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THE FOUNDATIONS OF CORPORATE FINANCE: INTRODUCTION TO THE FINANCIAL STATEMENTS

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. What is Corporate Finance The Financial Division in a company

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THE FOUNDATIONS OF CORPORATE FINANCE: INTRODUCTION TO THE FINANCIAL STATEMENTS

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

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

  3. What is Corporate Finance 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 • financing • investment • dividends

  4. The Financial Manager The Financial Manager standsbetween the firm’soperations and the financialmarkets, whereinvestorshold the financialassetsissued by the firm. Firm’soperations Financial Managers Financial Markets (Real assets) (Financ. Assets) • Chief Financial Officer (CFO): Treasurer / Controller • Treasurer: cash management/raising capital/banking relationships • Controller: preparation of financialstatements / accounting /taxes

  5. 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

  6. The classical objective function

  7. The real world

  8. The real world

  9. The tools of Corporate Finance • Financial Statements • Time value of money • Valuation of companies

  10. 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 dynamic ratios analysis flows analysis

  11. 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

  12. Introduction to Financial Statements Static Analysis Dynamic Analysis Ratios Flows • Flows from operations • Flows from investment and financing

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

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

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

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

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

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

  19. 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

  20. Ex. Prepare a balance sheet for ABC co. from the following information. What is the equity? • Bankloans short term of 200 • Cash of 100 • Inventory of 800 • Building and fixtures of 1500 • Accounts receivable of 1200 • Mortgageloan of 1300

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

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