Lecture 1 Chapter 1 Introduction to Corporate Finance
1.1 Corporate finance and the financial manager
Financial decision making is all about the future:
Accounting:
- Is numbers that you have in your book → works with real amounts
- Records from the past
Finance:
- Discounting future cash flows
- Works with forecasts
What is Corporate finance:
Three main questions need to be answered - - >
1. Investment → what do you do, where do you invest your money in?
2. Financing → where does the money come from which you will invest?
3. Working capital management = liquidity → how can we manage our daily activities?
The financial manager:
1.2 The goal of financial management
Financial goals:
- Profitability (belangrijkste)
- Liquidity
- Security
- Independence
The goal of financial management
The financial manager in a corporation makes decisions for the shareholders of the firm. We thus
need to answer a more fundamental question than listing possible goals: from the shareholder’s
point of view, what is a good financial management decision? → Good decisions increase the value
of the equity and vice versa. → So, acting in the shareholder’s best interest.
Goal: maximize the current value per share of the existing equity. →Avoids the problems stated
earlier because there is no ambiguity or difference between long-term and short-term issues.
→Shareholders are the last ones in getting money, so when they are winning, everybody is winning.
→Corporate finance: the study of the relationship between business decisions and the value of the
equity in the business.
,1.3 Financial markets and the corporation
How cash flows….
Primary versus secondary markets:
Primary share = if the company for the very first
time share an issue.
Initial public offering
Secondary shares = the shares have been issued
by the company already. If you buy a share, you
do not buy it from the company, but from another
investor.
3.1 The annual report
In addition to information relating to the performance and activities of the firm over the previous
year, the annual report presents three financial statements:
1. The statement of financial position, or balance sheet
2. 2. The income statement
3. 3. The statement of cash flows
The statement of financial position:
The balance sheet equation: assets = liabilities + equity
Investment is links
Financing is rechts
Net working capital =
Difference between
current assets and
current liabilities.
Moet positief zijn. Anders kun je je
schulden niet financieren. →
Positive net working capital means that
enough cash will be available to pay off
liabilities arising
Market value versus book value:
Book value based on Accounting Figures drawn from Accounting Standards
Market value based on prices or market valuations → finance
The income statement
EBT = operating profit + gain on disposal of assets + other income
EBIT (earnings before interest and tax) = EBT + interest paid
EBITD(A) = EBT + interest paid + depreciation
zie voorbeeld in powerpoint
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