Summary
Samenvatting Corporate Finance, Global Edition, ISBN: 9781292304151 Finance (6011P0260Y)
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Chapter 1Sole proprietorship (=eenmanszaak)
Partnership
Limited/public corporation
Corporation goals : society, employees, customers, suppliers, management, banks,
shareholders.
Shareholder = stockholder = equity holder, they are residual claimants and have no guarantee
of getting return. They’re entitled to dividend payments.
Equity = collectie van alle uitstaande stocks
Agency problems : when the incentives aren’t aligned => make the interest the same
Ownership & Control separation => information asymmetry and conflicting goals
Accountant uses book values : history
Market values are forward looking
Market cap. = #shares x market price
Enterprise value = market value equity + market value debt - cash : measures market value
Invested capital = book value equity + net debt
Short sale: selling a security(=waardepapier) that you don’t own but borrowed from someone
Corporate bankruptcy = change of ownership, not necessarily a failure
Private and public companies (share trading)
Liquid investment: if the investment can be sold easily & quickly for a close price to buy
price.
Primary market: where the new shares are sold to investors => secondary market
Market makers match buyers & sellers
Limit order: order to buy/sell a set amount for a fixed price.
,Chapter 2
Financial statements: balance sheet, income statement, statement of CF & statement of
stockholder’s equity.
Balance sheet: activa en passiva
Activa = Assets = cash, inventory, property, plant, equipment
Passiva = Liabilities = obligations to creditors
Balance sheet identity: Assets = liabilities(passiva) + shareholder’s equity
Shareholder’s equity = firm’s net worth = book value equity = market cap.
Current assets: assets that could be converted into cash in a year:
❖ Cash & marketable securities
❖ Accounts receivable
❖ Inventories (materials & finished goods)
❖ Prepaid expenses
Long-term assets:
❖ Property, plant, equipment
❖ Depreciation
❖ (in-)tangible assets & goodwill (materiële activa)
Assets’ book value = acquisition cost - acc. Depreciation
Current liabilities:
❖ Accounts payable
❖ Short-term debt
❖ Salary / taxes owed
❖ Deferred / unearned revenue
Long Term liabilities:
❖ Long term debt
❖ Capital leases
❖ Deferred taxes
Net working capital = diff current assets & current liabilities
= accounts receivable + inventories - accounts payable
Market-to-book ratio = market value equity / book value equity
Value stocks: low M-t-B ratio
Growth stocks: high M-t-B ratio
Enterprise value = market value equity + debt - cash
, Bottom line = net income
EPS = earnings per share = net income / shares
Dilution = growth in the number of shares
Amortization = paying off debt
Statement of CF:
● Operating activities: accounts receivable & payable and inventories
● Investment activities: cap.ex.
● Financing activities: retained earning = net income - dividends
Change in stockholder’s equity = retained earnings + net sales of stock
Profitability ratios are certain profits / sales
Liquidity ratios : are divided by the current liabilities
Inventory turnover = annual cost of sales / inventory
Accounts receivable turnover = annual sales / accounts receivable
EBITDA = EBIT + depreciation + amortization
Leverage = debt-to-equity ratio = debt / equity
Net debt = debt - cash - short term investments
Equity multiplier = assets / book value equity
P/E ratio = market cap. / net income = share price / earnings per share
ROE = return on equity = net income / book value equity
ROE = net profit margin x asset turnover x equity multiplier
ROA = return on assets = (net income + interest expense) / book value assets
Board of directors & chief executive officer have direct control : elected by stockholders
CEO = chief executive officer
CFO= chief financial officer
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