finance mba 13.01.2016
DESCRIPTION
financial accountingTRANSCRIPT
+++ MCO 201 +++ Finance +++ Spring 2016 +++
An
dre
as B
ang
e D
iplo
m B
etrieb
swirt
(FH
)
Welcome to
“Finance”
+++ MCO 201 +++ Finance +++ Spring 2016 +++
An
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ang
e D
iplo
m B
etrieb
swirt
(FH
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PunctualityCleanlinessFairnessInternetBreaks
A4endanceList
CourseOverview
Grading
1. Assignment 20%
2. Presenta8on 30%
3. Final 50%
+++ MCO 201 +++ Finance +++ Spring 2016 +++
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Finance! What is it? CorporateFinance&theFinancialManger
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Finance? Individualsaretakingchargeoftheirpersonalfinanceswithdecisionssuchas:
ü Whentostartsavingandhowmuchtosaveforre8rementü Whetheracarloanorleaseismoreadvantageousü Whetherapar8cularstockisagoodinvestmentü Howtoevaluatethetermsofahomemortgage
CorporateFinance&theFinancialManger
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Finance? InyourBusinessCareer,youmayfacesuchques8onssuchas:
ü Shouldyourfirmlaunchanewproduct?ü Whichsuppliershouldyourfirmchoose?ü Shouldyourfirmproduceapartoroutsourceproduc8on?ü Shouldyourfirmissuenewstockorborrowmoneyinstead?ü Howcanyouraisemoneyforyourstart-upfirm?
CorporateFinance&theFinancialManger
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Borrowed Qwn
Financing Aktivity Capital
1
Investing Activity Assets
2
Capital = Assets
Operating Activity 3
Making Business
3 Business Activities CorporateFinance&theFinancialManger
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SoleProprietorships
The4TypesofFirmsInvestment&FinancingDecisionsbytheFinancialManger
Partnerships
LimitedLiabilityCompanies
CorporaCons
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The4TypesofFirms
SoleProprietorships:ü StraighQorwardandmanynewbusinessesusethis
organiza8onalformü Principallimita8onisthatthereisnosepara8onbetweenthe
firmandtheownerü Thefirmcanhaveonlyoneownerü Theownerhasunlimitedpersonalliabilityforanyofthefirm’s
debtsü Thelifeofasoleproprietorshipislimitedtothelifeofthe
ownerü Itisdifficulttotransferownershipofasoleproprietorship
CorporateFinance&theFinancialManger
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The4TypesofFirms
Partnership:ü Morethanoneownerü Allpartnersareliableforthefirm’sdebt
Alendercanrequireanypartnertorepayallthefirm�soutstandingdebts
ü Thepartnershipendsonthedeathorwithdrawalofanysinglepartner
ü Partnerscanavoidliquida8onifthepartnershipagreementprovidesforalterna8vessuchasabuyoutofadeceasedorwithdrawnpartner
CorporateFinance&theFinancialManger
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The4TypesofFirms
Partnership:ü Alimitedpartnershipisapartnershipwithtwokindsof
owners,generalpartnersandlimitedpartnersGeneralPartners
HavethesamerightsandprivilegesaspartnersinanygeneralpartnershipArepersonallyliableforthefirm�sdebtobliga8ons
LimitedPartnersHavelimitedliabilityandtheirownershipinterestistransferableTheyhavenomanagementauthority
CorporateFinance&theFinancialManger
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The4TypesofFirms
LimitedLiabilityCompanies:ü Nogeneralpartnerü Alltheownershavelimitedliability,buttheycanalsorunthe
business
CorporateFinance&theFinancialManger
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The4TypesofFirms
CorporaCons:ü ACorpora8onisalegallydefined,ar8ficialbeing,separate
fromitsownersIthasmanyofthelegalpowersthatpeoplehave
Itcanenterintocontracts,acquireassets,incurobliga8ons,anditenjoysprotec8onundertheU.S.Cons8tu8onagainsttheseizureofitsproperty
ü Acorpora8onissolelyresponsibleforitsownobliga8onsü Theownersofacorpora8onarenotliableforanyobliga8ons
thecorpora8onentersintoü Thecorpora8onisnotliableforanypersonalobliga8onsofits
owners
CorporateFinance&theFinancialManger
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ang
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iplo
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(FH
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The4TypesofFirms
CorporaCons:ü Forma8onofaCorpora8on
MustbelegallyformedMustbecharteredinthestateinwhichitisincorporatedCorporatecharterspecifiestheini8alrulesthatgovernhowthecorpora8onisrunMorecostlythanseXngupasoleproprietorship
ü OwnershipofaCorpora8onNolimitonthenumberofownersTheen8reownershipstakeofacorpora8onisdividedintosharesknownasstockThecollec8onofalltheoutstandingsharesofacorpora8onisknownastheequityofthecorpora8on
CorporateFinance&theFinancialManger
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(FH
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The4TypesofFirms
CorporaCons:ü OwnershipofaCorpora8on
NolimitonthenumberofownersTheen8reownershipstakeofacorpora8onisdividedintosharesknownasstockThecollec8onofalltheoutstandingsharesofacorpora8onisknownastheequityofthecorpora8onAnownerofashareofstockinthecorpora8onisknownasashareholder,stockholder,orequityholderShareholdersareen8tledtodividendpayments
Usuallyreceiveashareofthedividendpaymentsthatispropor8onaltotheamountofstocktheyown
Nolimita8ononwhocanownitsstock
CorporateFinance&theFinancialManger
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TypesofU.S.FirmsInvestment&FinancingDecisionsbytheFinancialManger
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Investment&FinancingDecisionsInvestment&FinancingDecisionsbytheFinancialManger
CommonFinanceTerminologyü RealAssets
Assetsusedtoproducegoodsandservices.
ü FinancialAssetsFinancialclaimstotheincomegeneratedbythefirm�sRealAssets.
ü InvestmentDecisionsPurchaseofRealAssets.
ü FinancingDecisionsSaleofFinancialAssets
ü CapitalBudgeCngDecisions
+++ MCO 201 +++ Finance +++ Spring 2016 +++
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ang
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iplo
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Investment&FinancingDecisionsInvestment&FinancingDecisionsbytheFinancialManger
CommonFinanceTerminologyü CapitalBudgeCngDecisions
DecisiontoinvestintangibleorintangibleAssets.…alsocalledtheInvestmentDecision…alsocalledCapitalExpendituresor(CAPEX)
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Investment&FinancingDecisionsInvestment&FinancingDecisionsbytheFinancialManger
InvestmentChoosethebestProjects
•
CapitalBudge8ng
FinancingChoosesourceofFinancingforInvestment
•CapitalStructure
LiquidityEnsuretohaveenoughCashand
Inventory•
Short-TermFinancialPlanning
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TheBalanceSheetModeloftheFirmInvestment&FinancingDecisionsbytheFinancialManger
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TheBalanceSheetModeloftheFirmInvestment&FinancingDecisionsbytheFinancialManger
InJune,2011,GlencoreInterna8onal,aglobalcommodi8esandrawmaterialsfirm,announceditsfinancialresultsforthefirstquarter.InJune2011,thecompanyhad$36.69billionintangiblenon-currentassetsandonly$150millioninintangiblenon-currentassets.Currentassetsamountedto$46.75billionandcurrentliabili8es(liabili8esduewithinoneyear)were$39.16billion.Glencorehad$20.81billioninnon-currentliabili8es.WhatistheBalanceSheetmodel?
+++ MCO 201 +++ Finance +++ Spring 2016 +++
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TheBalanceSheetModeloftheFirmInvestment&FinancingDecisionsbytheFinancialManger
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TheCapitalStructureInvestment&FinancingDecisionsbytheFinancialManger
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TheCapitalStructureInvestment&FinancingDecisionsbytheFinancialManger
Filtronic,theBri8shwirelessinvestmentfirm,raised£1.3millionin2011byissuingnewsharestoinvestors.Filtroniccouldalsohaveborrowed£1.3millionfromabankorissuedbondsworth£1.3millionasdebt.Whydidthefirmchoosetoissuenewequity?
ClearlythedecisionwasbasedonwhatwouldmaximisethevalueofthefirmandinFiltronic�scase,equitywasthemostsensibleop8on.Theshareissuefollowedanannuallossof£7millionin2011andalossof£1millionin2010.Itwouldhavebeenexcep8onallydifficulttogetanyonetolendtothefirmalersuchpoorperformanceandsoequitysharesweretheonlychoicetheyhad.
Thisisagood8metousetheinternettoseehowFiltronichasperformedsincetheshareissue.
+++ MCO 201 +++ Finance +++ Spring 2016 +++
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TheCapitalStructureInvestment&FinancingDecisionsbytheFinancialManger
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TheFinancialManagerInvestment&FinancingDecisionsbytheFinancialManger
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HowCashFlows…Investment&FinancingDecisionsbytheFinancialManger
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Accoun8ngFlowvs.CashFlowInvestment&FinancingDecisionsbytheFinancialManger
MidlandplcisanIrishfirmthatrefinesandtradesgold.Attheendoftheyear,itsold2,500ouncesofgoldfor€1.67million.Thecompanyhadacquiredthegoldfor€1millionatthebeginningoftheyear.Thecompanypaidcashforthegoldwhenitwaspurchased.Unfortunatelyithasyettocollectfromthecustomertowhomthegoldwassold.
Accounting Flow Cash Flow Sales €1.670.000
- Costs €1.000.000 Profit €670.000
Inflow €o - Outflow €1.000.000 - €1.000.000
+++ MCO 201 +++ Finance +++ Spring 2016 +++
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TimingofCashFlowInvestment&FinancingDecisionsbytheFinancialManger
TheItalianfirm,MontanaSpA,isanemp8ngtochoosebetweentwoproposalsfornewproducts.Bothproposalswillprovideaddi8onalcashflowsoverafour-yearperiodandwillini8allycost€10,000.Thecashflowsfromtheproposalsareasfollows:
Year New
Product A
New Product
B 1 € 0 € 4,000 2 0 4,000 3 0 4,000 4 20,000 4,000
Total €20,000 €16,000
WhichisBest?
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TheRiskofCashFlowInvestment&FinancingDecisionsbytheFinancialManger
TheNorwegianfirm,FjellASA,isconsideringexpandingopera8onsoverseas,anditisevalua8ngtheNetherlandsandSouthAfricaaspossiblesites.TheNetherlandsisconsideredtoberela8velysafe,whereasopera8nginSouthAfricaisseenasconsiderablymorerisky.Inbothcasesthecompanywouldclosedownopera8onsaleroneyear.
Alerundertakingacompletefinancialanalysis,Fjellhascomeupwiththefollowingcashflowsofthealterna8veplansforexpansionunderthreescenarios—pessimis8c,mostlikely,andop8mis8c:
PessimisCc MostLikely OpCmisCc
Netherlands NOK750,000 NOK1,000,000 NOK1,250,000SouthAfrica 0 1,500,000 2,000,000
WhichistheBest?
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TheGoalofFinancialManagementInvestment&FinancingDecisionsbytheFinancialManger
MaximiseValueofOwner´sEquity
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WhataretheFinancialMarketsInvestment&FinancingDecisionsbytheFinancialManger
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Finance!SoWhatisit?Investment&FinancingDecisionsbytheFinancialManger
InvestmentDecision
FinancingDecision
Short-TermCapitalManagement
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TheFinancialManagerhasthreemaintasks:ü Makeinvestmentdecisionsü Makefinancingdecisionsü Managecashflowfromopera8ngac8vi8es
TheFinancialManagerInvestment&FinancingDecisionsbytheFinancialManger
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MakingInvestmentDecisionsü TheFinancialManagermustweighthecostsandbenefits
ofeachinvestmentorprojectü Theymustdecidewhichinvestmentsorprojectsqualifyas
goodusesofthestockholders’money
TheFinancialManagerInvestment&FinancingDecisionsbytheFinancialManger
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MakingFinancingDecisionsü Thefinancialmanagermustdecidewhethertoraisemore
moneyfromnewandexis8ngownersbysellingmoresharesofstockortoborrowthemoneyinstead
TheFinancialManagerInvestment&FinancingDecisionsbytheFinancialManger
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ManagingShort-TermCashNeedsü Thefinancialmanagermustensurethatthefirmhasenough
cashonhandtomeetitsobliga8onsateachpointin8meü Thisjobisalsoknownasmanagingworkingcapital
TheFinancialManagerInvestment&FinancingDecisionsbytheFinancialManger
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TheGoaloftheFinancialManagerü Theoverridinggoaloffinancialmanagementistomaximize
thewealthofthestockholders
TheFinancialManagerInvestment&FinancingDecisionsbytheFinancialManger
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Stockholdersownthecorpora8onbutrelyonFinancialManagerstoac8velymanagethecorpora8on
ü TheBoardofDirectorsandthemanagementteamheadedbytheCEOpossessdirectcontrolofthecorpora8on
TheCorporateManagementTeamü BoardofDirectors
Agroupofpeopleelectedbyshareholderswhohavetheul8matedecision-makingauthorityinthecorpora8on
ü ChiefExecuCveOfficer(CEO)Thepersonchargedwithrunningthecorpora8onbyins8tu8ngtherulesandpoliciessetbytheBoardofDirectors
TheFinancialManager´sPlaceintheCorpora8onInvestment&FinancingDecisionsbytheFinancialManger
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TheFinancialFunc8onwithinaCorpora8onInvestment&FinancingDecisionsbytheFinancialManger
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EthicsandIncen8vesinCorpora8onsü AgencyProblems
Whenmanagersputtheirownself-interestaheadoftheinterestsofthoseshareholders
ü TheCEO’sPerformanceWhenthestockperformspoorly:
TheboardofdirectorsmightreactbyreplacingtheCEOAcorporateraidermayini8ateahos8letakeover
TheFinancialManager´sPlaceintheCorpora8onInvestment&FinancingDecisionsbytheFinancialManger
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TheInvestmentTrade-OffInvestment&FinancingDecisionsbytheFinancialManger
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GoalsoftheCorpora8onInvestment&FinancingDecisionsbytheFinancialManger
Eachstockholderwantsthreethings:ü Tobeasrichaspossible,thatis,tomaximizehisorher
currentwealth.ü Totransformthatwealthintothemostdesirable8me
panernofconsump8oneitherbyborrowingtospendnoworinves8ngtospendlater.
ü Tomanagetheriskcharacteris8csofthatconsump8onplan.
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GoalsoftheCorpora8onInvestment&FinancingDecisionsbytheFinancialManger
Profitmaximiza8onisnotawell-definedfinancialobjec8ve,foratleasttworeasons:
ü Maximizeprofits?Whichyear�sprofits?Acorpora8onmaybeabletoincreasecurrentprofitsbycuXngbackonoutlaysformaintenanceorstafftraining,butthatmayaddvalue.Shareholderswillnotwelcomehighershort-termprofitsiflong-termprofitsaredamaged.
ü AcompanymaybeabletoincreasefutureprofitsbycuXngthisyear�sdividendandinves8ngthefreed-upcashinthefirm.Thatisnotintheshareholders�bestinterestifthecompanyearnslessthantheopportunitycostofcapital.
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24
29
78
83
97
76
71
22
17
3
0 20 40 60 80 100 120
United States
United Kingdom
France
Germany
Japan
% of responsesThe Shareholders
All Stakeholders
**Surveyof378managersfrom5countries
WhoseCompanyisIt?Investment&FinancingDecisionsbytheFinancialManger
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11
11
59
60
97
89
89
41
40
3
0 20 40 60 80 100 120
United States
United Kingdom
France
Germany
Japan
% of responsesDividends
Job Security
**Surveyof399managersfrom5countries.Whichismoreimportant...jobsorpayingdividends?
Dividendsvs.JobsInvestment&FinancingDecisionsbytheFinancialManger
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FinancialIns8tu8onsFinancialInsCtuCons
ü En88esthatprovidefinancialservices,suchastakingdeposits,managinginvestments,brokeringfinancialtransac8ons,ormakingloans
CorporateFinance&theFinancialManger
TheFinancialCycle1. Peopleinvestandsavetheir
money2. Throughloansandstock,that
moneyflowstocompanieswhouseittofundgrowththroughnewproducts,genera8ngprofitsandwages
3. Themoneythenflowsbacktothesaversandinvestors
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FinancialIns8tu8onsTypesofFinancialIns8tu8ons
ü BanksandCreditUnionsü InsuranceCompaniesü MutualFundsü PensionFundsü HedgeFundsü VentureCapitalFundsü PrivateEquityFunds
CorporateFinance&theFinancialManger
ü Financialconglomerates/financialservicesfirmscombinemorethanonetypeofins8tu8on
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FinancialIns8tu8onsandtheirRoleintheFinancialCycleCorporateFinance&theFinancialManger