Samenvatting Corporate Finance
Week 1 (chapter 1,3 en 4)
3 key questions:
1. Which long-term investments should you pursue(nastreven)?
2. How will you obtain long-term financing for these investments?
3. How will you manage your day-to-day financial operations?WCM
Capital budgeting = the process of planning and managing a firms long-term
investments.(vraag 1) What is CB responsible for? Investment decisions.
The financial manager aims to identify investments that are more valuable to the firm than
their costs. So you have a net present value.
- key considerations include assessing the size, timing and risk of future cash flows.
Capital/Financial structure:
- Long-term debt: borrowing by the firm >1 year
- Equity: funds raised from owners through their investments in the firm.
Working capital management = managing a firm’s short-term assets and liabilities (vraag
3). 3 questions to awnser regarding working capital:
1. How much cash and inventory should we keep available/om hand?
2. Should we sell on credit? op krediet verkopen
3. How will we obtain(verkrijgen) any short term-financing?
Accounting = focuses on recording (vastleggen) past transactions
Finance = focuses on forecasts (prognoses) and planning with future-oriented perspective.
Financial management goal: maximizing shareholder value
Goals of financial management fall into two categories:
1. Profitability: increasing sales, gaining marketshare, controlling costs (boost profits).
2. Controlling risk: avoiding bankruptcy (fallissementen), maintaining stability, and
ensuring safety.
→ these two goals are often contradictory.
Primary goal of financial manager is to maximize the market value of the owners equity. This
goal removes the contradiction:
- no ambiguity (dubbelzinnigheid) in criterion: a bigger residue profits (restwinst)
owners as well as other stakeholders.
- no ambiguity in long-vs short term. focus on the current value.
Primary markets: this is where the original sale of securities (effecten) by governments and
corporations take place. 2 types:
1. Public offerings: securities are sold to the general public.
a. Initial public offerings (IPO’s): are the first issuance (uitgifte) of shares done
in the primary market as a firm goes public. (als een bedrijf naar de beurs
gaat)
, b. Seasoned offerings: are the second share issuance done at the primary
market by a already public firm.
2. Private placements: a negotiated sale to a specific buyer.
Secondary markets: this is where investors trade securities with each other, meaning one
owner or creditor sells to another. 2 reasons:
1. To provide a place to liquidate investments and get money back.
2. To establish (vaststellen) a price for investments, by transferring ownership of corporate
securities and determining share prices.
2 types of secondary markets:
1. Dealer markets: dealers buy and sell for themselves, taking on risk. Over-the-counter
(OTC) markets are dealer markets for equity and long-term debt, where most debt securities
are traded.
2. Auction (veiling) markets: these have a physical location and focus on matching buyers
with sellers.
Als je aandelen van Tesla koopt, koop je ze niet rechtstreeks maar op de secundaire markt
van een andere investeerder.
Peer-to-peer trading platforms: is een marktplaats waar gebruikers rechtstreeks met
elkaar kunnen handelen, zonder tussenkomst van een bank of beurs. The macroeconomic
policy of a country involves government decisions that affect the overall economic
environment. 4 main categories:
1. Fiscal Policy = government spending and taxes. (hoge belastingen verminderd uitgaven)
2. Monetary Policy = control of interest rates and the money supply (hoeveelheid)
sparen/lenen wordt beinvloed. lagere prijsinflatie als mensen meer sparen.
3. Exchange rate policy (wisselkoers)= how a country manages the value of its currency
relative to other currencies to improve trade competitiveness.
- Low exchange rates: make exports cheaper for foreign buyers, foreign buyers
spend less of their currency(valuta) on goods from the country with the weaker
, currency, imports become more expensive for the country, so reducing demand for
foreign goods.
- High exchange rates: make exports more expensive for foreign buyers, they need
to spend more of their currency to buy goods from a country with a stronger currency,
imports become cheaper for the country, increasing demand for foreign goods.
- you have fixed(vaste) and floating (zwevende) exchange rates.
4. Foreign Trade Policy = the use of trade barriers and import controls to manage the cost
of imports and exports.
The Annual Report (three key financial statements):
1. Balance sheet: accounting value as of a specific date (snapshot at that moment)
- assets (Current assets (invetory, cash), long-term assets(tangable or intangible)
Assets can be valued in two ways:
1. historical costs model: you value what is paid for the asset.
2. revaluation model: value assets at their current market value (huidige
marktwaarde)
- Liabilities (current (obligations/salary <1 jaar) en long term
(bonds/mortgages(hypotheken >1 jr)
- Equity = calculated asset minus liabilities. = NWC net working capital
Waarde altijd marktwaarde in de financiën.
2. Income statement.(HELPS INVESTORS BEST DETERMINE CORPORATE
PROFITABILITYwinst/verliesrekening summarizes a firms performance over a specific
period.
- net income: (revenues - expenses) - taxes
- Addition to retained earnings: net income - dividends paid.
- EPS (earnings per share): net income/ the number of shares.
- Book value per share: total equity/number of shares outstanding.
Components:
- realization principle: revenue is recognized when its earned, not necessarily when
cash is received.
- Matchingprinciple: expenses are matched with the revenues they help generate.
- Non-cash items: expenses like depreciation that are recorded against revenues but
do not directly affect cashflow
Corporate tax rates:
- Average tax rate: the percentage of your income that goed to pay taxes
- Marginal tax rate: at which you would be taxed on an additional unit of income.
- Flat-rate tax: single tax rate applied uniformly to all income levels.
3.The statement of cashflows.
- cashflow identity. equation cashflow from assets. shows that the cash genergated by
the firms assets is used to pay creditors and shareholders.
- Total cashflow: the overall cash movement during the period
- Operating cashflow: cash generated from the firms normal business operations.
- Cashflow from investing activities: represents cash transactions related to the firms
long-term investments.
, -Cashflow from financing activities: cash transactions resulting from the firms
financing decisions, including changes in debt and equity.
- Cashflow is GEEN working capital. WC is momentopname specifiek
- Cashflow is ook GEEN profit. depreciation reduces profit but does not affect cashflow
directly.
DOORNEMEN TABELLEN FORMULES P10 ™ P14 voor begrip. echt belangrijk echt doen.
Short-term solvency or measures = the provide information about the liquidity of a firm.
- the primary concern is the firms ability to pay the bills over the short run
- book values and market values are likely to be similair.
- Current assets and liabilities can change very rapidly.
accounts receivable = openstaande vorderingen/debiteurenomzet
turnover = omzet
payables turnover = meet hoe vaak een bedrijf zijn openstaande rekeningen (accounts
payable) gedurende een periode betaalt.
NWC turnover = meet hoe efficient een bedrijf zijn working capital gebruikt om verkoop en
groei te supporten. beoordeelt (assesses) de effectiviteit in generating sales from working
capital.
PPE turnover = meet hoe efficient bij genereren van netto-omzet uit vaste activa.
Price sales ratio = indicates the value investors place on each dollar of sales. Low → may
indicate that the stock is undervalued compared to its sales. High → could suggest that the
stock is overvalued, or that investors expect high future growth.
Market to book ratio = compare the market value per share to the book value per share.
assesses how the market values a companies investments relative to their historical costs.
Tobins Q = compares the market value of a firms assets to their replacement costs.
- voordeel: provides a more current valuation compared to the market-to-book ratio.
- uitdaging: difficult to estimate replacement costs accurately.
The Du Pont Identity = illustrates the relationship between ROA and ROE by decomposing
ROE into 3 key components:
1. Operating efficiency: assessed through the profit margin, calculated as net income/sales
2. Asset use efficiency: evaluated by the total asset turnover
3.Financial leverage (hefboomwerking): verhouding tussen de totale activa en het eigen
vermogen van de aandeelhouders.
pagina 16 hierover nog een keer doornemen, supervaag.
time value of money = a euro in hand today is worth more than a euro promised in the future,
due to the potential to earn interest.
Future Value = the amount of money an investment will grow to over a specified period,
given a certain interest rate.
Week 1 (chapter 1,3 en 4)
3 key questions:
1. Which long-term investments should you pursue(nastreven)?
2. How will you obtain long-term financing for these investments?
3. How will you manage your day-to-day financial operations?WCM
Capital budgeting = the process of planning and managing a firms long-term
investments.(vraag 1) What is CB responsible for? Investment decisions.
The financial manager aims to identify investments that are more valuable to the firm than
their costs. So you have a net present value.
- key considerations include assessing the size, timing and risk of future cash flows.
Capital/Financial structure:
- Long-term debt: borrowing by the firm >1 year
- Equity: funds raised from owners through their investments in the firm.
Working capital management = managing a firm’s short-term assets and liabilities (vraag
3). 3 questions to awnser regarding working capital:
1. How much cash and inventory should we keep available/om hand?
2. Should we sell on credit? op krediet verkopen
3. How will we obtain(verkrijgen) any short term-financing?
Accounting = focuses on recording (vastleggen) past transactions
Finance = focuses on forecasts (prognoses) and planning with future-oriented perspective.
Financial management goal: maximizing shareholder value
Goals of financial management fall into two categories:
1. Profitability: increasing sales, gaining marketshare, controlling costs (boost profits).
2. Controlling risk: avoiding bankruptcy (fallissementen), maintaining stability, and
ensuring safety.
→ these two goals are often contradictory.
Primary goal of financial manager is to maximize the market value of the owners equity. This
goal removes the contradiction:
- no ambiguity (dubbelzinnigheid) in criterion: a bigger residue profits (restwinst)
owners as well as other stakeholders.
- no ambiguity in long-vs short term. focus on the current value.
Primary markets: this is where the original sale of securities (effecten) by governments and
corporations take place. 2 types:
1. Public offerings: securities are sold to the general public.
a. Initial public offerings (IPO’s): are the first issuance (uitgifte) of shares done
in the primary market as a firm goes public. (als een bedrijf naar de beurs
gaat)
, b. Seasoned offerings: are the second share issuance done at the primary
market by a already public firm.
2. Private placements: a negotiated sale to a specific buyer.
Secondary markets: this is where investors trade securities with each other, meaning one
owner or creditor sells to another. 2 reasons:
1. To provide a place to liquidate investments and get money back.
2. To establish (vaststellen) a price for investments, by transferring ownership of corporate
securities and determining share prices.
2 types of secondary markets:
1. Dealer markets: dealers buy and sell for themselves, taking on risk. Over-the-counter
(OTC) markets are dealer markets for equity and long-term debt, where most debt securities
are traded.
2. Auction (veiling) markets: these have a physical location and focus on matching buyers
with sellers.
Als je aandelen van Tesla koopt, koop je ze niet rechtstreeks maar op de secundaire markt
van een andere investeerder.
Peer-to-peer trading platforms: is een marktplaats waar gebruikers rechtstreeks met
elkaar kunnen handelen, zonder tussenkomst van een bank of beurs. The macroeconomic
policy of a country involves government decisions that affect the overall economic
environment. 4 main categories:
1. Fiscal Policy = government spending and taxes. (hoge belastingen verminderd uitgaven)
2. Monetary Policy = control of interest rates and the money supply (hoeveelheid)
sparen/lenen wordt beinvloed. lagere prijsinflatie als mensen meer sparen.
3. Exchange rate policy (wisselkoers)= how a country manages the value of its currency
relative to other currencies to improve trade competitiveness.
- Low exchange rates: make exports cheaper for foreign buyers, foreign buyers
spend less of their currency(valuta) on goods from the country with the weaker
, currency, imports become more expensive for the country, so reducing demand for
foreign goods.
- High exchange rates: make exports more expensive for foreign buyers, they need
to spend more of their currency to buy goods from a country with a stronger currency,
imports become cheaper for the country, increasing demand for foreign goods.
- you have fixed(vaste) and floating (zwevende) exchange rates.
4. Foreign Trade Policy = the use of trade barriers and import controls to manage the cost
of imports and exports.
The Annual Report (three key financial statements):
1. Balance sheet: accounting value as of a specific date (snapshot at that moment)
- assets (Current assets (invetory, cash), long-term assets(tangable or intangible)
Assets can be valued in two ways:
1. historical costs model: you value what is paid for the asset.
2. revaluation model: value assets at their current market value (huidige
marktwaarde)
- Liabilities (current (obligations/salary <1 jaar) en long term
(bonds/mortgages(hypotheken >1 jr)
- Equity = calculated asset minus liabilities. = NWC net working capital
Waarde altijd marktwaarde in de financiën.
2. Income statement.(HELPS INVESTORS BEST DETERMINE CORPORATE
PROFITABILITYwinst/verliesrekening summarizes a firms performance over a specific
period.
- net income: (revenues - expenses) - taxes
- Addition to retained earnings: net income - dividends paid.
- EPS (earnings per share): net income/ the number of shares.
- Book value per share: total equity/number of shares outstanding.
Components:
- realization principle: revenue is recognized when its earned, not necessarily when
cash is received.
- Matchingprinciple: expenses are matched with the revenues they help generate.
- Non-cash items: expenses like depreciation that are recorded against revenues but
do not directly affect cashflow
Corporate tax rates:
- Average tax rate: the percentage of your income that goed to pay taxes
- Marginal tax rate: at which you would be taxed on an additional unit of income.
- Flat-rate tax: single tax rate applied uniformly to all income levels.
3.The statement of cashflows.
- cashflow identity. equation cashflow from assets. shows that the cash genergated by
the firms assets is used to pay creditors and shareholders.
- Total cashflow: the overall cash movement during the period
- Operating cashflow: cash generated from the firms normal business operations.
- Cashflow from investing activities: represents cash transactions related to the firms
long-term investments.
, -Cashflow from financing activities: cash transactions resulting from the firms
financing decisions, including changes in debt and equity.
- Cashflow is GEEN working capital. WC is momentopname specifiek
- Cashflow is ook GEEN profit. depreciation reduces profit but does not affect cashflow
directly.
DOORNEMEN TABELLEN FORMULES P10 ™ P14 voor begrip. echt belangrijk echt doen.
Short-term solvency or measures = the provide information about the liquidity of a firm.
- the primary concern is the firms ability to pay the bills over the short run
- book values and market values are likely to be similair.
- Current assets and liabilities can change very rapidly.
accounts receivable = openstaande vorderingen/debiteurenomzet
turnover = omzet
payables turnover = meet hoe vaak een bedrijf zijn openstaande rekeningen (accounts
payable) gedurende een periode betaalt.
NWC turnover = meet hoe efficient een bedrijf zijn working capital gebruikt om verkoop en
groei te supporten. beoordeelt (assesses) de effectiviteit in generating sales from working
capital.
PPE turnover = meet hoe efficient bij genereren van netto-omzet uit vaste activa.
Price sales ratio = indicates the value investors place on each dollar of sales. Low → may
indicate that the stock is undervalued compared to its sales. High → could suggest that the
stock is overvalued, or that investors expect high future growth.
Market to book ratio = compare the market value per share to the book value per share.
assesses how the market values a companies investments relative to their historical costs.
Tobins Q = compares the market value of a firms assets to their replacement costs.
- voordeel: provides a more current valuation compared to the market-to-book ratio.
- uitdaging: difficult to estimate replacement costs accurately.
The Du Pont Identity = illustrates the relationship between ROA and ROE by decomposing
ROE into 3 key components:
1. Operating efficiency: assessed through the profit margin, calculated as net income/sales
2. Asset use efficiency: evaluated by the total asset turnover
3.Financial leverage (hefboomwerking): verhouding tussen de totale activa en het eigen
vermogen van de aandeelhouders.
pagina 16 hierover nog een keer doornemen, supervaag.
time value of money = a euro in hand today is worth more than a euro promised in the future,
due to the potential to earn interest.
Future Value = the amount of money an investment will grow to over a specified period,
given a certain interest rate.
