FINANCE, PORTFOLIO

MANAGEMENT, STOCK
VALUATION, CASH FLOW
VALUATION, PROJECT
EVALUATION CRITERIA
CRISLE CARDENAS
REPORTER
FINANCE
 WHAT IS FINANCE?

Finance is defined as the management of

money and includes activities such as investing,
borrowing, lending, budgeting, saving, and
forecasting. 
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There are three

main types of
finance:
1. PERSONAL FINANCE
2. CORPORATE FINANCE
3. PUBLIC FINANCE
 There are many different career paths and jobs that
perform a wide range of finance activities. Here is the list
of the most common examples:

• Investing personal money in stocks, bonds, or guaranteed investment certificates (GICs)

• Borrowing money from institutional investors by issuing bonds on behalf of a public company
• Lending money to people by providing them a mortgage to buy a house with
• Using Excel spreadsheets to build a budget and financial model for a corporation
• Saving personal money in a high-interest savings account
• Developing a forecast for government spending and revenue collection
 Finance Topics
There is a wide range of topics that people in the financial industry are concerned with. Below is a
list of some of the most common topics you should expect to encounter in the industry.

 Interest rates and spreads

 Yield (coupon payments, dividends)
 Financial statements (balance sheet, income statement, cash flow statement)
 Cash flow (free cash flow, other types of cash flow)
 Profit (net income)
 Cost of capital (WACC)
 Rates of return (IRR, ROI, ROA)
 Dividends and return of capital
 Shareholders
 Creating value
 Risk and return
 Behavioral finance
 PORTFOLIO
MANAGEMENT
 What is Portfolio Management ?

◦ Portfolio management refers to managing an individual’s

investments in the form of bonds, shares, cash, mutual funds etc so
that he earns the maximum profits within the stipulated time frame.
◦ Portfolio management refers to managing money of an individual
under the expert guidance of portfolio managers.
◦ In a layman’s language, the art of managing an individual’s
investment is called as portfolio management.
Need for Portfolio Management

◦ Portfolio management presents the best investment plan to the individuals as

per their income, budget, age and ability to undertake risks.
◦ Portfolio management minimizes the risks involved in investing and also
increases the chance of making profits.
◦ Portfolio managers understand the client’s financial needs and suggest the best
and unique investment policy for them with minimum risks involved.
◦ Portfolio management enables the portfolio managers to provide customized
investment solutions to clients as per their needs and requirements.
Types of Portfolio Management

1. Active Portfolio Management: As the name suggests, in an active portfolio management service, the portfolio managers
are actively involved in buying and selling of securities to ensure maximum profits to individuals.
2. Passive Portfolio Management: In a passive portfolio management, the portfolio manager deals with a fixed portfolio
designed to match the current market scenario.
3. Discretionary Portfolio management services: In Discretionary portfolio management services, an individual authorizes a
portfolio manager to take care of his financial needs on his behalf. The individual issues money to the portfolio manager
who in turn takes care of all his investment needs, paper work, documentation, filing and so on. In discretionary portfolio
management, the portfolio manager has full rights to take decisions on his client’s behalf.
4. Non-Discretionary Portfolio management services: In non discretionary portfolio management services, the portfolio
manager can merely advise the client what is good and bad for him but the client reserves full right to take his own
decisions.
Who is a Portfolio Manager ?

◦ An individual who understands the client’s financial needs and designs a suitable
investment plan as per his income and risk taking abilities is called a portfolio
manager. A portfolio manager is one who invests on behalf of the client.
◦ A portfolio manager counsels the clients and advises him the best possible
investment plan which would guarantee maximum returns to the individual.
◦ A portfolio manager must understand the client’s financial goals and objectives
and offer a tailor made investment solution to him. No two clients can have the
same financial needs.
STOCK VALUATION
 What is stock valuation?
◦  the placing of an appropriate money value upon a firm's STOCKS of raw materials, WORK IN PROGRESS
 and finished GOODS. Where INFLATION causes the price of several different batches of finished-
goods stock bought during a trading period to differ, the firm has the problems of deciding:
A. what money value to place upon the period-end physical stock in the BALANCE SHEET;
B. what cost to attach to the units sold in the PROFIT-AND-LOSS ACCOUNT.

The second decision has a direct bearing upon the COST-OF-

GOODS SOLD and so upon GROSS PROFIT.
◦ Different formulas used to value stock can lead to variations in the balance-
sheet value of stock and in the cost of goods sold.
 For example, the first-in, first-out (FIFO
) method assumes that goods are withdrawn from stock in the order in which they are received so that the cost of goods sold
 is based on the cost of the oldest goods in stock, while the value of closing stock is based on the prices of the most recent p
urchases (see Fig. 82). By contrast, 
the last in, first out (LIFO
) method assumes that the most recently purchased goods are (theoretically) withdrawn from stock first so that the cost of g
oods sold is based on the costs of the most recent purchases, while the value of closing stock is based on the oldest goods a
vailable (see Fig. 82). The last-in, first-out method gives a higher figure for cost-of-
goods sold, i.e. one which more closely approximates to the replacement cost of goods sold, but it tends to understate the va
lue of period-end stocks.
◦ In the interests of prudence the firm would tend to value stocks at cost or market value, whichever was the lower, to avoid
 overstating profits. Generally stocks of work in progress and finished goods will include the raw materials, direct labour 
and OVERHEAD costs involved in manufacturing them. See also STOCK APPRECIATION, 
INFLATION ACCOUNTING.
stock valuation
◦  the placing of an appropriate money value upon a firm's STOCKS of raw materials, work-in-
progress and finished goods. Where INFLATION causes the price of several different batches of finished-
goods stock bought during a trading period to differ, the firm has the problem of deciding what money value to place upon the 
units sold in the PROFIT-AND-LOSS ACCOUNT since this affects the cost of goods sold and so GROSS PROFIT
. This decision simultaneously affects the cost attached to stocks in the BALANCE SHEET.

◦ Various formulas can be used for this purpose. For example, the first-in, first-
out (FIFO) method assumes that goods are withdrawn from stock in the order in which they are received, so the cost of goods 
sold is based on the cost of the oldest goods in stock, while the value of stock is based on the prices of the most recent purchas
es. By contrast, the last-in, first-
out (LIFO) method assumes that the most recently purchased goods are (theoretically) withdrawn from stock first, so the cost 
of goods sold is based on the costs of the most recent purchases, while the value of stock is based on the oldest goods availabl
e. See INFLATION ACCOUNTING.
CASH FLOW
VALUATION
What is cash flow valuation?
◦ Valuation based on what the company can generate in the future is the most common method of valuation. As in the analysis
of investment/financing projects, these methodologies analyze the financial flows that the company can generate in the future
and which can be made available to the holders of the capital of the company (equity and debt). There are quite large array of
methodologies within cash-flow base methods; some of the most widespread are:
◦ Dividend Discounted Model – DDM.
◦ Discounted Cash Flow – DCF:
◦ Free Cash Flow to the Firm – FCFF.
◦ Free Cash Flow to Equity – FCFE.

◦ Enterprise Value Added – EVA.

◦ Adjusted Present Value – APV.
◦ An important feature of these methods is the possibility to adapt to the available information, allowing a more detailed or
simplified analysis depending on the quantity and quality of data available to the appraiser.
 PROJECT
VALUATION
CRITERIA
Thank you and God bless