CORPORATE FINANCE COURSE
CORPORATE FINANCE 2.1
Working Capital Management
Sept. 2014
Ir Frank W. van den Berg mba
Vrije Universiteit, Amsterdam
ALYX Financial Consultancy
bv,
Aerdenhout
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OUTLINE CORPORATE FINANCE
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Basics & Guiding principles
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Time value of money + Capital Budgeting
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Valuation of CF + Bonds
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Valuation of shares (+ co.’s)
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Financial Analysis (Ratios)
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Financial Planning (EFN)
• à Working Cap. Mgt. (A/R, Inv., A/P)
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Debt Financing
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2
FIN
1.5
FIN
2.1
Entrepreneurial Finance / Raising Equity
Mergers & Acquisitions / Corp. Restructuring
FINANCIAL RATIOS - Example 1
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Sample Balance sheet (000’s €)
Cash +
…show more content…
This “looks” great, but is probably too aggressive (why?)
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FINANCIAL RATIOS
Credit policy
“Normal” payment terms: 2/10 net 30 à 2% discount within 10 days payment, otherwise 30 days
Example: Co. XYZ now has 30 days payment terms; average payment by all customers is now 40 days.
XYZ considers 2/10 net 30 terms; the (assumed) result is that 20% is paid in 10 days, 80% in 45 days.
What is better for the company? (interest = say 5%)
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FINANCIAL RATIOS
Credit policy
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Example: Co. XYZ now has 30 days payment terms; average payment by all customers is now 40 days (A).
XYZ considers 2/10 net 30 terms; the (assumed) result is that 20% is paid in 10 days, 80% in 45 days (B). Say sales = 50 mln. à paid in 10 days: 20% x 50 – 2% = 9,8
NPVA = 50 / (1,05) 40 / 365 = 49.727.520 ß higher value
NPVB = 9,8 / (1,05) 10 / 365 + 40 / (1,05) 45 / 365 =
9.786.593 + 39.754.935 = 49.541.528
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FINANCIAL RATIOS
Average inventory period: (Inv. / CGS) x 12 =
3 / 10 x 12 = 3,6 mths. (= fairly high)
Reduce Inventory as much as possible
Avoid “stock-outs”
Use JIT: “just-in-time” (car plant)
Apply advanced Logistics system (supermarket)
Accounts receivable (net) increased by $500,000 during the year. This increase has what effect on cash flow?
The decision making of management is very crucial and involves various analysis to be performed. There are various ratios and methods that can be useful for mitigating the risks and increasing the expected returns with investments. The financial forecast is a mix of the behaviour,
Define the scope of financial management. What role should the financial manager play in a
Second City Options (SCO) is a small firm that specializes in option trading. Employing 35 people, SCO is located on LaSalle Street in the Chicago financial district. It is a member firm of the Chicago Board Options Exchange (CBOE), where it trades options on stocks and stock indices. It is also a member firm of the Chicago Mercantile Exchange Group (CME Group), where it trades options on futures and the underlying futures contracts.
The benefits would be keeping track of the business operation and being able to fix issues or recognise successful employees.
The basic aspects of personal finance seem to be obvious to a fair number of people. However, due to the typical American education system, there are a vast majority of graduating high school students that enter the so-called ‘real world’ without having any practical knowledge on how to properly manage, spend, and invest the money they are hoping to make. The addition of a personal finance course, such as the one just taken over this summer session, to a standard high school curriculum would help assist future generations in enabling themselves to gain control over their finances, and would thus help the country as a whole by reducing the national debt.
3 Answer A A tax can be used to ensure that those who generate harmful effects pay for them rather than third parties. 4 Answer B Public goods cannot be left to market forces as they are non-rival and non-excludable. A and C refer to merit goods and D to demerit goods. 5 Answer B More training, if in appropriate areas, should enable workers to move more easily from declining to expanding industries. A would help to reduce geographical immobility. C and D would be likely to increase demand and employment. 6 Answer B The socially optimum output is where MSB equals MSC, at point W. To achieve this output costs need to rise to incorporate external cost. The marginal external cost at W is represented by the gap between MSC and MPC.
A) an increase in equilibrium quantity and uncertain effect on equilibrium price. B) an increase in equilibrium price and quantity. C) a decrease in equilibrium price and increase in equilibrium quantity. D) a decrease in equilibrium price and quantity. 10) On September 3, 2003, Universal Music Group announced plans to reduce the wholesale price of music CDs it distributes by an average of 2530 percent. All else constant (i.e., ignoring the effects of file-sharing programs), how would this change affect the retail market for new music CDs? 10) ______ A) The supply of CDs would increase, causing equilibrium price to decrease and equilibrium quantity to increase. B) Demand for CDs would decrease, causing equilibrium price and quantity to decrease. C) Demand for CDs would increase, causing equilibrium price and
lincoln,nebraska 2007 ,was the year paul donahoe hands was raised in victory after he became the wrastling champion of the university of nebraska. following that success he later worked his to the national wrastling championship.he became extremely famous at the university and he brought a great pride to the university and the wrastling program. on the wrastling team paul established a friendship with kenny jordan,a junior wrastlers. kenny won the 2007 1333 pound tiltle at the las vagas invitional.both these guys were famous and they brought pride and prestige to the university. the pride and jopy of these guys became a humiliation and embarrassment to the university when news circulated that they posted on a gay porn weebsite nude.
* Maximum Issue This Year: The upper limit on bonds (long term debt) that you can issue this year. Bondholders examine Fixed Assets and your Leverage (Assets/Equity ratio) to determine a funding limit. In general, bondholders are interested in funding plant and equipment. They fund up to 80% of last year’s Fixed Assets. However, as your Leverage increases, they become concerned and typically refuse additional funding as Leverage exceeds 4.0.
As part of my assignment, I have been asked to discuss the following statement “Mergers and acquisitions can be value destroyers or value creators”. A merger can be defined as when two equal businesses in terms of profit margin and status, combine in order to become one legal entity. Initially, the fundamental reason for this merge is to produce a company that is worth more than the sum of its parts. An acquisition is where one company acquires a controlling interest in another company. The combination of these unequal companies can produce the same or even more benefits as a merger would. In different cases, these mergers and
Brazil’s real rallied the most among emerging-market currencies as the central bank said high inflation requires attention, spurring speculation that policy makers will let the currency strengthen to contain prices.
A.In finance, the financial system is the system that allows the transfer of money between savers (and investors) and borrowers.[1] A financial system can operate on a global, regional or firm specific level. Gurusamy, writing in Financial Services and Systems has described it as comprising "a set of complex and closely interconnected financial institutions, markets, instruments, services, practices, and transactions.