PDF Financial Concepts and Tools for Managers

[Pages:140]FINANCIAL CONCEPTS AND TOOLS FOR MANAGERS

Delta Publishing Company 1

Copyright ? 2008 by DELTA PUBLISHING COMPANY P.O. Box 5332, Los Alamitos, CA 90721-5332 All rights reserved. No part of this course may be reproduced in any form or by any means, without permission in writing from the publisher.

2

CONTENTS

Module 1 The Basics

0. Introduction 1. What is finance? 2. Basic forms of business organizations 3. Financial institutions and markets 4. Depreciation methods 5. Federal corporate taxation

Module 2 Financial Statement Ratios 1. Basic financial statements 2. Stockholders' equity section of the balance sheet 3. Statement of cash flows 4. Horizontal and vertical analysis 5. Liquidity and liquidity ratios 6. Activity ratios 7. Solvency and debt service ratios 8. Profitability ratios 9. Du Pont system 10. Market value ratios 11. Limitations of ratio analysis

Module 3 Budgeting and forecasting financing needs 12. Budgeting 13. Financial forecasting and the percent-of-sales method 14. Cash budgeting

Module 4 Managing working capital

15. Working capital management 16. Cash management 17. Cash management models 18. Marketable securities 19. Management of accounts receivable 20. Inventory management and just-in-time (JIT)

Module 5 Security, Bond, and Asset Valuation 21. Risk 22. Portfolio theory 23. Market index models 24. Capital asset pricing model (CAPM) and arbitrage pricing model (APM) 25. Beta 3

26. Return 27. The risk-return trade-off 28. Bond valuation 29. Bond yield--effective rate of return on a bond 30. Term structure of interest rates 31. Common stock valuation

Module 6 Time value of money and capital budgeting

32. Time value of money and its applications 33. Capital budgeting 34. Accounting rate of return 35. Payback period 36. Net present value method 37. Profitability index 38. Internal rate of return (IRR) 39. Mutually exclusive investments 40. Lease-purchase decision 41. Capital rationing 42. Capital budgeting and inflation 43. Risk analysis in capital budgeting

Module 7 Determining cost of capital and capital structure decisions 44. Cost of capital 45. Computing the cost of equity capital 46. Level of financing and the marginal cost of capital (MCC) 47. Break-even analysis 48. Cash break-even point 49. Leverage 50. Operating leverage 51. Financial leverage 52. Theory of capital structure 53. EBIT-EPS approach to capital structure

Module 8 Dividends and stock splits 54. Cash dividends 55. Stock dividends and stock splits 56. Dividend policy

Module 9 Short-term financing 57. Financing strategy 58. Trade credit 59. Short-term bank loans 60. Other sources of financing 61. Accounts receivable financing 62. Inventory financing

4

Module 10 Term loans and leasing 63. Intermediate-term bank loans 64. Small Business Administration 65. Leasing

Module 11 Long-term debt 66. Long-term debt financing 67. Bond refunding

Module 12 Stock, convertibles, and warrants 68. Investment banking 69. Public versus private placement of securities 70. Stockholders 71. Preferred stock 72. Common stock 73. Stock rights 74. Stock repurchases 75. Margin trading 76. Short selling 77. Governmental regulation 78. Efficient market theory 79. Convertible securities 80. Stock warrants

Module 13 Mergers and acquisitions 81. Mergers and acquisitions 82. Holding company 83. Tender offer

Module 14 Options and option pricing, derivatives and risk management, and International finance

84. Voluntary settlement 85. Bankruptcy and reorganization 86. Derivatives (options and futures) and risk management 87. The Black-Scholes option pricing model 88. International finance

Glossary

5

Module 1 THE BASICS LEARNING OBJECTIVES: After studying this module, your will be able to: 1. Manage funds to maximize shareholder value. 2. Define the concepts of finance. 3. List and discuss basic forms of business organizations. 4. Describe the role of the various financial institutions and markets. 5. Demonstrate and calculate the depreciation methods. 6. Outline the basic concepts associated with federal corporate taxation.

Finance involves obtaining, using, and managing funds to achieve the entity's financial objectives (e.g., maximization of shareholder value). Funds may be obtained from money markets and capital markets. The various types of business organizations include sole proprietorship, partnership, corporations (C and S-corporations), and limited liability companies (LLC). Tax planning is important to minimize taxes. The company must take advantage of all allowable tax deductions, including depreciation, write-offs for promotion and entertainment, and contributions.

0. Introduction 1. What is finance? 2. Basic forms of business organizations 3. Financial institutions and markets 4. Depreciation methods 5. Federal corporate taxation

6

0 INTRODUCTION Finance involves obtaining, using, and managing funds to achieve the company's financial objectives (e.g., maximization of shareholder value). The course emphasizes and develops an understanding of financial concepts, tools, and major decision areas related to the financial management of the business. This course is directed toward the businessperson who must have financial knowledge but has not had formal training in finance--perhaps a newly promoted middle manager or a marketing manager of a small company who must know some basic finance concepts. The entrepreneur or sole proprietor also needs this knowledge; he or she may have brilliant product ideas, but not the slightest idea about financing.

7

1 WHAT IS FINANCE?

OVERVIEW Finance covers financial analysis and planning, investment decisions, financing and capital structure decisions, and management of financial resources.

Goals of managerial finance: 1. stockholder wealth maximization, 2. profit maximization, 3. managerial reward maximization, 4. behavioral goals, and 5. social responsibility.

Modern managerial finance theory: assumes that the primary goal of the firm is to maximize the wealth of its stockholders, i.e., to maximize the price of the firm's common stock.

Profit maximization: a short-term goal. A firm may maximize its short-term profits at the expense of its long-term profitability.

Stockholder wealth maximization: a long-term goal. Wealth maximization is generally preferred because it considers 1. wealth for the long term, 2. risk or uncertainty, 3. the timing of returns, and 4. the stockholders' return.

Financial manager's responsibilities: ? Determining the proper amount of funds to employ in the firm, i.e., the size of the firm and its rate of growth ? Allocating funds efficiently to specific assets ? Raising funds on as favorable terms as possible, i.e., determining the composition of liabilities ? Managing working capital, like inventory and accounts receivable

Treasurer: handles external financing matters and is responsible for managing corporate assets and liabilities, planning the finances, budgeting capital, financing the business, formulating credit policy, and managing the investment portfolio.

Controller: concerned with internal matters--financial and cost accounting, taxes, budgeting, and control functions.

Financial vice president or chief financial officer (CFO): supervises all phases of financial activity and serves as financial adviser to the board of directors.

Effects: Financial managers influence: ? Present and future earnings per share (EPS) ? The timing, duration, and risk of these earnings ? Dividend policy ? The manner of financing the firm

Agency problems: exists when one or more persons (called principals) employ one or more other persons (called agents) to perform some tasks. Primary agency relationships exist 1. between shareholders and managers and 2. between creditors and shareholders.

8

 ................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download