Resume

Samenvatting Corporate Financial Management

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Cours
Corporate Financial Management

Établissement
Karel De Grote-Hogeschool (KdG)

Samenvatting Corporate Financial Management (KdG) op basis van uitgebreide notities in de les. Ik behaalde een 20/20 op het examen door deze samenvatting grondig te studeren.

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Publié le 22 mars 2021
Nombre de pages 40
Écrit en 2019/2020
Type Resume

cashflow
investment decisions
finance decisions
corporate financial management
shareholder remuneration decisions

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CORPORATE FINANCIAL MANAGEMENT

1. INTRODUCTION

The difference between an accountant and an CFO

Accountant:

 Reports the past, history
 He uses accounting rules: the value of a building could be 0 because of
depreciation so this value isn’t the same as the real, market value
 He needs to be 100% precise
 Repetitive job

CFO:

 He will look at the future, forecast
 He will make plans for the company and decide together with the CEO
what the company should do, which way they need to go
 He has to estimate, he can’t be 100% precise, in the future, there is
always some uncertainty – he needs to be as precise as necessary
 New and explorative
 Needs to make decisions for the future
 What’s the best decision? To know that, he needs to understand business
model and reality

The role of a CFO in the firm

 He needs to make investment and finance decisions
 Investment decisions: in what are we going to invest?
 Finance decisions: how are we going to pay these investments?
 Finance exist of equity and debt
o Equity: the capital of the shareholders
o Debt: borrowing money from the bank, lenders, …

 First you have to if you make profit,
invest money in this you can divide this
and then you can profit between the debtors
make profit and the shareholders
from it

,A CFO is the heart of the business

o In companies, it could be that no one knows the accountant, but
everyone should know the CFO because he should be really involved
in the company and be involved with a lot of decisions

What should a CFO do?

 Business decisions & financial implications

 Marketing: pricing & product strategies
 Production and operating decisions

 Maximalisation of entreprise value by

 Finance decisions  optimal usage of liabilities (=passiva)
 Investment decisions  optimal usage of assets (=active)

o When there is no optimal usage of the assets / liabilities =
lazy balance sheet = excess capital

 For example: having too much money on you’re bank
account, especially in a quite stable industry bcs that is
just money laying around (in a new, growing industry
you have more unexpected expenses so here you can
have more money on your bank account)
 you can better use this money to pay back the
shareholders or the debtors
 when you pay back the shareholders  the amount on
the back account decreases + the post ‘retained losses
and profits’ decreases with the same amount
 this is not a very aggressive move to make their
balance sheet less lazy

 more aggressive would be that you as a company
would borrow money and distributing this money to the
shareholders
 this would mean that the loans and borrowings post
increases with the amount and the retained losses and
profits decreases with that amount

A CFO doesn’t look at the accounting values, he only looks at the market values
He works with a “different” balance sheet than the accountant

Current Assets Equity

Aiding in current cashflow generation
Growth Assets Debt

Source for future cashflow generation

,Investing – Assets

What’s important? – Example of a clothing store

Today’s trend is that more and more selling happens online and clothing stores
are suffering from that. What should have happened? Clothing stores should
have noticed this trend earlier so they could have used the money from their
actual stores (who were still popular and profitable at that time) to invest in an
ecommerce business. Now it’s too late to switch because the ecommerce is a big
investment and they don’t have so much money because the actual stores don’t
make a lot of money anymore. They should have shifted money for a cash cow to
create another cash cow

Financing – Equity and Debt

DEBT EQUITY
Claims on cash flow Fixed, interest rate % Residual
(=overgebleven, what’s
left)
Managerial decisions None / low (low in case High (depending on how
they connect conditions much shares you have
to the loan)
The length = tenor Fixed Perpetual (=blijvend)
Tax treatment Deductible (=aftrekbaar) Non-deductible

What’s the purpose of a company?

 Maximize firm value

 Maximize shareholder value  indicator for this = stock price

 Nowadays: also environment, social government, …

, Shareholders? Some terms.

 Review manager’s performance

o If the results aren’t good: the shareholders can fire the
management

 Activist shareholders

o Shareholders who want to have a say in the management
o Example we have seen: Dan Loeb with Netsle, he invested a lot of
money and put pressure on the management to split the company
into three divisions
o Why does this happen somethings? Because the company can focus
back on only the core business and bcs of the focus the three
divisions apart are worth more than the company as a whole

 Hostile takeover

o This means a company takes over another company without
discussions with the management of the other company

 Share buyback

o This means a company buys his own shares back for the
marketplace
o Why? To reduce the number of shares available, because
management considers them undervalued and wants to increase
both the demand for the shares and thereby the price

Debtors?

 Debtors are those who lend money out to the company
 Normally, there is an interest rate
 The company needs to pay back the amount + interest
 Right now the interest is 0 or less % which means a company will get
more money that it borrowed in the first place

 Debtors have no say in the management
 But they can add conditions / covenants to the loan as a protection

Financial markets?

 Misleading information

o You are not allowed to give misleading information as a
management – example of Elon Musk - example of inside
information – example of the excuse from the trade dispute
between China and the US

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