Business Finance ACC501 VU - Genrica
Business Finance –ACC501VUACC501 – Business FinanceTable of ContentsLesson 30313233343536373839404142434445TopicIntroduction -------Why Study Finance? e Corporate Firm e Firm and The Financial Markets ---------------------------The Income Statement ciation as a Tax Shield --------------------------------------The Statement of Cash Flows ------------------------------------Common-Size Statements -----------------------------------------Ratio Analysis -----Ratio Analysis (Cont ) -------------------------------------------The Du Pont Identity g Financial Statements Information ------------------------Future Value -------Evaluating Investments ies -----------Perpetuities ---------Bonds ---------------Valuing A Bond ---Bond Pricing Theorems -------------------------------------------The Bond Indenture fferent Types of Bonds -----------------------------------------Term Structure of Interest Rates ---------------------------------Zero Growth Stocks -Constant Growth Stocks ------------------------------------Preferred Stock Features ------------------------------------------Using NPV ---------Average Accounting Return y Index -Making Capital Investment Decisions ---------------------------Pro Forma Financial Statements ---------------------------------Depreciation -------Returns -------------Variability of Returns folio ------------Cost of Capital ----Weighted Average Cost of Capital -------------------------------Capital Structure --M&M Propositions ankruptcy Costs -Operating Cycle and Cash Cycle ---------------------------------Short-Term Financial Policy --------------------------------------Short-Term Borrowing --------------------------------------------Float and Cash Management --------------------------------------Credits And Receivables ry Management --------------------------------------------- Copyright Virtual University of 1157161167169174178
Business Finance –ACC501VUBUSINESS FINANCELESSON 1The Primary textbook for the course is: Essentials of Corporate Finance, by Ross, Westerfield and Jordan, fourth edition, McGrawHill Publishers, ISBN 0-07-121057-7Reference books will be: Introduction to Finance by Lawrence J. Gitman and Jeff Madura, Addison-Wesley PublishersFoundations of Financial Management by Stanley B. Block and Geoffrey A. Hirt, McGrawHill PublishersCourse Contents An overview of Financial EnvironmentFinancial Statements, Taxes and Cash FlowsTime Value of Money and Discounted Cash Flow ValuationValuation of Stocks and BondsNet Present Value and other Investment CriteriaCapital Investment DecisionRisk and ReturnCost of CapitalLeverage and Capital StructureRaising CapitalWorking Capital ManagementDividendsFinance: A Quick Look Four Basic Areaso Business Financeo Investmentso Financial Institutionso International FinanceBusiness FinanceAddresses the following three questions: What long-term investments should the firm engage in? How can the firm raise the money for the required investments? How much short-term cash flow does a company need to pay its bills?Investments Deals with financial assets such as stocks and bonds.It covers the following issues:o Pricing Financial Assetso Associated Risks and Rewardso Determining best mixture of financial investmentCareer opportunities in investmento Stock Brokerage Copyright Virtual University of Pakistan1
Business Finance –ACC501ooVUPortfolio ManagementSecurity AnalysisFinancial Institutions Businesses dealing in financial matterso Banks and Insurance companiesInternational Finance Covers international aspects of corporate finance, investment and financial institutions. Copyright Virtual University of Pakistan2
Business Finance –ACC501VUWHY STUDY FINANCE?LESSON 2Why Study Finance? Marketing and Financeo Marketers have to work with budgetso Need to get greatest payoffs from marketing expenditures and programso Cost and Benefit analysis of projectso So, finance is vital for: Marketing research Design of marketing and distributions channels Product pricingAccounting and Financeo Accountants are required to make financial decisions as well as understand the implicationsof new financial contractso Financial analysts make extensive use of accounting informationManagement and Financeo Business Strategy is always disastrous if financial planning is not adhered to.What is Business Finance? In order to start any new business, the following issues become vitalo What long-term investment should be taken on?o From where to get the long-term financing to pay for investment? Bring in other owners orborrow the money?o How to manage everyday financial activities?The Financial ManagerTo create value, the financial manager should: Try to make smart investment decisions. Try to make smart financing decisions.Hypothetical Organization Chart Copyright Virtual University of Pakistan3
Business Finance –ACC501VUBusiness Finance and Financial Manager Financial Management Decisionso Capital Budgetingo Capital Structureo Working Capital ManagementFinancial Management Decisions Capital BudgetingThe process of planning and managing a firm’s long-term investmentsFinancial managers concern with how much, when and how likely is cash expected to receiveEvaluating the size, timing and risk of future cash flows is the essence of capital budgetingCapital Budgeting Decision Copyright Virtual University of Pakistan4
Business Finance –ACC501VUThe Capital Structure DecisionCapital Structure The value of the firm can be thought ofas a pie.The goal of the manager is to increasethe size of the pie.The Capital Structure decision can beviewed as how best to slice up the pie.If how you slice the pie affects the sizeof the pie, then the capital structuredecision matters.The Net Working Capital Investment DecisionThe Corporate Firm The corporate form of business is the standard method for solving the problems encounteredin raising large amounts of cash.However, businesses can take other forms. Copyright Virtual University of Pakistan5
Business Finance –ACC501VUForms of Business Organization Three major formso Sole proprietorshipo Partnership General Limitedo Corporation Limited Liability CompanySole Proprietorship Advantageso Easiest to starto Least regulatedo Single owner keeps all the profitso Taxed once as personal incomeDisadvantageso Limited to life of ownero Equity capital limited to owner’s personal wealtho Unlimited liabilityo Difficult to sell ownership interestPartnership Two or more owners (partners)o General partnership: all partners share in gains and losses and all have unlimited liability forall partnership debtso Limited partnership: one or more general partners will run the business and have unlimitedliability but there will be one or more limited partners who do not actively participate in thebusiness and their liability is limited to their contribution.Advantageso Two or more ownerso More capital availableo Relatively easy to starto Income taxed once as personal incomeDisadvantageso Unlimited liability General partnership Limited partnershipo Partnership dissolves when one partner dies or wishes to sello Difficult to transfer ownership Copyright Virtual University of Pakistan6
Business Finance –ACC501VUTHE CORPORATE FIRMLESSON 3The corporate form of business is the standard method for solving the problems encountered in raisinglarge amounts of cash. However, businesses can take other forms.Forms of Business Organization Three major formso Sole proprietorshipo Partnership General Limitedo Corporation Limited Liability CompanySole Proprietorship Advantageso Easiest to starto Least regulatedo Single owner keeps all the profitso Taxed once as personal incomeDisadvantageso Limited to life of ownero Equity capital limited to owner’s personal wealtho Unlimited liabilityo Difficult to sell ownership interestPartnership Two or more owners (partners)o General partnership: all partners share in gains and losses and all have unlimited liability forall partnership debtso Limited partnership: one or more general partners will run the business and have unlimitedliability but there will be one or more limited partners who do not actively participate in thebusiness and their liability is limited to their contribution.Advantageso Two or more ownerso More capital availableo Relatively easy to starto Income taxed once as personal incomeDisadvantageso Unlimited liability General partnership Limited partnershipo Partnership dissolves when one partner dies or wishes to sello Difficult to transfer ownershipCorporation A business created as a distinct legal entity owned by one or more individuals or entities.Forming of corporation involves preparingo Charter including corporation’s name, intended life, business purpose and number ofshares Copyright Virtual University of Pakistan7
Business Finance –ACC501VUo Set of bylaws which describes the regulations for the businessSeparation of Ownership and ControlCorporation Advantageso Limited liabilityo Unlimited lifeo Separation of ownership and managemento Transfer of ownership is easyo Easier to raise capitalDisadvantageso Separation of ownership and managemento Double taxation (income taxed at the corporate rate and then dividends taxed at personalrate)Goal of the Corporate Firm The traditional answer is that the managers of the corporation are obliged to make efforts tomaximize shareholder wealth.Alternatively, the goal of the financial manager is to maximize the current value per share of theexisting stock.The Set-of-Contracts Perspective The firm can be viewed as a set of contracts.One of these contracts is between shareholders and managers.The managers will usually act in the shareholders’ interests.o The shareholders can devise contracts that align the incentives of the managers with thegoals of the shareholders.o The shareholders can monitor the managers’ behavior.This contracting and monitoring is costly. Copyright Virtual University of Pakistan8
Business Finance –ACC501VUThe Agency Problem Agency relationshipo Principal hires an agent to represent their interesto Stockholders (principals) hire managers (agents) to run the companyAgency problemo Conflict of interest between principal and agentManagement goals and agency costsManagerial Goals Managerial goals may be different from shareholder goalso Expensive perquisiteso Survivalo IndependenceIncreased growth and size are not necessarily the same thing as increased shareholder wealth.Do Shareholders Control Managerial Behavior? Shareholders vote for the board of directors, who in turn hire the management team.Contracts can be carefully constructed to be incentive compatible.There is a market for managerial talent—this may provide market discipline to the managers—they can be replaced.If the managers fail to maximize share price, they may be replaced in a hostile takeover.Managing Managers Managerial compensationo Incentives can be used to align management and stockholder interestso The incentives need to be structured carefully to make sure that they achieve their goalCorporate controlo The threat of a takeover may result in better managementOther stakeholders Copyright Virtual University of Pakistan9
Business Finance –ACC501THE FIRM AND THE FINANCIAL MARKETSVULESSON 4Financial Markets Primary Marketo When a corporation issues securities, cash flows from investors to the firm.o Usually an underwriter is involvedSecondary Marketso Involve the sale of “used” securities from one investor to another.o Securities may be exchange traded or trade over-the-counter in a dealer market.Financial Markets Copyright Virtual University of Pakistan10
Business Finance –ACC501VUDealer vs. Auction Markets Auction markets are different from dealer markets in two ways:o Trading in a given auction exchange takes place at a single site on the floor of theexchange.o Transaction prices of shares are communicated almost immediately to the public.o ListingThe Balance Sheet An accountant’s snapshot of the firm’s accounting value as of a particular date.The Balance Sheet Identity is:Assets Liabilities Stockholder’s EquityWhen analyzing a balance sheet, the financial manager should be aware of three concerns:Accounting Liquidity, Debt versus Equity, and Value versus Cost The Balance-Sheet Model of the FirmNet Working Capital Net Working Capital Current Assets – Current Liabilitieso NWC 0 when Current Assets Current Liabilitieso NWC 0 when Current Assets Current Liabilitieso NWC 0 when Current Assets Current LiabilitiesNWC usually grows with the firm for the healthy firms. The Balance-Sheet Model of the FirmThe Net Working Capital Investment Decision CurrentAssetsFixed Assets Tangible IntangibleCurrent LiabilitiesNetWorkingCapitalHow much shortterm cash flow doesa company need topay its bills?Long-termDebtShareholders’Equity Copyright Virtual University of Pakistan11
Business Finance –ACC501VUBuilding the Balance Sheet A firm has:o Current Assets of 100,o Net Fixed Assets of 500,o Short-term Debt of 70, ando Long-term Debt of 200 Now o Total Assets are 100 500 600o Total Liabilities are 70 200 270o Shareholders’ Equity is 600 – 270 330Building the Balance SheetLiabilities andShareholders’ EquityAssetsCurrent Assets 100Current Liabilities 70Net Fixed Assets500Long Term Debt200Shareholders’ equity330Total liabilities andShareholders’ equity 600Total Assets 600The Balance Sheet of the XYZ CorporationAssetsCurrent assetsCash and equivalentsAccounts receivableInventoriesOtherTotal current assetsFixed assetsProperty, plant, andequipmentLess accumulateddepreciationNet property, plant, andequipmentIntangible assets and otherTotal fixed assetsTotal assetsXYZ CORPORATIONBalance Sheet20X2 and 20X1(in millions)Liabilities (Debt) and20X220X1Stockholder's EquityCurrent Liabilities 140 107 Accounts payable294270 Notes payable269280 Accrued expenses5850 761 707 Total current liabilitiesLong-term liabilities 1423 1274 Deferred taxes-550-460 Long-term debt 873 814 Total long-term liabilities245 1,118 1,879221 Stockholder's equity 1,035 Preferred stockCommon stock ( 1 per value)Capital surplusAccumulated retainedearningsLess treasury stockTotal equity 1,742 Total liabilities andstockholder's equity Copyright Virtual University of Pakistan20X220X1 21350223 19753205 486 455 117 104471458 588 562 3955347390 3932327347-26 805-20 725 1,879 1,74212
Business Finance –ACC501VUNotes:1. Long-term debt rose by ( 471 million– 458 million) 13 million. This is the difference between 86 million new debtand 73 million in retirement of old debt.2. Treasury stock rose by 6 million. This reflects the repurchase of 6 million stock.3. XYZ Corporation reports 43 million in new equity. The company issued 23 million shares at a price of 1.87. Thepar value of common stock is increased by 23 million and capital surplus is increased by 20 million.Balance Sheet Analysis When analyzing a balance sheet, the financial manager should be aware of three concerns:o Accounting liquidityo Debt versus equityo Value versus costAccounting Liquidity Refers to the ease and quickness with which assets can be converted to cash.Current assets are the most liquid.Some fixed assets are intangible.The more liquid a firm’s assets, the less likely the firm is to experience problems meeting shortterm obligations.Liquid assets frequently have lower rates of return than fixed assets.The Balance Sheet of the XYZ Corporation 252m 707- 455AssetsCurrent assetsCash and equivalentsAccounts receivableInventoriesOtherTotal current assets 275m 761m - 48620X2 14029426958 761XYZ CORPORATIONBalance Sheet20X2 and 20X1(in millions)20X120X220X1Liabilities (Debt) andStockholder's EquityCurrent Liabilities 107 Accounts payable 213 197270 Notes payable5053280 Accrued expenses22320550 707 Total current liabilities 486 455Here we see NWC grow to 275 million in 20X2 from 252 million in 20X1 23This increase of 23 million is an investment of the firm.Debt versus Equity Generally, when a firm borrows it gives the bondholders first claim on the firm’s cash flow.Thus shareholder’s equity is the residual difference between assets and liabilities.Shareholders’ Equity Assets – LiabilitiesThe Use of debt in a firm’s capital structure is called “Financial Leverage”o The more debt a firm has (as a percentage of assets) the greater is the degree of financialleverageo Debt acts as a lever in the sense that it magnifies both gains and losses Copyright Virtual University of Pakistan13
Business Finance –ACC501VUValue versus Cost The true value of any asset is its market value, which is simply the amount of cash we would getif we actually sold it.The values shown on the balance sheet for the firm’s assets are book values and generally arenot what the assets are actually worth.Under the Accounting standards audited financial statements of firms carry assets at historicalcost.For current assets, market value and book value might be somewhat similar since they arebought and converted into cash over a relatively short span of time.For fixed assets, it’s very unlikely that the actual market value of an asset is equal to its bookvalue.o Example: Land purchased for railroads a century agoSimilarly the owner’s equity figure on the balance sheet and the true market value of the equityneed not be related.For Financial Managers, accounting value of the equity is not a matter of concern rather it isthe market value of the shares that matters.Market vs. Book Value K Corporation has fixed assets with a book value of 700 and an appraised market value of 1,000Net working capital is 400 on the books but approx. 600 would be realized if the currentaccounts were liquidatedK has 500 in long-term debt, both book & market valueo What is the book value of the equity?o What is the market value?AssetsNet working CapitalNet Fixed AssetsTOTALK CorporationBalance SheetMarket Value vs. Book ValueBookMarket Liabilities (Debt) andStockholder's Equity 400 600 Long-term debt 700 1,000 Shareholders’ equity 1,100 1,600 TOTAL Copyright Virtual University of PakistanBook 500 600 1,100Market 500 1,100 1,60014
Business Finance –ACC501VUTHE INCOME STATEMENTLESSON 5The Income Statement If we think of the balance sheet as a snapshot then we can think of income statement as a videorecording covering before and after the picture.The income statement measures performance over a specific period of time.The accounting definition of income i
Essentials of Corporate Finance, by Ross, Westerfield and Jordan, fourth edition, McGraw Hill Publishers, ISBN 0-07-121057-7 Reference books will be: Introduction to Finance by Lawrence J. Gitman and Jeff Madura, Addison-Wesley Publishers Foundations of Financial Management by Stanley B. Block and Geoffrey A. Hirt, McGraw Hill Publishers
Table of Contents - genrica.com . a
of Managerial Finance page 2 Introduction to Managerial Finance 1 Starbucks—A Taste for Growth page 3 1.1 Finance and Business What Is Finance? 4 Major Areas and Opportunities in Finance 4 Legal Forms of Business Organization 5 Why Study Managerial Finance? Review Questions 9 1.2 The Managerial Finance Function 9 Organization of the Finance
The roles of the finance function in organisations 4. The role of ethics in the role of the finance function Ethics is the system of moral principles that examines the concept of right and wrong. Ethics underpins an organisation’s sustained value creation. The roles that the finance function performs should be carried out in an .File Size: 888KBPage Count: 10Explore furtherRole of the Finance Function in the Financial Management .www.managementstudyguide.c Roles and Responsibilities of a Finance Department in a .www.pharmapproach.comRoles and Responsibilities of a Finance Department .www.smythecpa.comTop 10 – Functions of Business Finance in an Organizationwikifinancepedia.com23 Functions and Duties of Accounting and Finance .accountantnextdoor.comRecommended to you b
10 Catalogue des cours/Course Catalog 2021-2022 FIN: Finance/Finance E : Finance d'entreprise/Corporate Finance G : Finance générale/General Finance M : Finance de marché/Market Finance S : Synthèse/Synthesis IDS: Systèmes d'Information, Sciences de la Décision et Statistiques/ Information Systems, Decision Sciences and Statistics
Descriptif des cours Course Outlines 10 Catalogue des cours/ Course Catalog 2017-2018 FIN: Finance/Finance A : Actuariat/Actuarial, Insurance E : Finance d’entreprise/Corporate Finance The course liste tables and the course outlines G : Finance générale/General Finance M : Finance de marché/Market Finance S : Synthèse/Synthesis IDS: Systèmes d’Information, Sciences de la Décision et .
Introduction to Behavioral Finance CHAPTER1 What Is Behavioral Finance? Behavioral Finance: The Big Picture Standard Finance versus Behavioral Finance The Role of Behavioral Finance with Private Clients How Practical Application of Behavioral Finance Can Create a Successful Advisory Rel
FINANCE Chief Financial Officer Degree/Master 15 20,000 25,000 Finance Assistant Diploma 1-3 2,800 3,400 Finance Controller Degree 10-15 10,000 18,000 Finance Director Degree 15 15,000 20,000 Finance Executive/ Senior Finance Executive Degree 2-5 3,000 6,000 Finance Manager/ Assistan
D 341CS ASTM standards viscosity temperature charts for liquid petroleum D 412 Ringcutter, vacuum holding plate, ring tension test fixture (5 drawings) D 422 Air-jet dispersion cup for grain-size analysis of soil (1 drawing) D 429 Specimen holding fixture-adhesion of vulcanized rubber to metal (2 drawings) D 610A SSPC-VIS2/Colored Visual Examples D 623 Anvils for Goodrich flexometer (2 .
