Ing. Lenka Strýčková, Ph.D.

Transcription

1 Ing. Lenka Strýčková, Ph.D.

2 1. Introduction to Business Financial Management (introduction to the course, basic terminology) 2. Capital Budgeting: Long-Term Decisions (capital budgeting, short-term and long-term budgeting decisions, discounted payback period, equivalent annual annuity, internal rate of return (IRR), modified internal rate of return (MIRR), net present value (NPV), payback period, profitability index (PI), tax shield, weighted average cost of capital (WACC)) Chapter 9 3. The Cost of Capital (debt financing, equity financing, and hybrid equity financing, debt and equity components of the weighted average cost of capital (WACC), the tax implications on debt financing and the adjustment to the WACC) Chapter Financial Planning and Short-Term Financing (short-term finance, short-lived assets and liabilities, net working capital, working capital management) Chapter Analysis of Financial Statements (financial ratios: liquidity ratios, asset management ratios, debt management ratios, profitability ratios, market value ratios, DuPont analysis) Chapter Raising Capital (life cycle of a business, different sources of capital available to a start-up business and a growing business, special forms of financing) Chapter Capital Structure (capital structure, optimal capital structure, benefits of debt, theories of capital structure, debt and tax shield) Chapter Working Capital Management (cash conversion cycle, the timing of accounts receivable, float concept, inventory management) Chapter 13

3 go to web page: use your LIANE username and password to login into the course in section navigation -> My profile ->Registration of the courses (Registrace/odregistrace kurzů STAG) you will choose the course FRP-E Business Financial Management (2014) - you will see the course here, only if you have the course registred in STAG than you have click to Save changes the course FRP-E Business Financial Management (2014) you should find than in section My courses

4 Lecture notes: select: Ing. Lenka Stryckova, Ph.D. subject: FRP-E password: ER17

5 TEXTBOOK: Raymond Brooks: Financial Management: Core Concepts. International Edition, 2/E 2012, Pearson Higher Education, 648 pp. ISBN-10: , ISBN-13: CALCULATOR!

6 Attendance at lectures a student should attend at least 75 % of the classes! Mini tests during term Written test - in exam period

7 final test 60% mini tests 40% Czech ECTS % Grade Grade 1 A % 1- B % 2 C % 2- D % 3 E % 4 F 54 % and less FAIL

8 The financial manager plays a critical role inside any business enterprise. Potential decisions include: What products to launch How to pay to develop those products What profits to keep and how to return profits to investors The financial manager does all of this with the goal of maximizing the value of the firm.

9 Capital budgeting - the process of planning, evaluating, selecting and managing the long-term operating projects of the company, this answers the question: What long-term investments or projects should the business take on? Capital structure - the means by which a company is financed, and for public companies is usually a mix of stocks (equity) and bonds (debt) sold to investors and owners. How should we pay for our assets? Should we use debt or equity? Working capital management - managing the day-to-day operating needs of the company through the current assets and current liabilities of the company. This is often referred to as the short term financing activities of the company. How do we manage the day-to-day finances of the firm?

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12 Four main financial statements: 1. Balance sheet 2. Income Statement 3. Statement of Retained Earnings 4. Statement of Cash Flow

13 The basic rules of double entry book-keeping are as follows: 1. Debit what comes in; credit what goes out. 2. Debit an expenditure item; credit a revenue item 3. Debit an asset; credit a liability.

14 Represents the assets owned by the company and the claims against those assets Based on the accounting identity: Assets Liabilities + Owners Equity (2.1)

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16 Shows the expenses and revenues generated by a firm over a past period, typically a quarter or a year. Net income = Revenues expenses EBIT = Revenues operating expenses

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18 shows the distribution of net income for the past period - how the net income for the past period was allocated between dividends - if any (distributed earnings) and retained earnings. CHANGE IN RETAINED EARNINGS = NET INCOME DISTRIBUTED EARNINGS

19 The cash flow identity states that the cash flow on the left-hand side of the balance sheet is equal to the cash flow on the right-hand side of the balance sheet. CASH FLOW CASH FLOW CASH FLOW FROM ASSETS = TO CREDITORS + TO OWNERS

20 Cash Flow Identity and components

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22 FV = PV + PV x interest rate, or FV = PV(1+interest rate) FV = future value PV = present value r = interest rate n = the number of time periods (in decimals) Lump-sum payment = one-time payment of money at a future date

23 FV = PV x (1+r) n (1+r) n = IS THE FUTURE VALUE INVEREST FACTOR (FVIF) FV = PV x (1+r) n PV = FV X [1/(1+r) n ] r = [FV/PV] 1/n 1 n = [ln(fv/pv)/ln(1+r)] solving for future value solving for present value solving for unknown rate solving for # of periods

24 Annuities are equal, periodic outflows/inflows., e.g. rent, lease, mortgage, car loan, and retirement annuity payments. An annuity stream can begin at the start of each period (annuity due) as is true of rent and insurance payments or at the end of each period, (ordinary annuity) as in the case of mortgage and loan payments. The formula for calculating the future value of an annuity stream is as follows: FV = PMT * (1+r) n -1 r where PMT is the term used for the equal periodic cash flow, r is the rate of interest, and n is the number of periods involved. FVIFA = Future Value Interest Factor of an Annuity

25 To calculate the value of a series of equal periodic cash flows at the current point in time, we can use the following formula: PV PMT 1 1 The last portion of the equation, is the Present Value Interest Factor of an Annuity (PVIFA). r 1 r n

26 PV ordinary annuity: PV annuity due = PV ordinary annuity x (1+r) PV annuity due > PV ordinary annuity r r PMT PV n n r PV PMT r r