Lecture notes
Colleges Corporate Finance
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This is a summary of all the substance covered in Corporate Finance colleges. The book is almost completely covered in this. With this recap I made a 7 on my final exam!
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Samenvatting colleges Corporate FinanceCollege 1
Chapter 1: Introduction to Corporate Finance
Accounting = recording the pas with real amounts
Finance = discounting future cash flows and works with forecasts
Financial manager tasks:
Capital budgetting --> responsible for investment decisions
Capital structure --> responsible for financing decisions
Working capital management --> responsible for short-term financial planning
The financial goals:
1. Profitability
2. Liquidity
3. Security
4. Independence
Goal of financial management = maximise shareholder value
--> doing by maximising share price, managing risks and avoiding financial distress
Markets:
Primary markets
o Securities are sold to investors
o Money raised goes to issuing firm
o First time share issuing = Initial Public Offering (IPO)
o Second share issuing = Seasoned Offering (SEO)
Secundary markets
o Investors trade securities with each other
o Money raised goes to seller of securities
o
Chapter 3: Financial Statement Analysis
Annual report:
Statement of financial position
o Balance sheet equation: Assets = Liabilities + Equity
o New working capital = Current Assets - Current Liabilities
Is important to be positive
Means enough cash is available to pay off liabilities
o Value
Market value = based on accounting figures drawn from accounting
standards
Book value = based on prices or market valuations
Income statement
o Revenues
o Expenses
o Operating profit
o Net income (before taxes)
o Net income (after taxes)
Average tax rates = percentage of income that is paid in taxes
, Marginal tax rates = what you pay for one more unit of currency
Statement of Cash Flows
o Total cash flow comes from
Operating activities
Investing activities
Financing activities
o CF is not WC
o CF is not Profit
College 2
Chapter 3: Financial Statement Analysis
Ratio analysis:
Profitability ratios
o Profit margin = Net income / Sales
o Return on Asset (ROA) = Net income / Total Assets
o Return on Equity (ROE) = Net income / Total Equity
Financial Leverage ratios
o Debt-equity ratio = Debt / Equity
o Total debt ratio = Debt / Total Assets
o Equity Multiplier = Total Assets / Equity
Market Value ratios:
o Earnings per share (EPS) = Net income / Shares outstanding
o Price/Earnings ratio (PE) = Price per share / EPS
Turnover ratios
Liquidity ratios
The Du Pont Identity:
ROE = Profit margin * Total asset turnover * Equity multiplier
= (Net income / Sales) * (Sales / Assets) * (Assets / Equity)
Short form: ROE = Net income / Equity
ROE = ROA x (Assets / Equity)
--> ROE is always bigger than ROA
Chapter 4: The time value of money
Future value (FV) = amount investment is worth after one or more periods
Formula for value after t periods:
Vt = V0 * (1+r)t
Interest:
Simple = interest earned only on original principal amount invested
Compound = interest earned on both principal and interest reinvested from prior periods
(1+r)t = Future Value Interest Factor (FVIF)
Present Value (PV) = current value of future cash flows discounted at the appropriate discount rate
Discounting = calculate present value of some future amount
Formula for value of future cash flow:
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