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FINANCE 1. Introduction

FINANCE 1. Introduction. Solvay Business School Université Libre de Bruxelles. Qui suis-je?. André Farber Professeur de finance à la Solvay Business School depuis…. Actuellement Vice Recteur à la Stratégie et au Développement Institutionnel Administrateur de CPH Banque & Fluxys.

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FINANCE 1. Introduction

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  1. FINANCE1. Introduction Solvay Business School Université Libre de Bruxelles

  2. Qui suis-je? • André Farber • Professeur de finance à la Solvay Business School depuis…. • Actuellement • Vice Recteur à la Stratégie et au Développement Institutionnel • Administrateur de CPH Banque & Fluxys DESG

  3. Organisation du cours • Référence: FLOP Farber, A., Laurent, M-P., Oosterlinck, K ; Pirotte, H. Finance Pearson Education, 2004 • Site web: www.ulb.ac.be/cours/solvay/farber • Slides • Fichiers Excel • Anciens examens • Cotation: • Examen à livre fermé DESG

  4. Qu’est-ce que la finance? • Trois grandes types de décisions: • INVESTISSEMENT • FINANCEMENT • DIVIDENDES DESG

  5. Bilan Compte de résultats Chiffres d’affaires Charges d’exploitation = Résultat avant charges financières et impôts (EBIT) Intérêts Impôts = Bénéfice net Bénéfice mis en réserve Dividende Vision comptable Fonds de roulement net Dettes à court terme Actifs circulant Dettes à moyen et long terme Immobilisés Fonds propres DESG

  6. Flux financiers (Cash Flows) Emission de titres Investissement Entreprise Marchés financiers Investisseurs Cash flow opérationnel Dividendes, intérêts TEMPS et INCERTITUDE DESG

  7. Vision financière Valeurs comptable Valeurs de marché Création de valeur Capitalisation boursière Actif total Fonds propres Market capitalization Immobilisés + Fonds de roulement net Valeur de la dette Dettes DESG

  8. How to measure value creation ? • 1. Compare market value of equity to book value • Value creation if M/B > 1 • 2. Compare return on equity to the opportunity cost of equity • Value creation if ROE > Opportunity Cost of Equity DESG

  9. Google Inc. (GOOG)(24/01/08) Stock price:$574.49 DESG

  10. Google (suite) DESG

  11. Création de valeur • L’objectif de ce cours est d’introduire les principales méthodes d’évaluation qui permettent d’identifier les décisions créatrices de valeurs. • Il repose sur quelques principes fondamentaux: • TIM: Time is money, le temps est de l’argent • NFL: No free lunch, pas de repas gratuit (≠National Football League) • RIRE: Risk – Return (pas drôle) • NABO: No arbitrage opportunity, pas d’arbitrage possible (géant..) DESG

  12. Plan du cours 1. Introduction – Fondements (certitude) 2. Fondements (incertitude) 3. Relation risque – rentabilité attendue 4. Evaluation d’options 5. Evaluation d’actions et d’entreprises 6. Choix d’investissement 7. Structure financière et coût du capital 8. Synthèse DESG

  13. Drivers of ROE • PROFITABILITY (du Pont system) • Three determinants : 16.4% Profit Margin Asset Turnover Financial Leverage • Microsoft - 2004 US$ bil. • Net Income 10 • Sales 32 • Assets 61 • Book equity 61 31.0% 0.52 1.00 DESG

  14. Examples Source: Business Week July 26, 2004 DESG

  15. Levers of Performance DESG

  16. Summarized (managerial) balance sheet Liabilities Stockholders' equity (SE) Interest-bearing debt (D) Assets Fixed assets (FA) Working capital requirement (WCR) Cash (Cash) FA + WCR + Cash = SE + D Working capital requirement : definition + Accounts receivable+ Inventories+ Prepaid expenses - Account payable- Accrued payroll and other expenses Interest-bearing debt: definition + Long-term debt+ Current maturities of long term debt+ Notes payable to banks DESG

  17. Net Working Capital • Net working capital can be understood in two ways: • as an investment to be funded: Current Assets - Current Liabilities • as a source of financing=Stockholders' equity + LT debt - Fixed Assets Fixed Assets Stockholder’s equity Current ratio: a measure of NWC Current ratio = Current assets / Current liabilites Net working capital = Current assets - Current liabilites Current ratio > 1  NWC > 0 Net Working Capital Long term debt Current Assets Current liabilities DESG

  18. Net Working Capital vs Working Capital Requirement • Summarized balance sheet identity: • FA + WCR + CASH = SE + LTD + STD • can be written as: • WCR + (CASH - STD) = (SE + LTD - FA)  • WCR + NLB = NWC Net Working Capital Net Liquid Balance Working Capital Requirement DESG

  19. Return on invested capital • Return on assets (net)= Net income / Total assets • Advantage: fits with DuPont system • ROE = ROA x Equity multiplier • Limitation: Net income = EBIT - Interest expense - Taxes • Depends on capital structure: • 1. Interest expense: function of interest-bearing debt • 2. Interest expense : tax deductible • Preferred measure: Return on Invested Capital (ROIC) • NB: ROIC = ROA (gross) (1 - Tax rate) • = ROE of a all equity financed firm DESG

  20. Financial leverage • Financial leverage magnifies ROE only when ROA (gross) is greater than the interest rate on debt. • Balance sheet: TA = SE + D • Income statement: NI = EBIT - INT- TAX • Interest expense INT = r D (Interest expense = Interest rate x Interest-bearing debt) • Taxes TAX = (EBIT - r D) Tc (Taxes = Taxable income x Tax rate) • Remember : ROIC = ROAgross (1 - Tc) • ROE = ROIC + (ROAgross - r) (1-Tc) (D/SE) DESG

  21. Financial Leverage: example DESG

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