1. Introduction to Business Financial Management (introduction to the course, basic terminology) 2. Capital Budgeting: Long-Term Decisions (capital budgeting, short-term and long-term budgeting
decisions, discounted payback period, equivalent annual annuity, internal rate of return (IRR), modified internal rate of return (MIRR), net present value (NPV), payback period, profitability index (PI), tax shield, weighted average cost of capital (WACC)) – Chapter 9
3. The Cost of Capital (debt financing, equity financing, and hybrid equity financing, debt and equity components of the weighted average cost of capital (WACC), the tax implications on debt financing and the adjustment to the WACC) – Chapter 11
4. Financial Planning and Short-Term Financing (short-term finance, short-lived assets and liabilities, net working capital, working capital management) – Chapter 12
5. Analysis of Financial Statements (financial ratios: liquidity ratios, asset management ratios, debt management ratios, profitability ratios, market value ratios, DuPont analysis) – Chapter 14
6. Raising Capital (life cycle of a business, different sources of capital available to a start-up business and a growing business, special forms of financing) – Chapter 15
7. Capital Structure (capital structure, optimal capital structure, benefits of debt, theories of capital structure, debt and tax shield) – Chapter 16
8. Working Capital Management (cash conversion cycle, the timing of accounts receivable, float concept, inventory management) – Chapter 13
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Lecture notes:
http://multiedu.tul.cz/
select: Ing. Lenka Stryckova, Ph.D. subject: FRP-E
TEXTBOOK:
Raymond Brooks: Financial Management: Core Concepts. International Edition, 2/E – 2012, Pearson Higher Education, 648 pp.
ISBN-10: 0273768476, ISBN-13: 9780273768470
Attendance at lectures – a student should
attend at least 75 % of the classes!
Mini tests – during term
final test – 60% mini tests – 40% Czech Grade ECTS Grade % 1 A 100-90 % 1- B 89-80 % 2 C 79-70 % 2- D 69-60 % 3 E 59-55 %
The financial manager plays a critical role
inside any business enterprise. Potential decisions include:
What products to launch
How to pay to develop those products
What profits to keep and how to return profits to investors
The financial manager does all of this with
Capital budgeting - the process of planning, evaluating, selecting
and managing the long-term operating projects of the company, this answers the question:
What long-term investments or projects should the business take on?
Capital structure - the means by which a company is financed,
and for public companies is usually a mix of stocks (equity) and bonds (debt) sold to investors and owners.
How should we pay for our assets?
Should we use debt or equity?
Working capital management - managing the day-to-day
operating needs of the company through the current assets and current liabilities of the company. This is often referred to as the short term financing activities of the company.
Four main financial statements:
1. Balance sheet
2. Income Statement
3. Statement of Retained Earnings
The basic rules of double entry book-keeping are as follows:
1. Debit what comes in; credit what goes out. 2. Debit an expenditure item; credit a revenue
item
Represents the assets owned by the company
and the claims against those assets
Based on the accounting identity:
Shows the expenses and revenues generated
by a firm over a past period, typically a quarter or a year.
• Net income = Revenues – expenses
• EBIT = Revenues – operating expenses
shows the distribution of net income for the past period -
how the net income for the past period was allocated between dividends - if any (distributed earnings) and retained earnings.
CHANGE IN RETAINED EARNINGS = NET INCOME –
The cash flow identity states that the cash flow on the left-hand side of the balance sheet is
equal to the cash flow on the right-hand side of the balance sheet.
CASH FLOW CASH FLOW CASH FLOW FROM ASSETS = TO CREDITORS + TO OWNERS
FV = PV + PV x interest rate, or FV = PV(1+interest rate) (in decimals) FV = future value PV = present value r = interest rate
n = the number of time periods
Lump-sum payment = one-time payment of money at a
FV = PV x (1+r)
n(1+r)n = IS THE FUTURE VALUE INVEREST FACTOR (FVIF)
FV = PV x (1+r)n solving for future value
PV = FV X [1/(1+r)n] solving for present value
r = [FV/PV]1/n – 1 solving for unknown rate n = [ln(FV/PV)/ln(1+r)] solving for # of periods
Annuities are equal, periodic outflows/inflows., e.g. rent, lease,
mortgage, car loan, and retirement annuity payments.
An annuity stream can begin at the start of each period (annuity due) as
is true of rent and insurance payments or at the end of each period, (ordinary annuity) as in the case of mortgage and loan payments.
The formula for calculating the future value of an annuity stream is as
follows:
FV = PMT * (1+r)n -1
r
where PMT is the term used for the equal periodic cash flow, r is the rate of interest, and
n is the number of periods involved.
FVIFA = Future Value Interest Factor of an Annuity
r r PMT PV n 1 1 1To calculate the value of a series of equal
periodic cash flows at the current point in time, we can use the following formula:
The last portion of the equation, is the
PV ordinary annuity:
PV annuity due = PV ordinary annuity x (1+r)
PV annuity due > PV ordinary annuity r r PMT PV n 1 1 1 1 1 1 1 n r PV PMT r r
