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I.
CHAPTER 5
CORPORATE FINANCE
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Using
monetary
funds
$$
Investing
Allocating
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3 types of activities
Operating activities:
involve business activities
Investing activities:
involve financial investments
purchasing and selling fixed assets
Financing activities:
involve acquiring funds activities
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Financial
manager
Assets
Investors
Financial assets
Other goals:
Maximize profit
Minimize cost
Maintain steady growth
Avoid bankruptcy
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2. Income statement
3. Cash flows statement
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1. Balance sheet
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1. Balance sheet
ASSETS
LIABILITIES &
OWNERS EQUITY
CURRENT LIABILITIES
CURRENT ASSETS
LONG-TERM
LIABILITIES
LONG-TERM ASSETS
(NON-CURRENT
ASSETS)
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OWNERS EQUITY
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Current
Liabilities
Long-term
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2. Income statement
Income statement is the financial statement that summarizes
the profitability of the firm over a period of time (it is usually
a year)
It shows the revenues, expenses and net income of a firm
during the past period.
Based on accrual accounting methods
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2. Income statement
Sales
Less deduction
Net sales
Costs of good sold
Gross profit
Operating expenses
Operating income (earnings before interest and taxes - EBIT)
Interest
Other income (- loss) net
Earnings before taxes (EBT)
Taxes
Net income
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Providing:
An explanation of accounting methods used.
Greater detail regarding certain assets or liabilities.
Information regarding the equity structure of the firm.
Documentation of changes in operations.
Off-balance-sheet items.
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Financial ratios
To measure the outcome of these analyses, you need to
compare:
Against self (time- series, vertical, horizontal) and
Against peers/industry/market (cross- sectional, ratio)
For the best result, these approaches usually be applied
simultaneously.
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Profitability ratios
Debt (Financial leverage) ratios
Liquidity ratios
Asset turnover (Efficiency/Activity) ratios
Market value ratios
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Profitability ratios
Financial leverage
Return on sales (ROS): measures the return earned on the sales of the
firm.
Debt ratio: measures the proportion of total assets financed by the firms
creditors.
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Liquidity ratios
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The speed with which a company turns over its inventory is measured by
the number of days that it takes for the goods to be produced and sold.
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revenue
The average collection period measures how quickly customers pay their
bills:
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