Samenvatting
Samenvatting Finance & Innovation, ISBN: 9781265074159
- Instelling
- Hogeschool Van Amsterdam (HvA)
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H29 Financial Analysis...........................................................................................................11. Understanding Financial Statements............................................................................2
2. Measuring Company Performance.................................................................................2
3. Measuring Efficiency......................................................................................................3
4. Measuring Leverage (hefboomwerking).........................................................................5
5. Measuring Liquidity........................................................................................................6
6. Interpreting Financial Ratios..........................................................................................7
H30 Financial Planning........................................................................................................... 9
2. Tracing and Forecasting Changes in Cash....................................................................9
5. Long-Term Planning Models and Company Valuation.................................................10
H10 Project Analysis............................................................................................................ 10
1. Sensitivity and Scenario Analysis.................................................................................10
H13 An Overview of Corporate Finance...............................................................................11
1. Patterns of Corporate Financing..................................................................................11
2. Equity........................................................................................................................... 12
3. Debt............................................................................................................................. 13
H25 The many different kinds of debt...................................................................................14
1. Long-Term Corporate Bonds.......................................................................................14
2. Convertible Securities and Some Unusual Bonds........................................................17
3. Bank Loans.................................................................................................................. 18
4. Commercial Paper and Medium-Term Notes...............................................................19
H9 Risk and the Cost of Capital............................................................................................20
1. Company and Project Costs of Capital........................................................................20
H5 Net Present Value and Other Investment Criteria...........................................................21
1. The Net Present Value (NPV)......................................................................................21
2. The Payback Rule........................................................................................................22
3. The Internal Rate of Return..........................................................................................23
4. Choosing Capital Investments When Resources Are Limited......................................24
H6 Making Investment Decisions With The NPV Rule..........................................................24
1. Forecasting a Project’s Cash Flows.............................................................................24
H7 Introduction to Risk, Diversification and Portfolio Selection.............................................27
1. The Relationship between Risk and Return.................................................................27
2. How to Measure Risk...................................................................................................27
3. How Diversification Reduces RIsk...............................................................................29
4. Systematic Risk is Market Risk....................................................................................29
H8 The Capital Asset Pricing Model (CAPM)........................................................................29
2. The Relationship between Risk and Return.................................................................29
H3 Valuing Bonds................................................................................................................. 32
1. Using the Present Value Formula to Value Bonds.......................................................32
5. Real and Nominal Interest Rates.................................................................................33
H4 Valuing Stocks................................................................................................................ 34
H29 Financial Analysis
, 1. Understanding Financial Statements
Public companies have a variety of stakeholders: shareholders, bondholders,
bankers, suppliers, employees and management.
The assets on a company’s balance sheet are listed in declining order of liquidity.
Current assets are most likely to be turned into cash in the near future (inventories,
receivables) and fixed assets consist long-term, usually illiquid assets (warehouses,
stores, vehicles).
The right-hand side of the company’s balance sheet shows where the money to buy
the assets came from. Liabilities is the money owned by the company. First come
those liabilities that need to be paid off in the near future (current liabilities). These
include debts that are due to be repaid within the next year and payables (amounts
owned by the company to its suppliers).
Net working capital = the difference between the current assets and current
liabilities (current assets - current liabilities).
The bottom portion of the balance sheet shows the sources of cash that was used to
acquire the net working capital and fixed assets.
The company’s equity is simply the total value of the net working capital and fixed
assets less the long-term liabilities. Part of this equity has come from the sale of
shares to investors, and the remainder has come from earnings that the company
has retained and invested on behalf of the shareholders.
The income statement shows how profitable a company has been over the past
year.
Earnings before interest and taxes (EBIT) = tot. revenues - costs- depreciation
- other income.
2. Measuring Company Performance
Market capitalization is the total market value of equity, equal to share price times
number of shares outstanding (#share * price per share).
The book value of equity measures shareholders’ cumulative investment in the
company.
,The market value added the difference between the market value of the firm’s
shares and the amount of money that shareholders have invested in the firm
(market capitalization - book value of equity)
The market-to-book ratio calculate how much value has been added for each dollar
that shareholders have invested (market value of equity / book value of equity).
Economic Value Added (EVA) is net income minus a charge for the cost of capital
employed. Also called residual income. Residual income is net dollar return after
deducting the cost of capital. ((((after-tax interest +net income) / total capital) -
cost of capital) x total capital).
The EVA measures how many dollars a business is earning after deducting the cost
of capital. Other things equal, the more assets the manager has to work with the
greater the opportunity to generate a large EVA.
The manager of a small division may be highly competent, but if that division has few
assets, she is unlikely to rank high in the EVA stakes. Therefore, when comparing
managers, it can also be helpful to measure the firm’s return per dollar of investment.
Three common return measures are:
Return On Capital (ROC) is a financial metric used to measure the profitability of an
investment or a company. It indicates how much profit a company generates in
relation to the invested capital. A higher ROC generally indicates better profitability,
while a lower ROC may indicate inefficient use of capital or low profit margins.
((after-tax interest + net income) / total capital).
Return On Assets (ROA) measures the income available to debt and equity
investors per dollar of the firm’s total assets. Total assets (which equal total liabilities
plus shareholders’ equity) are greater than total capital because total capital does
not include current liabilities. The ROA provides an indication of how efficiently a
company utilizes its assets to generate profits. A higher ROA indicates that a
company is generating more profit per unit of assets, which suggests better assets
utilization (benuttiging) an efficiency. Conversely, a lower ROA may indicate
inefficiencies or underutilization (onderbenuttiging) of assets. ((after-tax interest +
net income) / total assets).
The Return On Equity (ROE) is measured as the income to shareholders per dollar
invested. The equity represents the shareholders’ equity. The ROE measures the
company’s ability to generate returns for its shareholders. A higher ROE generally
indicates that a company is more efficient in utilizing its equity capital to generate
profits. (net income / equity).
3. Measuring Efficiency
, The return of a firm’s assets depends on the sales that it generates and on the profit
it earns from each dollar of sales.
The Asset Turnover Ratio is a financial ratio that measures a company’s efficiency
in generating sales relative to its total asset amount. It indicates how effectively a
company uses its assets to generate revenue. It shows how much of sales are
generated by each dollar of assets produced. (sales / total assets at start of year).
A higher asset turnover ratio indicates that a company is efficiently utilizing it assets
to generate revenue. This can indicate effective inventory management, optimal
utilization of resources, and efficient conversion of sales.
The Profit Margin measures the proportion of sales that finds its way into profits. It’s
a financial metric that measures the profitability of a company by determining the
percentage of profit generated from its total revenue. It provides insights into how
efficiently a company manages its costs and generates profits from its sales. A
higher profit margin suggests that a company is more efficient at managing its
expenses and converting sales into profit. (net income / sales).
The profit margin can be misleading. When companies are partly financed by debt, a
portion of the profits from the sales must be paid as interest to the firm’s lenders. We
would not want to say that a firm is less profitable than its rivals simply because it
employs debt finance and pays out part of its profits as interest. Therefore, when we
are calculating the profit margin, it is useful to add back the after-tax debt interest to
net income. This gives an alternative measure of profit margin, which is called the
operating profit margin. ((after-tax interest + net income) / sales).
The ROA depends on 2 factors- the sales that the company generates from its
assets (asset turnover) and the profit that it earns on each dollar of assets
(operating profit margin). This breakdown of the ROA is called the DuPont
formula.
ROA = ((after-tax interest + net income) / sales) = (sales / assets) x ((after-tax
interest + net income) / sales)
The asset turnover ratio measures how efficiently the business is using its entire
asset base. But it is also interesting how hard particular types of assets are being put
to use.
Inventory Turnover is a financial ratio that measures the efficiency of a company’s
inventory management. It indicates how quickly a company sells and replaces its
inventory over a specific period. A higher inventory turnover ratio suggests that a
company is selling its inventory quickly, which is generally desirable as it reduces the
risk of obsolescence (veroudering), spoilage, or carrying excessive inventory. It
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