THE FOUNDATIONS OF CORPORATE FINANCE INTRODUCTION TO THE

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THE FOUNDATIONS OF CORPORATE FINANCE: INTRODUCTION TO THE FINANCIAL STATEMENTS Lesson 1 Corporate Finance

THE FOUNDATIONS OF CORPORATE FINANCE: INTRODUCTION TO THE FINANCIAL STATEMENTS Lesson 1 Corporate Finance Castellanza, 21 st September, 2011

The foundations of Corporate Finance: role and objective Ø What is Corporate Finance Ø

The foundations of Corporate Finance: role and objective Ø What is Corporate Finance Ø The Financial Division in a company Ø Who is the Financial Manager Ø Financial Decision making Ø The objective function Ø The tools of Corporate Finance

What is Corporate Finance concerns the financing of enterprises - that is, unique combination

What is Corporate Finance concerns the financing of enterprises - that is, unique combination of physical and human capital – and the investing of financial resources. Core of Corporate Finance: 3 principles ü financing ü investment ü dividends Corporate Finance

The Financial Manager stands between the firm’s operations and the financial markets, where investors

The Financial Manager stands between the firm’s operations and the financial markets, where investors hold the financial assets issued by the firm. Firm’s operations Financial Managers (Real assets) Financial Markets (Financ. Assets) ü Chief Financial Officer (CFO): Treasurer / Controller ü Treasurer: cash management/raising capital/banking relationships ü Controller: preparation of financial statements / accounting /taxes Corporate Finance

Financial Decision making Financial decisions: ordinary short term cash / working capital medium-long term

Financial Decision making Financial decisions: ordinary short term cash / working capital medium-long term financing / investing extraordinary floatation / M&A, … maximize the value of the firm but value for who? stockholders firm Corporate Finance

6 The classical objective function Corporate Finance

6 The classical objective function Corporate Finance

The real world Corporate Finance

The real world Corporate Finance

8 The real world Corporate Finance

8 The real world Corporate Finance

The tools of Corporate Finance ü Financial Statements ü Time value of money ü

The tools of Corporate Finance ü Financial Statements ü Time value of money ü Valuation of companies Corporate Finance

Introduction to the Financial Statements Objective: to maximize the value of the firm How

Introduction to the Financial Statements Objective: to maximize the value of the firm How can we check the objective? financial analysis (financial anlysts, investment banks, …) technical fundamental candlestick, … Financial Statements static ratios analysis Corporate Finance dynamic flows analysis

Introduction to Financial Statements: tools Static financial analysis (ratio analysis) picture of the financial

Introduction to Financial Statements: tools Static financial analysis (ratio analysis) picture of the financial position of the firm at a point in time Dynamic financial analysis (flows analysis) changes in year and why Corporate Finance

Introduction to Financial Statements Static Analysis Dynamic Analysis Ratios Flows ü Flows from operations

Introduction to Financial Statements Static Analysis Dynamic Analysis Ratios Flows ü Flows from operations ü Flows from investment and financing Corporate Finance

Introduction to Financial Statements Static Analysis Dynamic Analysis Assets = Liabilities Uses of funds

Introduction to Financial Statements Static Analysis Dynamic Analysis Assets = Liabilities Uses of funds = Sources of funds Corporate Finance

Current Assets Current Liabilit. Fixed Assets LT fin. Debt Financial Assets Other LT liabil.

Current Assets Current Liabilit. Fixed Assets LT fin. Debt Financial Assets Other LT liabil. (ex. provisions) Intangible Assets Equity Corporate Finance Non Current Introduction to Financial Statements: the balance sheet

Introduction to Financial Statements: the balance sheet Net Working Cap. LT fin. Debt Fixed

Introduction to Financial Statements: the balance sheet Net Working Cap. LT fin. Debt Fixed Assets Other LT obligat. Financial Assets (ex. provisions) Intangible Assets Equity Corporate Finance

Introduction to Financial Statements: Net Working Capital Cash and Marketable securities Accounts payable Accounts

Introduction to Financial Statements: Net Working Capital Cash and Marketable securities Accounts payable Accounts receivable Financ. s. term loans Other current liabil. Inventories (ex: accrued income taxes) Other current assets Corporate Finance NWC

Accounts receivable Accounts payable Other current liabil. Inventories NWC op. Other current assets Corporate

Accounts receivable Accounts payable Other current liabil. Inventories NWC op. Other current assets Corporate Finance Non cash current liabilities Non cash current assets Introduction to Financial Statements: Net Working Capital (operating or non cash)

18 Introduction to Financial Statements: the balance sheet NWC NFP. Non curr. Assets (fixed,

18 Introduction to Financial Statements: the balance sheet NWC NFP. Non curr. Assets (fixed, intang. , fin. ) Other LT assets and liabil. Equity Corporate Finance

Introduction to Financial Statements: the income statement (Profit and Loss) Sales - Operating expenses

Introduction to Financial Statements: the income statement (Profit and Loss) Sales - Operating expenses = EBITDA - Depreciation and Amortization = EBIT - Financial expenses/revenues - Extraordinary items = EBT - Taxes = Net Earning Corporate Finance

Ex. Prepare a balance sheet for ABC co. from the following information. What is

Ex. Prepare a balance sheet for ABC co. from the following information. What is the equity? ü ü ü Bank loans short term of 200 Cash of 100 Inventory of 800 Building and fixtures of 1500 Accounts receivable of 1200 Mortgage loan of 1300 Corporate Finance

Ex. Prepare a balance sheet financial reclassification using the following data Short-term Financial Debt

Ex. Prepare a balance sheet financial reclassification using the following data Short-term Financial Debt Cash Long-Term financial debt Accounts receivable Other current liabilities Inventories Other current assets Employees' Termination Pay Equity Financial Assets Fixed Assets Intangible Assets Allowance for doubtful receivable accounts Marketable Securities Trade accounts payable 55, 062 40, 419 93, 832 80, 214 33, 016 41, 156 31, 660 14, 087 98, 186 5, 281 67, 893 66, 114 2, 519 14, 039 50, 074 Corporate Finance