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FINANCE 1. Introduction. Solvay Business School Université Libre de Bruxelles. Qui suis-je?. André Farber Professeur de finance à la Solvay Business School depuis…. Actuellement Vice Recteur à la Stratégie et au Développement Institutionnel Administrateur de CPH Banque & Fluxys.

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finance 1 introduction

FINANCE1. Introduction

Solvay Business School

Université Libre de Bruxelles

qui suis je
Qui suis-je?
  • André Farber
  • Professeur de finance à la Solvay Business School depuis….
  • Actuellement
    • Vice Recteur à la Stratégie et au Développement Institutionnel
    • Administrateur de CPH Banque & Fluxys

DESG

organisation du cours
Organisation du cours
  • Référence: FLOP

Farber, A., Laurent, M-P., Oosterlinck, K ; Pirotte, H.

Finance Pearson Education, 2004

  • Site web: www.ulb.ac.be/cours/solvay/farber
      • Slides
      • Fichiers Excel
      • Anciens examens
  • Cotation:
      • Examen à livre fermé

DESG

qu est ce que la finance
Qu’est-ce que la finance?
  • Trois grandes types de décisions:
      • INVESTISSEMENT
      • FINANCEMENT
      • DIVIDENDES

DESG

vision comptable
Bilan

Compte de résultats

Chiffres d’affaires

Charges d’exploitation

= Résultat avant charges financières et impôts (EBIT)

Intérêts

Impôts

= Bénéfice net

Bénéfice mis en réserve

Dividende

Vision comptable

Fonds de roulement net

Dettes à court terme

Actifs circulant

Dettes à moyen et long terme

Immobilisés

Fonds propres

DESG

flux financiers cash flows
Flux financiers (Cash Flows)

Emission de titres

Investissement

Entreprise

Marchés financiers

Investisseurs

Cash flow opérationnel

Dividendes, intérêts

TEMPS et INCERTITUDE

DESG

vision financi re
Vision financière

Valeurs comptable

Valeurs de marché

Création de valeur

Capitalisation boursière

Actif total

Fonds propres

Market capitalization

Immobilisés

+

Fonds de roulement net

Valeur de la dette

Dettes

DESG

how to measure value creation
How to measure value creation ?
  • 1. Compare market value of equity to book value
  • Value creation if M/B > 1
  • 2. Compare return on equity to the opportunity cost of equity
  • Value creation if ROE > Opportunity Cost of Equity

DESG

cr ation de valeur
Création de valeur
  • L’objectif de ce cours est d’introduire les principales méthodes d’évaluation qui permettent d’identifier les décisions créatrices de valeurs.
  • Il repose sur quelques principes fondamentaux:
    • TIM: Time is money, le temps est de l’argent
    • NFL: No free lunch, pas de repas gratuit (≠National Football League)
    • RIRE: Risk – Return (pas drôle)
    • NABO: No arbitrage opportunity, pas d’arbitrage possible (géant..)

DESG

plan du cours
Plan du cours

1. Introduction – Fondements (certitude)

2. Fondements (incertitude)

3. Relation risque – rentabilité attendue

4. Evaluation d’options

5. Evaluation d’actions et d’entreprises

6. Choix d’investissement

7. Structure financière et coût du capital

8. Synthèse

DESG

drivers of roe
Drivers of ROE
  • PROFITABILITY (du Pont system)
  • Three determinants :

16.4%

Profit Margin

Asset Turnover

Financial Leverage

  • Microsoft - 2004 US$ bil.
  • Net Income 10
  • Sales 32
  • Assets 61
  • Book equity 61

31.0%

0.52

1.00

DESG

examples
Examples

Source: Business Week July 26, 2004

DESG

summarized managerial balance sheet
Summarized (managerial) balance sheet

Liabilities

Stockholders' equity (SE)

Interest-bearing debt (D)

Assets

Fixed assets (FA)

Working capital requirement (WCR)

Cash (Cash)

FA + WCR + Cash = SE + D

Working capital requirement : definition

+ Accounts receivable+ Inventories+ Prepaid expenses

- Account payable- Accrued payroll and other expenses

Interest-bearing debt: definition

+ Long-term debt+ Current maturities of long term debt+ Notes payable to banks

DESG

net working capital
Net Working Capital
  • Net working capital can be understood in two ways:
  • as an investment to be funded: Current Assets - Current Liabilities
  • as a source of financing=Stockholders' equity + LT debt - Fixed Assets

Fixed Assets

Stockholder’s equity

Current ratio: a measure of NWC

Current ratio = Current assets / Current liabilites

Net working capital = Current assets - Current liabilites

Current ratio > 1  NWC > 0

Net Working Capital

Long term debt

Current Assets

Current liabilities

DESG

net working capital vs working capital requirement
Net Working Capital vs Working Capital Requirement
  • Summarized balance sheet identity:
  • FA + WCR + CASH = SE + LTD + STD
  • can be written as:
  • WCR + (CASH - STD) = (SE + LTD - FA) 
  • WCR + NLB = NWC

Net Working Capital

Net Liquid Balance

Working Capital Requirement

DESG

return on invested capital
Return on invested capital
  • Return on assets (net)= Net income / Total assets
  • Advantage: fits with DuPont system
      • ROE = ROA x Equity multiplier
  • Limitation: Net income = EBIT - Interest expense - Taxes
    • Depends on capital structure:
      • 1. Interest expense: function of interest-bearing debt
      • 2. Interest expense : tax deductible
  • Preferred measure: Return on Invested Capital (ROIC)
  • NB: ROIC = ROA (gross) (1 - Tax rate)
  • = ROE of a all equity financed firm

DESG

financial leverage
Financial leverage
  • Financial leverage magnifies ROE only when ROA (gross) is greater than the interest rate on debt.
  • Balance sheet: TA = SE + D
  • Income statement: NI = EBIT - INT- TAX
  • Interest expense INT = r D (Interest expense = Interest rate x Interest-bearing debt)
  • Taxes TAX = (EBIT - r D) Tc (Taxes = Taxable income x Tax rate)
  • Remember : ROIC = ROAgross (1 - Tc)
  • ROE = ROIC + (ROAgross - r) (1-Tc) (D/SE)

DESG