Corporate Finance
Summary of all Lectures
Radboud University Nijmegen
Yoël Guijt
, Lecture 1
Intro to Finance, Financial Statements
Corporate Finance:
* Finance is about future cash ows; works with forecasts
* Investing (which ones), Financing (equity/debt?), Working capital management (everyday
activities)
* Financial manager: Capital budgeting (investments), Capital structure ( nancial decisions),
Working capital (short-term nancial planning)
Financial Goals:
* Pro ts, liquidity, security, independence (pro t most important)
* Goals of nancial management: MAXIMIZE Shareholder Value
* Managing risk, maximize share prices, avoid nancial distress
Financial Markets:
* Savings to nancial markets, loans, securities, assets, etc.
* Primary markets: Securities sold directly to investors / money goes to rm / IPO / SEO
* Secondary markets: Trade securities / money goes to seller / share prices
The annual report:
* Statement of nancial position: Balance Sheet — Assets = Liabilities + Equity !
* Net Working Capital NWC = Current Assets - Current Liabilities
* Market value vs Book value (Finance bases on market prices, not book values)
Income statement: Net income = Revenues - Expenses
* Before tax = EBT, before interest and tax = EBIT, before interest, tax, depreciation = EBITDA
* Taxes: Average Tax Rates & Marginal Tax Rate (1$ more, how much tax?)
Cash Flow Statement: Cash Flows (CF) is NOT EQUAL to Net Working Capital
* NWC is just a snapshot, CFs are over a period
* Cash Flow is NOT EQUAL to pro t — Depreciation decreases pro t, but not cash ows!
* CF from Operating, Investing and Financing activities
Lecture 2
Ratio analysis, Time Value and Money (FV, Compounding, PV, Relations)
Ratio analysis:
* Pro tability Ratio’s — Pro t margin, Return on Asset (ROA), Return on equity (ROE)
* Financial Leverage Ratio’s — Debt-equity , Total debt , Equity multiplier
* Market Value Ratio’s — Earnings per share (EPS) , PE-Ratio (Price/EPS)
The DuPont identity:
* Return on equity = ROE = Pro t Margin * Total Asset Turnover * Equity Multiplier
* ROE = (Net income / Sales) * (Sales / Assets) * (Assets / Equity)
* ROE = Net income / Equity
* ROE is thus a ected by: Operating e ciency + Asset e ciency + Financial leverage
* ROA = Return on Assets = Net income / Assets
* ROE = ROA * ( Assets / Equity )
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, Interest:
* Simple Interest — Earned on the original amount invested
* Compound Interest — Earned on both the original amount and interest reinvested
Future Value:
* Vt = V0 * (1+r)^t
* Future Value interest Factor (FVIF) = (1+r)^t (Or future value factor FVF)
Interest Rates:
* Annual Percentage Rate (APR) = Stated interest, earned without compounding
* E ective Annual Rate (EAR) = Interest Rate with compounding, depends on the periods
* EAR = (1+ i/n)^n -1 — i = interest rate (APR), n = compounding periods
* To compare di erent loans with di erent compounding periods, we use the EAR
Present Value:
* V0 = Vt / (1+r)^t
* Present Value Interest Factor (PVIF) = 1 / (1+r)^t (Or present value factor PVF)
Finding the time it requires to accumulate a speci c amount:
* n = (Ln (FV/PV)) / (Ln(1+r)) — Gewoon balans methode en oplossen …
Rule of 72:
* Years to DOUBLE the investment:
* N = 72 / (r*100)
Finding the desired interest rate:
* r = (FV/PV)^ 1/n - 1 — Wederom, balansmethode en oplossen …
Lecture 3
Corporate Governance, Agency Theories, Discounted Cash Flows
Corporate Governance:
* Is about Managers, Controlling shareholders, Minority shareholders, Stakeholders
Agency Theories:
* Type I — Relationship between managers and shareholders (managers have own interests)
* Type II — Relationship between majority and minority shareholders (other interests)
Type I Agency:
* Managers maximize their own wealth VS shareholders maximize value of the rm
* Direct costs: Expenditures that bene t managers at expense of shareholder & to control
managers actions
* Indirect costs: Lost opportunities because of more risk averse managers
* How to solve it? Managerial compensation for performance + Shareholders rights +
Shareholders control the rm + Proxy voting (allowing others to vote)
Board Structures:
* Unitary (Chairman and Chief executives the highest) & Dual (Above, there’s a supervisory board)
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