Notes
Strategic Financial Management
MSc BPS and Business Studies 2022-2023
Basics of Strategic Finance 2
Financial Statements and Financial Ratios 3
Time Value of Money and Investment Criteria 6
Risk and Value 9
, Basics of Strategic Finance
https://www.youtube.com/watch?v=iR7b2NjgAO8
Basic Laws of Finance:
1. Cash is King
2. Each financial statement tells a story
a. Balance sheet: snapshot of what a company owns (assets) and owes
(liabilities/equity) at a specific point in time.
b. Income statement: shows how revenue - expenses equal profit or loss. Also: how
sales - COGS = income or loss. ‘Movie of profitability’.
c. Cash flow statement: shows how a company got from the cash balance at the start
of the year to the cash balance at the end of the year, through cash in and
outflows throughout the year. ‘Documentary on cash flow’.
3. Profit is not the same as cash flow (accrual accounting)
a. Income statement vs cash flow statement
b. Revenue, costs, and profit are recognized as they are earned / incurred
c. Cash is recognized when received or paid out
4. High risks merit high returns (CAPM)
5. Efficient Capital Market / efficient market hypothesis (EMH)
a. The efficient market hypothesis (EMH) or theory states that share prices reflect
all information.
b. The EMH hypothesizes that stocks trade at their fair market value on exchanges.
c. Proponents of EMH posit that investors benefit from investing in a low-cost,
passive portfolio.
d. Opponents of EMH believe that it is possible to beat the market and that stocks
can deviate from their fair market values.
6. Book value is not the same as market value
Increase in Assets = Cash OUT
Decrease in Assets = Cash IN
Increase in Liabilities = Cash IN
Decrease in Liabilities = Cash OUT
Depreciation is not an expense, so it must be added back to the net income on the income
statement!
Income tax is paid over profit on sales (Q8 practice exam).
The 4 types of competition
1. Monopoly
a. A monopoly is a dominant position of an industry or a sector by one company, to
the point of excluding all other viable competitors. Often, products in this
competition are of a higher price and demand for them tends to be inelastic.
2. Oligopoly
Strategic Financial Management
MSc BPS and Business Studies 2022-2023
Basics of Strategic Finance 2
Financial Statements and Financial Ratios 3
Time Value of Money and Investment Criteria 6
Risk and Value 9
, Basics of Strategic Finance
https://www.youtube.com/watch?v=iR7b2NjgAO8
Basic Laws of Finance:
1. Cash is King
2. Each financial statement tells a story
a. Balance sheet: snapshot of what a company owns (assets) and owes
(liabilities/equity) at a specific point in time.
b. Income statement: shows how revenue - expenses equal profit or loss. Also: how
sales - COGS = income or loss. ‘Movie of profitability’.
c. Cash flow statement: shows how a company got from the cash balance at the start
of the year to the cash balance at the end of the year, through cash in and
outflows throughout the year. ‘Documentary on cash flow’.
3. Profit is not the same as cash flow (accrual accounting)
a. Income statement vs cash flow statement
b. Revenue, costs, and profit are recognized as they are earned / incurred
c. Cash is recognized when received or paid out
4. High risks merit high returns (CAPM)
5. Efficient Capital Market / efficient market hypothesis (EMH)
a. The efficient market hypothesis (EMH) or theory states that share prices reflect
all information.
b. The EMH hypothesizes that stocks trade at their fair market value on exchanges.
c. Proponents of EMH posit that investors benefit from investing in a low-cost,
passive portfolio.
d. Opponents of EMH believe that it is possible to beat the market and that stocks
can deviate from their fair market values.
6. Book value is not the same as market value
Increase in Assets = Cash OUT
Decrease in Assets = Cash IN
Increase in Liabilities = Cash IN
Decrease in Liabilities = Cash OUT
Depreciation is not an expense, so it must be added back to the net income on the income
statement!
Income tax is paid over profit on sales (Q8 practice exam).
The 4 types of competition
1. Monopoly
a. A monopoly is a dominant position of an industry or a sector by one company, to
the point of excluding all other viable competitors. Often, products in this
competition are of a higher price and demand for them tends to be inelastic.
2. Oligopoly
