corporate finance aae 2013
TRANSCRIPT
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CORPORATE FINANCEGUIDELINES FOR EXAMINATION
Ioan Alin Nistor
Faculty of Business
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Overview Requirements for thechapters to be covered
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CHAPTERS:
Financial statements
Balance Sheet
Income Statement Statement of Retained Earnings
Statement of Cash Flows
Financial Ratios
Present value & Future Value
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Examination involves multiple choice questions aswell as problems following the chapter requirementsmentioned previously.
Below will be presented a brief explanation for the
requirements. Please note that any learningmaterial that covers the data mentioned iswelcomed. Please check the problems covered inclass.
Ex: Brealey& Myers - Corporate Finance Ex: Ioan Alin Nistor Finante antreprenoriale, Ed EFES, 2012
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Financial statements4
Annual report four basic financial statements
Balance Sheet
Income Statement Statement of Retained Earnings
Statement of Cash Flows
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Balance sheet
ASSETS
Cash
Marketable securities
Accounts receivable
Inventory Total current assets
Fixed assets (property, plant,equipment, intangible assets)
TOTAL ASSETS
LIABILITIES & EQUITY
Accounts payable
Notes payable
Accruals Total current liabilities
Long term bonds Total Liabilities
Stock (preferred, common)
Retained earnings
Total equity
TOTAL LIABILITIES AND EQUITY
5
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Balance sheet
ASSETS
Cash
Marketable securities
Accounts receivable
Inventory Total current assets
Fixed assets (property, plant,equipment, intangible assets)
TOTAL ASSETS
LIABILITIES & EQUITY
Accounts payable
Notes payable
Accruals Total current liabilities
Long term bonds Total Liabilities
Stock (preferred, common)
Retained earnings
Total equity
TOTAL LIABILITIES AND EQUITY
6
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Balance sheet
ASSETS
Cash 15
Marketable securities 5
Accounts receivable 265
Inventory 575
Total current assets 860
Fixed assets (property, plant,equipment, intangible assets)
1140
TOTAL ASSETS 2000
LIABILITIES & EQUITY
Accounts payable 45
Notes payable 125
Accruals 130 Total current liabilities 300
Long term bonds 250 Total Liabilities 550
Stock (preferred, common) 1000
Retained earnings 450 Total equity 1450
TOTAL LIABILITIES AND EQUITY
2000
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Income statement
Net sales Costs excluding depreciation Depreciation Total operating costs
Earnings before interest andtaxes (EBIT) Less interest Earning before taxes (EBT) Taxes Net income
3000 2650 183 2833
167
30 137 22 115
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Statement of Cash-flow9
OPERATING ACTIVITIES (+ or -) Operating activities
Depreciation and amortization
Changes in other accounts affecting operations: (Increase)/ decrease in accounts receivable
(Increase)/ decrease in inventories
Increase/ (decrease) in accounts payable
Net cash provided by operating activities
LONG-TERM INVESTING ACTIVITIES (+ or -) Capital expenditures
Investments in subsidiary
Proceeds from sales of investments
FINANCING ACTIVITIES (+ or -)
Increase in notes payable Payments of long-term debt
Increase in bonds
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Statement of Retained Earnings
Balance of retained earnings at Dec.31, 2010
Add: Net income, 2011
Less: Dividends to common stockholders Balance of retained earnings at Dec.
31, 2011
525
75
35 565
10
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Analysis of Financial Statements Ratios Analysis
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Liquidity Analysis Ratios
Asset Management Ratios
Debt Management Ratios Profitability Ratios
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Ratios Analysis Liquidity Analysis Ratios
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sliabilitieCurrent
assetsCurrentratioCurrent
sliabilitieCurrent
sInventorieassetsCurrenttestacidorQuick
,
sliabilitieCurrent
assetsCurrentratioCurrent 860/ 300 2.87
Industry
Average
Comment
sliabilitieCurrent
sInventorieassetsCurrenttestacidorQuick
,
(860 - 575)
/300 0.95
Industry
Average
Comment
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Ratios Analysis Asset Management Ratios
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sInventorie
SalesturnoverInventory
assetsfixedNet
SalesturnoverassetsFixed
assetsTotal
SalesturnoverassetsTotal
360/
Retan
salesAnnual
ceivablesdingoutssalesDays
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Ratios Analysis Asset Management Ratios
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sInventorie
SalesturnoverInventory
3000/575 5.21 Industry
Average
Comment
assetsfixedNet
SalesturnoverassetsFixed
3000/1140 2.63 Industry
Average
Comment
assetsTotal
SalesturnoverassetsTotal
3000/2000 1.5 Industry
Average
Comment
360/
Retan
salesAnnual
ceivablesdingoutssalesDays 265/
(3000/360)32
days
Industry
Average
Comment
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Ratios Analysis Debt Management Ratios
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assetsTotal
debtTotalassetstotaltodebtTotal
assetsTotal
debtTotalassetstotaltodebtTotal
550/2000 27.5
%
Industry
Average
Comment
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Ratios Analysis Profitability Ratios
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assetsTotal
incomeNetROAassetstotalonturn )(Re
equityCommon
incomeNet
ROEequityonturn )(Re
Sales
incomeNetsalesoninmofit argPr
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Ratios Analysis Profitability Ratios
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assetsTotal
incomeNetROAassetstotalonturn )(Re
115/2000 5.75
%
Industry
Average
Comment
equityCommon
incomeNetROEequityonturn )(Re
115/1450 7.9% Industry
Average
Comment
Sales
incomeNetsalesoninmofit argPr
115/3000 3.83
%
Industry
Average
Comment
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Future Value and Preset Value18
Simple interest
Compound interest
Future value Present value
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Simple interest is determined by multiplying the interest rateby the principal by the number of periods.
Simple interest = P x I x N
Where:P is the amountI is the interest rateN is the duration, using number of periods (years)
Simple interest is called simple because it ignores the effects
of compounding. The interest charge is always based on theoriginal principal, so interest on interest is not included.
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Compound interest. Future value20
Compound interest = Interest that accrues on the initialprincipal and the accumulated interest of a principaldeposit, loan or debt. Compounding of interest allows aprincipal amount to grow at a faster rate than simple
interest, which is calculated as a percentage of only theprincipal amount.
FV future value
PV = present value
I = interest rate n nr of periods (years)
n
iPVFV )1(
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Net Present Value21
Cfw cash-f low
c - average cost of capital
I - Investment
NPV shows the expected increase in value of an investment ifadopted
If NPV > 0 - value increases => investment recommended If NPV < 0 - value decreases => investment not recommended
Ic
CfwNPV
n
ii
i
1 )1(
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Example of a NPV Problem : A firm would like to make an investment worth of10.000 Euro. The managers estimated that the Cash-flow brought by this investmentfor a period of 4 years is: Cash-f low for the first year 1.400 Euro, Cash-f low yeartwo = 1.500 Euro, Cash-flow year three = 1.300 and Cash-flow year four 1.200.Knowing that the average cost of capital is 10%, using the NPV method, make arecommendation whether the investment should be carried out or not.
Example of a FV problem: Using the compound interest, calculate the interest of100.000 USD after a period of 5 years at an interest rate of 7%.