Financial management

Part 1. Overview of corporate finance

What is corporate finance? What is the goal of financial management?
Corporate finance is the area of finance dealing with the sources of funding and the capital
structure of corporations, the actions that managers take to increase the value of the firm to the
shareholders, and the tools and analysis used to allocate financial resources
3 areas of corporate financial management: capitial budgeting, capital structure and working
capitial management
Financial management: what long – term investments should the firm take ?
Capitial structure: where will the firm get the long – term financing to pay for its investment?
Working capitial management: how should the firm manage its everyday financial activities ?
Forms of business organization (Sole proprietorship, Partnership, Corporation )
The goal of financial management is to maximize the current value per share of the existing stock
Part 2. Financial satement analysis
We examine finanacial statements, taxes and cash flow. We recognize thet financial statements
are frequently a key source of information decisions, so our goal is to briefly examine such
statements and point out some of their more revelant feature. We pay special attention to some of
the practical detail of cash flow.
The balance sheet
Financial statement showing a firm’s accounting value on a particular date
Asset: the left side
Liabilities and owners’ equity: the right side
Assets = liabilities + shareholders’ equity
Liquidity: refers to the speed and ease with which an asset can be converted to cash.
Generally accepted accounting principles
The common set of standards and procedures by which autited financial statements are prepared
The income statement
Is a finanacial statement summarizing a firm’s performance over a period of time
The income statement measures performance over some period of time, usually a wuarter or a
year/ the income statement equation is
Revenue – expenses = income
Taxes
Average tax rate: total taxes paid divided by totao taxable income
Marginal tax rate: amount of tax payable on the next dollar earned
Cash flow
Cash flow form assets = cash flow to creditors + cash flow to stockholders
Working with financial statements
Financial statement analysis
Sources of uses of cash
Standardlized finanacial statement
Ratio analysis
Common financial ratios ( current ratio, quick rato, cash ratio, inventory turnoverm receivables
turnover, days’sales in inventory, days’ sales in receivables, Total debt ratio, long – term debt
ratio, times interest earned ratio, cash coverage ratio)
The du pont identity: popular expression breaking ROE into 3 parts: operating efficiency, asset
use efficiency, and financial leverage
Using financial statements
Part 3 Raising capital
Examine some of the ways in which firms actually raise capital
Selling securities to the Public
For equity sales: general cash offer ( an issue for securities offered for sale to the public on a
cash basis) and a right offer ( a public issue of securities in which securities are existing
shareholders)
Initial public offering: a company’s first equity issue made available to the public. Also called an
unseasoned new issue or an IPO
A seasoned equity offering (SEO): a new equity issue of securities by a company that has
previously issued securities to the public
Issuing long term debt
Term loans: direct business loans of typically one to five years
Private placements
Loans ( usually long – term ) provided directly by a limited number of investors
Part 4. Cost of capital
The cost of capital depends primarily on the use of the funds, not the source
The cost of equity: the return that equity investors requir on their investment in the firm
The dividend growth model approach
RE = D1/Po + g
D1 is the expected dividend in one period, g is the dividend growth rate, Po is the current stock
price
the SML approach
RE = Rt + βE x (RM – Rt)
Rt is the risk – free rate, RM is the expected return on the overall market, βE is the systematic rish
of equity
The cost of debt and preferred stock:
The cost of debt: the return that lenders require on the firm’s debt
The cost of preferred stock:
The weighted average cost of capital, WACC: is the overall required return on the firm as a
whole. It is the appropriate discount rate to use cash flows similar in risk to those of the overall
firm.
Part 5 Short- term financial management
Short – term finance
Streeses the importance of cash flow timing. Illustrate creation of cash budgets ans potential
need for financing
Cash and liquidity management
Thorough coverage of fload management and poteintial ethical issues
Examination of systems used by firms to handle cash inflows and outflows
Credit and inventory management
Evaluating working capital issues
Analysis of credit policy and implementation
Brief overview of important inventory concepts
Part 6 Long- term financial management
Introduction to valuation: the time value of money
Future value (FV) the amount of money an investment will grow to over some period of time at
some given interest rate
FV = C x (1+ r)t
Future value C $ invested for t periods at rate of t per period.
Present value (PV)
The current value of future cash flows discounted at the appropriate discount rate.
PV = C /(1+r)t
PV = FVt/(1+r)t
Net present value (NPV) the difference between an investment’s market value and its cost
An investment should be accepted if the net present value is positive and rejected if it is negative
Internal rate of return (IRR)
The discount rate that makes the NPV of an investment zero
Base on the IRR rule, an investment is acceptable if the IRR exceeds the required return. It
should be rejected other otherwise
Profitability index (PI) (chỉ tiêu sinh lời)
The present value of an investment’s future cash flows divided by its initial cost.