Professional Documents
Culture Documents
Overview (Diujikan)
Part 1: The Scope And Environment Of Financial Management
1. 2. 3. 4. 5. 6. 7. 8. Definition of financial management Understanding Financial Statements, Taxes, and Cash Flows Evaluating a Firm's Financial Performance Financial Forecasting, Planning, and Budgeting The Value of Money Risk and Rates of Return Valuation and Characteristics of Bonds Stock Valuation
Chapter 1
1. What Is Finance?
o Financial management is concerned with the maintenance and creation of economic value or wealth maximization of shareholder wealth Vs. profit maximization weaknesses of profit maximization (Kk, time, risk) sole proprietorship Partnership corporation
4. Ten Principles That Form The Basics Of Financial Management 5. Finance And The Multinational Firm: The New Role
o forced to look beyond our country's borders
Ten Principles
PRINCIPLE 1: The Risk-Return Trade-Off-We won't take on additional risk unless we expect to be compensated with additional return PRINCIPLE 2: The Time Value of Money-A dollar received today is worth more than a dollar received in the future PRINCIPLE 3: Cash-Not Profits-Is King PRINCIPLE 4: Incremental Cash Flows-It's only what changes that counts PRINCIPLE 5: The Curse of Competitive Markets-Why it's hard to find exceptionally profitable projects PRINCIPLE 6: Efficient Capital Markets-The markets are quick and the prices are right PRINCIPLE 7: The Agency Problem-Managers won't work for owners unless it's in their best interest PRINCIPLE 8: Taxes Bias Business Decisions PRINCIPLE 9: All Risk Is Not Equal-Some risk can be diversified away, and some cannot PRINCIPLE 10: Ethical behavior is doing the right thing, and ethical dilemmas are everywhere in finance
Chapter 2
1. The Income Statement: Measuring A Company's Profits
o Revenues -> COGS -> gross profit -> operating expenses -> EBIT -> financing costs (excluding C/S dividend) -> EBT -> Tax Expenses -> Net Income Current asset or liabilities Non-current asset or liabilities Net working capital Sources of financing taxable incomes & deductible expenses marginal tax rates and average tax rate An Asset Perspective: EBITDA Financing Perspective: LT Assets Net Operating Working Capital
Chapter 3
1. Financial Ratio Analysis (Brealey)
o Common-size income statement (percentage of revenue) and common-size balance sheet (percentage of total asset) o Leverage ratios
Debt Ratio Times Interest Earned Ratio Cash Coverage Ratio
o Liquidity Ratios
Quick (or Acid-Test) Ratio Current Ratio Net Working Capital to Total Assets Ratio
o Efficiency Ratios
Asset Turnover Ratio Average Collection Period Inventory Turnover Ratio
o Profitability Ratios
Net Profit Margin Return on Assets (ROA) Return on Equity (ROE) Payout Ratio
Chapter 3
Financial Ratios (Keown):
Firm liquidity Operating profitability Financing decisions ROE
Chapter 3 (cont d)
2. The DuPont Analysis: An Integrative Approach to Ratio Analysis A breakdown of ROE and ROA into component ratios
Chapter 4
Financial Forecasting
Is used to estimate a firm s future financial needs. Steps: 1. Forecast the firm s sales revenues & expenses over planning period 2. Estimate the level of investment in current & fixed assets necessary to support the forecasted sales (using Percent of Sales Method) 3. Determine the firm s financing needs (Spontaneous and Discretionary Sources of Financing) The Discretionary Financing Needed (DFN) DFNt+1 = Projected in assets t+1 - Projected owners equity t+1 Projected in liabilities t+1 - Projected in
in owners equity t+1 = [Net Profit Margin t+1 sales t+1 ] (1-b)
Chapter 4 (cont d)
Limitations of the Percent of Sales Forecast Method
Pitfalls: only a rough approximation and is not very detailed Economies of scale lumpy assets
The Sustainable Rate of Growth (the maximum growth rate of sales that the firm can sustain whle maintaining its present capital structure dan without having to sell new C/S) Financial Planning and Budgeting
Budget functions: Amount and timing of the firm s need for future financing Basis for corrective action Performance evaluation Cash budget: a detailed plan of future cash receipt and disbursements
Chapter 4 (cont d)