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Financing

Financing. Eva Kemrová eva.kemrova@vscht.cz. Cash flow (CF). is a movement of cash into or out of a business is used: to evaluate the performance of a business to determine problem with liquidity to generate a project rate (also net present value) …. 3 sections of cash flow.

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Financing

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  1. Financing Eva Kemrová eva.kemrova@vscht.cz

  2. Cash flow (CF) • is a movement of cash into or out of a business • is used: to evaluate the performance of a business to determine problem with liquidity to generate a project rate (also net present value) …

  3. 3 sections of cash flow • operational CF - result of the company's internal business activities • investment CF - sale of long-life assets, or spent on capital expenditure (investments, acquisitions and long-life assets¨) • financing CF - cash received from the issue of debt and equity, or paid out as dividends, share repurchases or debt repayments

  4. How to increase cash flow • sell the receivables to a factor for instant cash • don't pay your suppliers for an additional few weeks at period end • remunerate with stock options • don't buy but rent your equipment • …

  5. Present value (PV) • is the value on a given date of a future payment or series of future payments, discounted to reflect the time value of money and other factors such as investment risk Ct…receiving flows of money it…interest rate per year t…time

  6. Net present value (NPV) • is the total present value of a time series of cash flows • is a standard method for using the time value of money to evaluate long-term projects C0…initial investment Ct…receiving flows of money it…interest rate per year t…time

  7. Example 1 • You have to decide how to invest 200000$. There are two possible investments whose alternative load capital is 15% p.a. and maturity is 6 years. Returns of investments are following: Investment 1 Investment 2 1th year 31000 7200 2nd year 31000 14400 3th year 31000 28800 4th year 31000 57600 5th year 31000 96000 6th year 231000 200000 You have to choose more profitable investment.

  8. Solution 1 NPV1 = 3784 $ (Sum is 386 000 $) NPV2 = 3213 $ (Sum is 404 000 $) The total sum of returns of the investment 2 is better but according to the result of NPV we should choose the investment 1.

  9. Balance sheet • financial accounting • 2 sides – assets and liabilities assets - property of a company liabilities – resources financial • both sides are equal • represents a single moment in time, usually at the end of a period (month, year)

  10. Assets Current assets Cash Inventories Accounts receivable Prepaid expenses Fixed assets Property, plant, equipment Intangible assets Financial assets Liabilities Capital stock Reserve Promissory notes Loan Accounts payable Retained earnings Structure of Balance sheet =

  11. Income statement • also Profit and Loss statement • indicates the transformation of revenues into net income • show managers whether the company made or lost money during the period being reported • represent a period of a time

  12. Structure of Income statement Revenue • cash inflows of assets during a period from major business activities • sales minus sales discounts, returns, and allowances Expenses • cash outflows of assets or incurrence of liabilities during a period from major business activities • general and administrative, selling and R&D expenses and depreciation

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