة العالقة ربي حملة األسهم واإلدارة‬

Agency costs refers to the costs of the conflict of interest between stockholders and
management.

.‫تشي إل تكاليف تضارب المصالح ربي حملة األسهم واإلدارة‬

‫تكاليف الوكالة ر‬

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 These costs can be‫اشكال التكاليف‬

➢ An indirect agency cost is a lost opportunity

‫ه فرصة ضائعة‬ ‫ر‬ ‫ر‬

‫غي مباش تكلفة الوكالة غي المباشة ي‬

- The new investment is expected to favorably impact the share value, but it is also a
relatively risky the management do not take it.

‫ ولكنه أيضا محفوف بالمخاطر نسبيا ال تتحمله‬،‫إيجاب عىل قيمة السهم‬

‫ي‬ ‫ومن المتوقع أن يؤثر االستثمار الجديد بشكل‬
.‫اإلدارة‬

➢ Direct costs – compensation and perquisites for management

‫ر‬
‫المباشة – التعويضات ومواقع اإلدارة‬ ‫التكاليف‬

Managing Managers ‫المدير اإلداري‬

 Managerial compensation: can be used to encourage managers to act in the best interest of
stockholders

‫ يمكن استخدامه لتشجيع المديرين عىل العمل بما يحقق مصلحة حملة األسهم عىل أفضل نحو‬:‫التعويض اإلداري‬

 Incentives can be used to align management and stockholder interests

‫يمكن استخدام الحوافز لمواءمة مصالح اإلدارة وأصحاب األسهم‬

 The incentives need to be structured carefully to make sure that they achieve their goal

ّ ‫يجب أن تكون الحوافز‬

‫مهيأة بعناية للتأكد من تحقيقها لهدفها‬

 One commonly cited tool is stock options so they will be more likely to try to maximize owner
wealth.

‫ر‬ ‫ز‬
.‫ه خيارات األسهم بحيث أنها سوف تكون أكي عرضة لمحاولة تحقيق أقص قدر من ثروة المالك‬
‫واحدة شائعة يف االستشهاد أداة ي‬

 Corporate control : The threat of a takeover or proxy fights may result in better
management

‫سيطرة ر‬
‫الشكات قد يؤدي التهديد باالستيالء أو معارك بالوكالة إىل إدارة أفضل‬

❖ Stakeholders: Are other groups, besides stockholders, that have a vested

interest in the firm and potentially have claims on the firm’s cash flows.
Stakeholders can include creditors, employees and customers.

‫ لها مصلحة راسخة ف ر‬،‫ إل جانب حامىل األسهم‬،‫ هل هناك مجموعات أخرى‬:‫أصحاب المصلحة‬
‫ وربما يكون لها‬،‫الشكة‬
.‫والموظفي والعمالء‬
‫ر‬ ‫الدائني‬
‫ر‬ ‫مطالبات بشأن التدفقات النقدية ر‬
‫ يمكن أن يشمل أصحاب المصلحة‬.‫للشكة‬

9 | Page financial
1- Which one of the following terms is defined as a conflict of interest between the
corporate shareholders and the corporate managers?

A. articles of incorporation B. corporate breakdown C. agency problem D. bylaws

2- stakeholder is:

A. a person who owns shares of stock.

B. any person who has voting rights based on stock ownership of a corporation.

C. a person who initially founded a firm and currently has management control over that firm.

E. any person or entity other than a stockholder or creditor who potentially has a claim on
the cash flows of afirm

5.1 Financial Markets and the Corporation

A. Firm issues securities to raise cash. ‫ر‬

‫الشكة تامر بجمع األموال‬

B. Firm invests in assets. ‫تستثمر ر‬

‫الشكة باصولها المتداولة و الثابتة‬

C. Firm's operations generate cash flow. ‫تقوم ر‬

‫الشكة بعمليات لتوليد تدفق نقدي‬

D. Cash is paid to government as taxes. Other stakeholders may receive cash. ‫تدفع الشكة جزء من‬
‫التدفق المال للضائب و توزيعات األرباح‬

E. Reinvested cash flows are plowed back into firm. ‫بعد دفع الضائب وتوزي ع األرباح يتم إعادة استثمار بعض من‬
‫التدفقات ف ر‬
‫الشكة‬

F. Cash is paid out to investors in the form of intrest and dividands

‫ساهمي‬
‫ر‬ ‫الباف من التدفقات يعود لألسواق المالية ويتم توزي ع أرباح للم‬

 Which of the following accounts are not included in working capital management?

A. accounts payable B. accounts receivable C. fixed assets D. inventory

10 | P a g e financial
 Financial
Markets

primary secondory
markets markets
‫اسواق اولية‬ ‫اسواق ثانوية‬

public private auction dealer

offering placement market
‫عروض عامة‬ ‫استثمار خاص‬ ‫اسواق المزاد‬ ‫تاجر‬

reginual AMEX NYSE NASD

Pacific stocke
NASDAQ
‫يورصة‬

❖ Primary market – the market in which securities are sold by the company. Public
and private placements of securities.

‫ز‬ ‫ز‬ ‫السوق األوىل – السوق الت تباع فيها األوراق المالية من قبل ر‬
‫القطاعي‬ ‫ عمليات طرح األوراق المالية يف‬.‫الشكة‬ ‫ي‬ ‫ي‬
‫العام والخاص‬.

❖ Secondary market – the market where securities that have already been issued are
traded between investors. The stock exchanges, such as the New York Stock
Exchange, and the over-the-counter market, such as the Nasdaq, are part of the
secondary market.

‫السوق الثانوية – السوق حيث يتم تداول األوراق المالية الت تم إصدارها بالفعل ز‬
،‫ والبورصات‬.‫بي المستثمرين‬ ‫ي‬ ُ
‫ه جزء من السوق الثانوية‬
‫ي‬ ،‫داك‬ ‫ناس‬ ‫بورصة‬ ‫مثل‬ ،‫طبية‬ ‫الت تضف دون وصفة‬ ‫ والسوق ي‬،‫مثل بورصة نيويورك‬.

❖ dealer market is one where you have several traders that carry an inventory and
provide prices at which they stand ready to buy (bid) and sell (ask) the securities.
The Nasdaq market is an example of a dealer market.

‫الت تقف عىل استعداد‬

‫الت تحمل المخزون وتوفي األسعار ي‬
‫سوق التجار هو واحد حيث لديك العديد من التجار ي‬
‫ز‬
‫الموزعي‬ ‫ ر‬.
‫ سوق ناسداك هو مثال عىل سوق‬.‫لشاء (محاولة) وبيع (اسأل) األوراق المالية‬

❖ auction market has a physical location where buyers and sellers are matched, with
little dealer activity.

‫ز‬
.‫ مع نشاط تاجر قليال‬، ‫والبائعي‬ ‫فعىل حيث يتم مطابقة المشيين‬ ‫سوق المزادات لديها موقع‬
‫ي‬

11 | P a g e financial
 CH.2 Financial Statements ,Taxes , and Cash

❖ Financial statement

1) The Balance Sheet Statement. ‫الماىل‬

‫ي‬ ‫قائمة المركز‬

2) The Income Statement. ‫قائمة الدخل‬

3) Cash Flow Statement. ‫قائمة التدفقات النقدية‬

 Balance Sheet : Showing a firm’s accounting value on a particular date.

.‫معي‬ ‫ إظهار القيمة المحاسبية ر‬: ‫قائمة المركز المال‬

‫للشكة ف تاري خ ر‬

Basic equation : Assets = liability + Equity

Assets
‫االصول‬

current Fixed
Assets Assets
‫اصول متداولة‬ ‫اصول ثابتة‬

intangible
tangible
Cash A/R inventory ‫اصول غير‬
‫اصول ملموسة‬
‫ملموسة‬

Note : tangible ex : -computer and - truke

Intangible ex : -trademark ) ‫ (العالمة التجارية‬- patent ) ‫( براءة االختراع‬

Liability

Current long term

liability liability

short term
A/P N/P liability

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 Equity
common stock and paid in
retained earnings
surplus

 Which one of the following is the financial statement that shows the accounting value
of a firm's equity as of a particular date?

A. income statement B. creditor's statement C. balance sheet D. statement of cash flows

Liquidity is the speed and ease which an asset can be converted to cash

‫السيولة ه الشعة والسهولة الت يمكن تحويل االصول إل نقد‬

Market Vs. Book Value

 Market value is the price at which the assets, liabilities ,or equity can actually be bought or
sold today. ( fair value )

.‫القيمة السوقية ه السعر الذي يمكن أن يتم فيه رشاء األصول أو الخصوم أو حقوق الملكية أو بيعها اليوم‬

 book value of the assets, liabilities and equity. Generally, these book values are not
reflected the actual value as they worth. ( historical cost )

. ‫ ال تنعكس قيم دفي القيمة الفعلية عىل الواقع‬،‫ بشكل عام‬.‫القيمة الدفيية لألصول والخصوم وحقوق الملكية‬

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 Income Statement ‫قائمة الدخل‬

Revenue is the amounts that any business earns. Generally at the point of sale.

Examples: fees earned for performing services, Rent income, and interest income.

،‫ الرسوم الت يتم الحصول عليها مقابل أداء الخدمات‬:‫ أمثلة‬.‫ عموما ف نقطة البيع‬.‫ هو المبالغ الت تكسب منه ال رشكة‬: ‫اإليرادات‬
.‫ وإيرادات الفوائد‬،‫إيرادات اإليجار‬

Expenses is the costs that relate to earning revenue (the costs of doing business).

Examples: wages, rent, advertising.

.‫ األجور واإليجار واإلعالن‬:‫ أمثلة‬.)‫ ه التكاليف الت تتعلق باإليرادات (تكاليف ممارسة األعمال‬: ‫المضوفات‬

Marginal vs. average tax rates

Marginal : the percentage paid on the next dollar earned

‫نسبة ز‬
‫ النسبة المدفوعة عىل الدوالر التال المكتسب‬: ‫الضيبة الهامشية‬

Marginal tax rate = Tax rate

𝑡𝑎𝑥 𝑜𝑎𝑖𝑑
Average =
𝑡𝑎𝑥𝑎𝑏𝑙𝑒 𝑖𝑛𝑐𝑜𝑚𝑒

(is the total taxes paid divided by total taxable income)

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 net income ‫قوانين ال‬

1) Income = revenues - Expenses

2) Earning before intrest and taxes ( EBIT ) = net sales – COGS – DEP

3) Taxable income = ( EBIT ) – intrest Paid

4) Tax = Taxable income * Tax Rate

5) Net income = DIV + Retained earnings

𝑁𝑒𝑡 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠
 Dividends per share (DPS) =
𝑇𝑜𝑡𝑎𝑙 𝑠ℎ𝑎𝑟𝑒 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔

𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒
 Earning per share (EPS) =
𝑇𝑜𝑡𝑎𝑙 𝑠ℎ𝑎𝑟𝑒 𝑜𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔

 Net Working Capital (NWC) = CA – CL

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❖ A firm has a current assets of $100, net fixed assets of $500, short term debt of $70 and long term
debt of $200.
➢ what does the balance sheet like?
➢ What’s the shareholder’ equity?
➢ What’s the net working capital?

Total assets are $100+ $500 = $600

Total liabilities are $70+ $200 = $270.

Shareholder equity is the difference: $600 - $270 = $330.

Net working capital is the difference between current assets and current liability,

then NWC $100 - $70 = $30.

❖ Suppose that U.S corporation had 200 million share outstanding at the end of 2017.
Based on the income statement in the table

➢ what was the earning per share (EPS)?

➢ What were dividends per share?

▪ Earning per share (EPS) = Net Income / Total share outstanding

= $412 / 200 = $2.06 per share.

▪ Dividends per share = Total Dividends / Total share outstanding

= $103 / 200 = $0.515 per share.

• Suppose your firm earns $4 million in taxable income.

– What is the firm’s tax liability?

– What is the average tax rate?

– What is the marginal tax rate?

What is the firm’s tax liability?

0.15*(50,000) + 0.25*(75,000 – 50,000) + 0.34*(100,000 – 75,000) + 0.39*(335,000 – 100,000)

+ 0.34*(4,000,000 – 335,000) = $1,360,000

What is the average tax rate?

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$1,360,000 / 4,000,000 = .34 or 34. %.

What is the marginal tax rate? ) ‫(هي اخر نسبة اخذتها‬

Marginal rate comes from the table and it is 34%

1- Which one of the following is the financial statement that summarizes a firm's revenue and
expenses over a period of time?

A. income statement B. balance sheet

C. statement of cash flows D. tax reconciliation statement

2- Noncash items refer to:

A. accrued expenses. B. inventory items purchased using credit.

C. the ownership of intangible assets such aspatents.
D. expenses which do not directly affect cash flows.

3- The percentage of the next dollar you earn that must be paid in taxes is referred to as -----
the tax rate.

A. mean B. residual C. total D. average E. margina

4- The tax rate is equal to total taxes divided by total taxable income.

A. deductible B. residual C. total D. average E. margina

1 2 3 4

A D E D

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 Cash Flow ‫قوانين ال‬

Cash Flow From Assets (CFFA) = Cash Flow to Creditors + Cash Flow to Stockholders.

* Cash Flow From Assets(CFFA) = Operating Cash Flow (OCF)

– Net Capital Spending (NCS)

– Changes in Net Working Capital (NWC).

* Operating cash flow (OCF) = EBIT

+ depreciation

– taxes

* Net capital spending (NCS) = ending net fixed assets ) ‫(السنة الحالية‬

– beginning net fixed assets) ‫(السنة السابقة‬

+ depreciation.

- Changes in NWC = NWC ) ‫–( السنة الحالية‬NWC ) ‫( السنة السابقة‬

**Cash Flow to Creditors = interest paid payments to creditors – net new borrowing

**Cash Flow to Stockholders = dividends paid – net new equity raised

Note : net new borrowing = long term )‫ (السنة الحالية‬- long term ) ‫( السنة السابقة‬

Note: net new equity raised = (Common stock +APIS ‫)السنة الحالية‬

– ( Common stock +APIS ‫( السنة السابقة‬

Note : APIS : additional paid in surplus

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1- The cash flow related to interest payments less any net new borrowing is called the:

A. operating cash flow. B. capital spending cash flow. C. net working capital.
D. cash flow from assets. E. cash flow to creditors.

2- Which one of the following is classified as an intangible fixed asset?

A. accounts receivable B. production equipment C. building D. trademark

3- Which of the following are not current assets?

A. patent B. Inventory C. accounts payable D. cash

4- Which one of the following accounts is the most liquid?

A. inventory B. building C. accounts receivable D. equipment

1 2 3 4

E D A C

1- A firm has $520 in inventory, $1,860 in fixed assets, $190 in accounts receivables, $210 in
accounts payable, and $70 in cash. What is the amount of the current assets?

A. $710 B. $780 C. $990 D. $2,430

2- A firm has net working capital of $640. Long-term debt is $4,180, total assets are $6,230,
and fixed assets are $3,910. What is the amount of the totalliabilities?

A. $2,050 B. $2,690 C. $4,130 D. $5,590 E. $5,860

3- A firm has common stock of $6,200, paid-in surplus of $9,100, total liabilities of $8,400,
current assets of $5,900, and fixed assets of $21,200. What is the amount of the
shareholders' equity?

A. $6,900 B. $15,300 C. $18,700 D. $23,700

4- Your firm has total assets of $4,900, fixed assets of $3,200, long-term debt of $2,900, and
short-term debt of $1,400. What is the amount of net working capital?

A. -$100 B. $300 C. $600 D. $1,700

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5- Four years ago, Velvet Purses purchased a mailing machine at a cost of $176,000. This
equipment is currently valued at $64,500 on today's balance sheet but could actually be sold for
$58,900. This is the only fixed asset the firm owns. Net working capital is $57,200 and
long term debt is $111,300. What is the book value of shareholders' equity?

A. $4,800 B. $7,700 C. $10,400 D. $222,600

6- Jake owns The Corner Market which he is trying to sell so that he can retire and travel. The
Corner Market owns the building in which it is located. This building was built at a cost of
$647,000 and is currently appraised at $819,000. The counters and fixtures originally cost
$148,000 and are currently valued at $65,000. The inventory is valued on the balance sheet at
$319,000 and has a retail market value equal to 1.2 times its cost. Jake expects the store to
collect 98 percent of the $21,700 in accounts receivable. The firm has $26,800 in cash and has
total debt of $414,700. What is the market value of this firm?
A. $857,634 B. $900,166 C. $919,000 D. $1,314,866

7- Jensen Enterprises paid $1,300 in dividends and $920 in interest this past year. Common
stock increased by $1,200 and retained earnings decreased by $310. What is the net income for
the year?

A. -$210 B. $990 C. $1,610 D. $1,910

8- Given the tax rates as shown, what is the average tax rate for a firm with taxable income of
$311,360?

A. 28.25 percent B. 31.09 percent C. 33.62 percent D. 35.48 percen

9- Crandall Oil has total sales of $1,349,800 and costs of $903,500. Depreciation is $42,700
and the tax rate is 34 percent. The firm does not have any interest expense. What is the
operating cash flow?

A. $129,152 B. $171,852 C. $179,924 D. $281,417 E. $309,076

10- Nielsen Auto Parts had beginning net fixed assets of $218,470 and ending net fixed assets
of $209,411. During the year, assets with a combined book value of $6,943 were sold.
Depreciation for the year was $42,822. What is the amount of net capitalspending?

A. $33,763 B. $40,706 C. $58,218 D. $65,161

1 2 3 4 5 6 7 8 9 10

B E C B C B B C E A

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 CH.3 Working With Financial Statements

❖ Financial ratios: Relationships determined from a firms financial information and

used for comparison purposes.

‫ العالقات الت تحدد المعلومات المالية ر‬:‫نسب المالية‬

.‫للشكات وتستخدم ألغراض المقارنة‬

Financial ratios are traditionally grouped into the following categories: ‫تقسم النسب المالية ال‬
‫فئات‬

 Liquidity ratios or Short-term solvency ratios.

.‫قصية األجل‬
‫نسب السيولة أو نسب المالءة ر‬

 Financial leverage ratios Long-term solvency ratios.

.‫نسب السيولة طويلة األجل‬

 3. Turnover ratios or Asset management ratios.

.‫نسب إدارة األصول‬

 4. Profitability ratios. ‫النسب الربحية‬

 5. Market value ratios. ‫نسب القيمة السوقية‬

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