xmba-18 Thammasat University

2546
 1 luvi 11 un^ieiij 2546
uiumivm ^seft x-18

Functions of Financial Management

(tiasau 1 fla)

1. Financing Decision -
viuntino n^fl^fldimiavnouvmihtafivifiaviCi (Debt) uat^nniyfiavju (Equity) tvuvuntsm

2. Investment Decision -

3. Liquidity Management -
wwiuno n-i5^eiafeisiii4viivwj"ii;aij'2jao§uvi5'wtjvi}juntju (Current Asset) uat vsu^uvmiulEm (Current Liability)
fmu5vmwuv)uvhfmei|vii (Networking Capital Management)

Goal vi^iavisjia'iiaj Firm eia Maximize Shareholder's Wealth vita Maximize Stock Price wa Maximize Value
of the Firm fioifo 3 aihvmiwfiaunu eiTuivigiwadi'xaeiaT.iJu

1. Maximize Shareholder's Wealth warm Maximize Stock Price writni Shareholder's Wealth
Return "lujiJijaijtf'uU'uwaiiasfh'U'nnfminEivju (Capital
fTii Stock Price (nn2JiEj"lei7-ipnax3nqj;lpirin"l«inmf'2J"i£JMUu-ini5iT£j) flnvifijiouil'uwa Firm
Wealth iiaownaviwunij'Vnu Stock Price (gi^oflanqntdriia'o^tuan-jn wtiiluwanpia Stock Price uuiaj
wnaMi4ifluiou5(6i uftfvi'w^imSuil'uwEnsvhtvi Stock Price
ntiwufluwaiflumf Split Shareholder's Wealth ^nn Stock Price
^14^x3 s^ibn mfMaximize Shareholder's Wealth Fiann? Maximize Stock
Price nidi

2. fm Maximize Value of the Firm ilium? Maximize Stock Price cnmiNnsrh ^nn Value of the Firm (Vf) fh
i?Tian Value of the Debt (Vd) "liMnaan ^tifluciiiuuiJoiiaowfiavjuvitaviil'tin'ji Value of Equity (Ve) uas^nn
Value of Equity OTunynvn^piiEj^ntnuMu utifia Stock Price wnsastfuni? Maximize Value of the Firm wa
m? Maximize Stock Price ivmCThftiriiviiMtti Value of Debt ROM u-3 Value of the Firm %* n^KvinlM Value
of Equity go&tfha uasvinlvi Stock Price ^Suenulilpntj ^ilwoa^iJIgili niT Maximize Value of the Firm
Maximize Stock Price tfuiao

(iiaaau 1

Goal of Firm warns Maximize Shareholder's Wealth / Maximize Value of Firm uas Maximize Stock Price
Stock Price "leJfhteiao Maximize Cash Flow ^taenu Sense •iiaoRusiiulviryjJin^tiiii^nu
in m? Maximize Stock Price Sam? Maximize Profit 4biQun"mihfoR& vinneJaoSa eiao Maximize Cash Flow
Profit ifiuifJ[]jA'iiaiivii>i]T(yfi (Accounting Profit)
Profit inn

Cash Flow uinninriilfwa Profit

uan^inuu ifimfvnoij'f\j'!}viu(angin>3ni4 iiJunTnju'Mnpit4ViuuiJiJ FIFO imii LIFO

iiaaf\3inei Accounting Profit iia>3n^m^j;flvip(vn>3ei5>3iinunij Cash Flow ulu

Cash Flow ^uaEjrmfRmsvlfi Accounting Profit •u
Conflict of Interest
1u Firm flay 3 Patty na
l.Shareholders-wfiavj'u
2.Debtholders-i3iv!ii
3.Managers-wu%vm
flaifluehuvmvilfa Agent ua\3wnavm fiviiri vibrio Wealth

vfo 3 {•J-muehjnfi Goal vita Interest uaoetvuao

Goal uaowimn? nSa rtinSau lima uasntilAtufiJuiJudu1) en Firm Generate Cash Flow vnleiiviiT.?

rhtvhlvi Wealth TjaownaviuaciiiatisoT.!!

Maximize Wealth sjajwurnTJ n^Kiflum? Minimize Wealth uaownavm iltini-iifluiflu Conflict of Interest

iwaiflum?i]ax3nuvitaseiilfyvn Conflict of Interest u ^omeiPiTJn "Agency Cost" Sti

Conflict of Interest ^vmowimm ffuwfiavju

Agency Cost
1. Monitoring Cost

(Internal Audit) ^
2. Incentive Fee iflupiiM^nEJvin(?iSuiya^>3^<lviwijtvinfo^iJ03uM^£slnN3 Wealth 1vinijwnavii4 win
Stock Options niiwiifvn? (flam^waiJMVilviwuI'vn? matwwulvn^flEliuiilui^njaodiiEi) mam^iu Bonus
m Performance

Maximize Shareholder's Wealth

(Controlling Devices)

1. wnaifu iilww Vote taan n-s-swnTs

wiifvn^
v
wnaviun

2. W Stock Options ma Performance Share

pialviwiJ^vn'jflsliuiflui^njaNj maleiwaeiaiJU
vifaviitvimci Maximize Shareholder's Wealth

3. Threat of being taken over

trade adtueiEneivianvi?vj£j Sa 75 mvnaavm

enu Concept Going Concern vita "M^nfmehwatmaxjn^fm" flsmftanflivimi-mn Value of the Firm

Generate Cash Flow tuavnng)?iaoij%»vi

Present Value)

nniJftfviiann^m5ti4Ti4fl flm^Finuinifnpnvjutu Liquidation Concept wli/hYis Net Asset Value

Per Share (NPV per share) tiaEjnisiJsjHfiuSuviTwriluifhuiihu^aoxjiJgis Uineneifnia "leiiviil?
pin^jaoRTnu (Value of Debt) vilvi§alllusl^uulj^3'^Ja^5wnav1UM^!;vlgipiuldal§nn^n^?
viu fhsAgiiflu Stock Price In Liquidation Concept auiJsiinRiuiulgiivi-irt'ij 100
 (nfnvmtuflcneiehrm nenvmtu Liquidation Concept) n
Take Over n^rm ^eitiiiiny-i^aviuWifiu^ciliu 50 % ^nnuvin^KiTEjnilfK^ijwnaviu Vote

Liquidation Concept aon'hrif;neicn0vivnfHin«3ajjn waneia wimm^etnonu

flihEavififi"w iJaatrtwrimwti<nn0Sao^ihu0Sninrimw'u''l'u Liquidation quvhlvinn Take Over
mi Sx3nainiiluwa?n£ja"i4viuo?jax3wiJ?vnT vita Threat of being taken over

4. Competition in labor market

ifliwmaftri airing uitoffiM^i

2 luvi 18 urmau 2546

Liquidation Stock Price uat Going Concern Stock Price

400 siuflstiuuaxawnaviu100
tifm Cost of Debt ti3iiaEia-JT Kd Ixjn^mflawupilTivinfTii 10
it Einin Cost of Equity Itfiiada-h Ke 'Ltin^tuufiiJuSi-JniviTfifu 20 %
20 % u iflupnnydiao
inuviuMvi auvi W w aei ail uvmsfo

(WACC- Weighted Average Cost of Capital)

WACC = [Debt / (Debt + Equity) * Kd ] + [Equity / (Debt + Equity) * Ke ]

WACC = 400/500 * 0.10 + 100/500 * 0.20 'ftaivhfiiJ 12 %

nnwu%vn5ii%»viij%vn?>3iu(vi7a Generate Cash

niJ Stock Price
1. nsdl Generate Cash Flow \e\ ivhnii
2. n^fu Generate Cash Flow
3.^n7fu Generate Cash Flow
vmrnwuei)

il Stock Price vinsinfiNju vm-mno Going Concern Stock Price vuntiRrm'Jn

ian Value of the Firm tu Going Concern (tiain Vf- So^fim^Finuifu^tafiinEjeinusino) \YneiiEj Value of Debt
(tia-h Vd) ^o^leiivhffij Value of Equity (tialn Ve) 3intfmai^iuiuwu'UJwwi;vl<arienvm Stock Price tti
Concept Going Concern

R'Th Liquidation Stock Price

riau
 Value of the Firm tu Going Concern

-h Value of Firm 1u Concept Going Concern rieia "waehiJ^tfu (Present Value)

1)3x3 Cash Flow v Firm RI^K Generate

jjarinH^i^^
vmenu

Cash Flow vi Generate "l@t'ui,i(»iadM'ui,a\:

neia WACC tfuiao

n?nlii ni Cash Flow vi Generate "IduvhnijQa:; 60 am uat WACC = 12% ^KFhtnfu Value of the Firm
(tu Going Concern) liaivhfTiJ 60/0.12 = 500 anu

Finance

Stock Price 1u 3

n^cuvi 1 ni Generate Cash Flow "Id ivhfiu

flvil flvi2 Svl n

Interest (Kd= 10%) 40 40 40
Dividend(Ke=20%) 20 20 20
q'Tinu Cash Flow vipn^^is; Generate IdiuriEid] 60 60 60
fh Firm viileiiviiffij 60 anuciailviaS
Value of the Firm = 60/0.12 = 500 aiu
Going Concern Stock Price "lei^ou (500-400)/10 = viuaj; 10
400 fia Value of Debt ; 10

ia Liquidation Stock Price

li Liquidation Stock Price mvhmj 10 unvnviflaunu (ehtnulifo'imai Total Asset 1^0 i^inciTEi Debt
ivinlfiailiJtMNflaMuuiJonu iJ^nfj-jnimoleiviusii; 10 uimvhnurimMuvl'fiauiumnuona-ie) (Going Concern
Stock Price waS)
•uu'MUT£ipmyjiwij?vn?fl'x3vlii"lgi Maximized Shareholders' Wealth m£ivni<nmdeiian1ilirt<nuvbJvh5n£j Wealth
•2ja>3wnaviu m5in"iiJTvn50iu'lsiEivin1'Mf"ipnMU°[u6ifnpi(Going Concern Stock
Liquidation Stock Price)via6i

n^ruvi 2 nn»jmvii5 Generate Cash

(ynaMU(>ia\]fn5 20% uei Firm viileiupi 15%

vi 1) Firm flsnun^fi Generate Cash "leimtixjOci;; 55

Vf 1u Going Concern
^iGHvhniJ 55/0.12 iviinu 458.33 anu idaiiimFhinnivn Going Concern Stock Price ^"leuvhtfiJ (458.33-
400)/=inuiuviupia 10 anuviu ^IciriR-ivimyhniJ 5.83 unvi u6it\4'2ifU£iSEnfT'u Stock Price tu Liquidation ivin
nu 10 mvnvifiampijj ^tmuin tunTrtivl 2 fl Stock Price tu Going Concern ^ehn-h Stock Price tu
Liquidation tifiapi-Kaaim "•Mutueiania'MS'nvifiNEj nnuf^vilviu fipnvi trade agtu
Liquidation uuiiaeioii Time Interest of Return

*** ISVRJ; Maximized Shareholders' Wealth fia viilvi Time Interest of Return
****
 la-iwumvtthn 400 aiu ia"ujvmnwfiav1mn 100 am jJiaovjuTuSuvifyiEftTmu 500 STU
laatujajuuvm (WACC) ivhnu 12%
SUJjfn-iiifiJvm Generate Cash Flow flas; 60 STU im^viihtfi.ouaxsvi'u 500 anu wris
as 60/500*100 = 12% ivhmjdiuvimjaowcuv|U'wa@ 3jvhWt Stock Price tu Going Concern ivhnu Stock
Price tu Liquidation

'h u%Mvm Generate Cash Flow leiflat: 55 anu Fiawsi(>iauuviujnnmTa>3yi'uivinn'iJ

55/500*100 = 11% SaleiliJnxjdmvmiiaow'uvt'UFia 12 % ^ovi-itvi?npn Stock viSasntinu eiSniiTTpn Stock

Generate Cash Flow "lei 70 anu

Stock 5o?i>3fn"inen Liquidation **u^al5fnf Maximized Stock Price **

h ** nani^nvinmsa>s'nu1(aq Return iia^ Project i^cna^^jn-in Cost of Capital tawa **

Keyword fJiPffy5] rnmatn x!9 a'

"upiiJiaw" (CAPM) "pinFmui^tio" "Fiiium" "MM Theory" "Free CashFlow"
A ...^TnvivNTiviw x-18

WACC

WACC vita Weighted Average Cost of Capital nSa

(Cost of debt) uatciuviusliuuaownavj'u (Cost of equity)

WACC
wnavlupiauiiixjunn efouu
m?wutiaijqi;vintv1 WACC flfi-ieinninu^HviMti} equity

Cost of Equity

Cost of Equity vita Ke ilu 1uvnovinttg6nimflminfuvl,6mfi CAPM ma Capital Asset Pricing Model

CAPM ifli4fn5FiiUTfuwaeiaiJUvii4viwnavlupn(avi1'\) ^nnm^TNynynuvnR-ifmiji^EJo (Risk premium)

mcin

% lyaiviuu^nnaflsnnifiiJaEimiiJaxmajeifnflr^jj 1%

Ke tnu CAPM w =Rf +(Rm - Rf) x Beta

1.
2.
3.
BUSINESS VALUATION

3
1. flinjjsnimfitufmvhfhlj (Profitability) vuntifijffansbufh'UsiauaeimEJ (Net profit margin)
2. ni5Lifvnf§i4Vif'wo"lvifliJ7K§vifi/n'w ( Asset management ) MuitiOxSEfaiTieiiutjaiji^nEjeia^uvi
(Asset Turnover)
3. mTii?vn?eitiviuvnx3m5wu (Cost of capital) uuis2kARii"}iiul!itu«iaY)U (Debt to Equity)