Banking & Finance
Contents
Banking & Finance...........................................................................................1
CHAPTER 1: Goals and Governance of the Corporation................................2
1.1 Investment and financing decisions.....................................................2
1.2. What is a corporation?........................................................................5
1.3. Who is the Financial Manager?...........................................................6
1.4. Goals of the Corporation.....................................................................7
1.6. The ethnics of maximising value.........................................................8
CHAPTER 2: Financial markets and institutions............................................9
2.1. The importance of financial markets and institutions.........................9
2.2. The flow of savings to corporations....................................................9
2.4. The crisis of 2007 – 2009..................................................................11
Chapter 5: The Time Value of Money.........................................................12
5.1. Future values and compound interest..............................................12
5.2. Present values..................................................................................13
5.3. Multiple cash flow.............................................................................14
5.5. Level cash flows: perpetuities and annuities....................................15
5.7. Effective annual interest rates..........................................................18
5.8. Inflation and the time value of money..............................................18
CHAPTER 6: VALUING BONDS.....................................................................19
6.1 Bond pricing.......................................................................................19
6.2 Interest rates and bond prices...........................................................21
6.6 Corporate bonds and the risk of default.............................................21
CHAPTER 7: VALUING STOCKS....................................................................22
7.1 Stocks and the stock market..............................................................22
,
7.2 Market values, book values and liquidation values............................23
7.3 Valuing common stocks.....................................................................24
7.4 Simplified dividend discount model...................................................25
CHAPTER 14: CORPORATE FINANCE............................................................26
14.2 Patterns of corporate finance...........................................................26
14.3 Common stock.................................................................................27
14.4 Preferred stock.................................................................................30
CHAPTER 15: VENTURE CAPITALS AND IPO’S..............................................31
15.1 Venture Capital (VC)........................................................................31
15.2 The initial public offering (IPO).........................................................34
CHAPTER 22: INTERNATIONAL FINANCIAL MANAGEMENT...........................39
22.1 Foreign Exchange Markets...............................................................39
H = R – E -> Happiness equals reality minus expectations
CHAPTER 1: Goals and Governance of the Corporation
1.1 Investment and financing decisions
FEDEX Case:
CASH OUT: how the money is spent
o Expansion across USA / expanding stores
o Delivery vans / airplanes
o Overnight delivery
o Fuel -> not really an investment = expenditures
o Staff (salaries + benefits) -> not really an investment =
expenditures
CASH IN: how the money is raised
o 4-million-dollar inheritance
o External investors
o Gambling the last 5000 dollars -> 32000 dollars
o PROFIT!
o Going public in the stock market (IBO)
Venture Capitalist: investor who is willing to give you money on the early
days, when you do not have any money yet, taking a risk in you.
,
Dividends: a sum of money paid regularly (typically annually) by a company
to its shareholders out of its profits (or reserves)
Expenditures: the action of spending funds
CASH OUT:
Where did the cash go to?
Which investments have been made by FEDEX over the years?
CASH IN:
Where did the cash come from?
How did FEDEX finance its investments?
MICROSOFT case:
- Which investment is being considered? Building datacentre capacity
for AI and Cloud
- Is it tangible or intangible? It is tangible
- Does it have long-term consequences or a short-term pay-off? Long-
term investment but short-term payoff
- Is it a rather big or relatively small investment? It is a big investment
- Do you think it is or will be a success story or… possibly a complete
disaster? Success story, we’re seeing how many people are using AI
and Cloud
JOHNSON & JOHNSON case:
- Which investment is being considered? Research and Development
programs
- Is it tangible or intangible? Intangible
- Does it have long-term consequences or a short-term pay-off? Long-
term consequences , for the drug to get developed and approved
- Is it a rather big or relatively small investment? Big investment
- Do you think it is or will be a success story or… possibly a complete
disaster? We don’t know
DELHAIZE case:
- Which investment is being considered? E-commerce and home
delivery and more production (main one)
- Is it tangible or intangible? Tangible (products)
- Does it have long-term consequences or a short-term pay-off? Both
,
- Is it a rather big or relatively small investment? Small
- Do you think it is or will be a success story or… possibly a complete
disaster? Success story, mainly for people that don’t have the time to
go to the shops + breaking records
INVESTMENT DECISIONS:
- Capital expenditures (CAPEX) or capital budgeting decisions => SPEND
money
- Purchase of real assets = assets used to produce goods and services
- Tangible or intangible
- Long-term consequences or short-term pay off
- Billions USD/EUR or relatively small
- Success story or a complete disaster
Real assets that add a lot of value to the company
PORSCHE case:
- Is this financing via equity or debt? Equity
- Will the investor become (co-)owner of the company or not? Co-owner
of the company (if you buy a share of something, then you are a co-
owner)
- Is it long or short term financing? Long-term financing
- Will the investor receive interest or dividend payments as a return?
Dividends
SAUDI ARABIA case:
- Is this financing via equity or debt? Debt (Public Investment Fund), it is
a loan
- Will the investor become (co-)owner of the company or not? No
- Is it long or short term financing? Long-term financing (everything
longer than a year is long-term, everything shorter than a year is
short-term)
- Will the investor receive interest or dividend payments as a return?
Interest
Equity: the value of the shares issued by a company / the quality of being
fair and impartial.
Initial public offering (IPO): when a private company first sells shares of stock
to the public
Contents
Banking & Finance...........................................................................................1
CHAPTER 1: Goals and Governance of the Corporation................................2
1.1 Investment and financing decisions.....................................................2
1.2. What is a corporation?........................................................................5
1.3. Who is the Financial Manager?...........................................................6
1.4. Goals of the Corporation.....................................................................7
1.6. The ethnics of maximising value.........................................................8
CHAPTER 2: Financial markets and institutions............................................9
2.1. The importance of financial markets and institutions.........................9
2.2. The flow of savings to corporations....................................................9
2.4. The crisis of 2007 – 2009..................................................................11
Chapter 5: The Time Value of Money.........................................................12
5.1. Future values and compound interest..............................................12
5.2. Present values..................................................................................13
5.3. Multiple cash flow.............................................................................14
5.5. Level cash flows: perpetuities and annuities....................................15
5.7. Effective annual interest rates..........................................................18
5.8. Inflation and the time value of money..............................................18
CHAPTER 6: VALUING BONDS.....................................................................19
6.1 Bond pricing.......................................................................................19
6.2 Interest rates and bond prices...........................................................21
6.6 Corporate bonds and the risk of default.............................................21
CHAPTER 7: VALUING STOCKS....................................................................22
7.1 Stocks and the stock market..............................................................22
,
7.2 Market values, book values and liquidation values............................23
7.3 Valuing common stocks.....................................................................24
7.4 Simplified dividend discount model...................................................25
CHAPTER 14: CORPORATE FINANCE............................................................26
14.2 Patterns of corporate finance...........................................................26
14.3 Common stock.................................................................................27
14.4 Preferred stock.................................................................................30
CHAPTER 15: VENTURE CAPITALS AND IPO’S..............................................31
15.1 Venture Capital (VC)........................................................................31
15.2 The initial public offering (IPO).........................................................34
CHAPTER 22: INTERNATIONAL FINANCIAL MANAGEMENT...........................39
22.1 Foreign Exchange Markets...............................................................39
H = R – E -> Happiness equals reality minus expectations
CHAPTER 1: Goals and Governance of the Corporation
1.1 Investment and financing decisions
FEDEX Case:
CASH OUT: how the money is spent
o Expansion across USA / expanding stores
o Delivery vans / airplanes
o Overnight delivery
o Fuel -> not really an investment = expenditures
o Staff (salaries + benefits) -> not really an investment =
expenditures
CASH IN: how the money is raised
o 4-million-dollar inheritance
o External investors
o Gambling the last 5000 dollars -> 32000 dollars
o PROFIT!
o Going public in the stock market (IBO)
Venture Capitalist: investor who is willing to give you money on the early
days, when you do not have any money yet, taking a risk in you.
,
Dividends: a sum of money paid regularly (typically annually) by a company
to its shareholders out of its profits (or reserves)
Expenditures: the action of spending funds
CASH OUT:
Where did the cash go to?
Which investments have been made by FEDEX over the years?
CASH IN:
Where did the cash come from?
How did FEDEX finance its investments?
MICROSOFT case:
- Which investment is being considered? Building datacentre capacity
for AI and Cloud
- Is it tangible or intangible? It is tangible
- Does it have long-term consequences or a short-term pay-off? Long-
term investment but short-term payoff
- Is it a rather big or relatively small investment? It is a big investment
- Do you think it is or will be a success story or… possibly a complete
disaster? Success story, we’re seeing how many people are using AI
and Cloud
JOHNSON & JOHNSON case:
- Which investment is being considered? Research and Development
programs
- Is it tangible or intangible? Intangible
- Does it have long-term consequences or a short-term pay-off? Long-
term consequences , for the drug to get developed and approved
- Is it a rather big or relatively small investment? Big investment
- Do you think it is or will be a success story or… possibly a complete
disaster? We don’t know
DELHAIZE case:
- Which investment is being considered? E-commerce and home
delivery and more production (main one)
- Is it tangible or intangible? Tangible (products)
- Does it have long-term consequences or a short-term pay-off? Both
,
- Is it a rather big or relatively small investment? Small
- Do you think it is or will be a success story or… possibly a complete
disaster? Success story, mainly for people that don’t have the time to
go to the shops + breaking records
INVESTMENT DECISIONS:
- Capital expenditures (CAPEX) or capital budgeting decisions => SPEND
money
- Purchase of real assets = assets used to produce goods and services
- Tangible or intangible
- Long-term consequences or short-term pay off
- Billions USD/EUR or relatively small
- Success story or a complete disaster
Real assets that add a lot of value to the company
PORSCHE case:
- Is this financing via equity or debt? Equity
- Will the investor become (co-)owner of the company or not? Co-owner
of the company (if you buy a share of something, then you are a co-
owner)
- Is it long or short term financing? Long-term financing
- Will the investor receive interest or dividend payments as a return?
Dividends
SAUDI ARABIA case:
- Is this financing via equity or debt? Debt (Public Investment Fund), it is
a loan
- Will the investor become (co-)owner of the company or not? No
- Is it long or short term financing? Long-term financing (everything
longer than a year is long-term, everything shorter than a year is
short-term)
- Will the investor receive interest or dividend payments as a return?
Interest
Equity: the value of the shares issued by a company / the quality of being
fair and impartial.
Initial public offering (IPO): when a private company first sells shares of stock
to the public
