Summary Principles of Managerial Finance FIF1 - CH 1,2,3,4,5

FUNDAMENTALS
OF
INTERNATIONAL
FINANCE

Summary





TABLE
OF
CONTENT

Part
1:
Introduction
to
managerial
finance
2

Chapter
1:
“The
role
of
managerial
finance”
2

1.1
Finance
and
business
2

1.2
Goal
of
the
firm
3

1.3
Managerial
finance
function
5

1.4
Governance
and
Agency
6

Part
2:
Financial
Tools
9

Chapter
3:
“Financial
statements
and
ratio
analysis”
9

3.1
The
stockholder’s
report
9

3.2
Using
financial
ratios
13

3.3
Liquidity
ratios
14

3.4
Activity
ratios
15

3.5
Debt
ratios
16

3.6
Profitability
ratios
17

3.7
Market
ratios
19

3.8
A
complete
ratio
analysis
20

Chapter
4:”Cash
Flow
and
Financial
Planning”
22

4.1
Analyzing
the
Firm’s
Cash
Flow
22

4.2
The
Financial
Planning
Process
24

4.3
Cash
Planning:
Cash
Budgets
25

4.4
Profit
Planning:
Pro
Forma
Statements
27

4.5
Preparing
the
Pro
Forma
Income
Statement
27

4.6
Preparing
the
Pro
Forma
Balance
Sheet
27

4.6
Evaluation
of
Pro
Forma
Statements
28

Chapter
5:
“The
Time
Value
Of
Money”
29

5.1
The
Role
of
Time
Value
in
Finance
29

5.2
Single
Amounts
29

5.3
Annuities
30

5.4
Mixed
Streams
31

5.5
Compounding
interest
more
frequently
than
annually
32

5.6
Special
Applications
of
Time
Value
33








, PART
1:
INTRODUCTION
TO
MANAGERIAL
FINANCE


CHAPTER
1:
“THE
ROLE
OF
MANAGERIAL
FINANCE”

1.1 FINANCE
AND
BUSINESS




-­‐ What
is
finance

! Finance


• The
art
and
science
of
managing
money

o Personal
level
concerned
with
decisions
about
spend,
save,

invest
savings

o Business
context
concerned
with
raise
money
from
investors,

invest
money
to
earn
profit,
decide
whether
reinvest
in

business
or
distribute
back
to
investor

-­‐ Career
opportunities
in
finance

o Financial
services

! Financial
services

• The
area
of
finance
concerned
with
design
and
delivery
of
advice
and

financial
products
to
individuals,
businesses
and
governments

! Managerial
finance

• Concerns
duties
of
financial
manager
in
business

o Financial
manager

! Actively
manages
financial
affairs
of
all
types
of

businesses,
whether
private
or
public,
large
or
small,

profit
seeking
or
not
for
profit

-­‐ Legal
forms
of
business
organization

o Sole
proprietorship


• Business
owned
by
one
person
and
operated
for
his
or
her
own
profit

o Proprietor

! Operates
proprietorship

! Raises
capital
from
personal
resources
or
by

borrowing,
and
is
responsible
for
all
business
decisions

! Unlimited
liability

• Condition
of
sole
proprietorship,
giving
creditors
right
to
make
claims

against
owner’s
personal
assets
to
recover
debts
owed
by
business

! Strengths

• Owner
receives
all
profits
(sustains
all
losses)

• Low
organizational
costs

• Income
included
and
taxed
on
proprietor’s
personal
tax
return

• Independence

• Secrecy

• Ease
of
dissolution

! Weaknesses

• Unlimited
liability

• Limited
fund-­‐raising
power
tends
to
inhibit
growth

• Proprietor
must
be
jack-­‐of-­‐all-­‐trades

• Difficult
to
give
employees
long-­‐run
career
opportunities

• Lacks
continuity
when
proprietor
dies

o Partnership

• A
business
owned
by
two
or
more
people
and
operated
for
profit

! Articles
of
partnership