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Chapter1. Introduction to Corporate Finance

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									     Chapter1.

Introduction to Corporate
         Finance
         徐啟升
     The financial manager has three
               main tasks:
   Make investment decisions,
   Make financing decisions, and
   Manage cash flow from operating activities.
    Maximize the Value of the Firm
   All of these decisions by the financial manager
    are made within the context of the overriding
    goal (最優先之目標) of financial management—
    to maximize the wealth of the owners, the
    stockholders.
                         代理成本
   Agency Problems & Agency costs:
        Reduced effort
        Perks
        Empire building
        Entrenching investment
        Avoiding risk
Management has a significant incentive to
   act in the interest of stockholders
   Monitoring
   Compensations
   Proxy Fight
   Takeover Threat
      Chapter2.

Financial Statements, Taxes,
      and Cash Flow
           徐啟升
            資產負債表
   資產:代表投資決策。
   負債及業主權益:代表融資決策。
   股東權益= Shareholders’ equity
        = Stockholders’ equity
        = Owners’ equity
   保留盈餘(retained earnings)在股東權益項下。
 U.S. Composite Corporation Balance
                Sheet

                                2006    2005                                            2006     2005
Current assets:                                   Current Liabilities:
 Cash and equivalents            $140    $107      Accounts payable                      $213    $197
 Accounts receivable              294     270      Notes payable                           50       53
 Inventories                      269     280      Accrued expenses                       223     205
 Other                             58      50        Total current liabilities           $486    $455
    Total current assets         $761    $707
                                                  Long-term liabilities:
Fixed assets:                                      Deferred taxes                        $117    $104
 Property, plant, and equipment $1,423 $1,274      Long-term debt                          471    458
   Less accumulated depreciation   (550)  (460)      Total long-term liabilities         $588    $562
 Net property, plant, and equipment 873    814
 Intangible assets and other        245    221    Stockholder's equity:
    Total fixed assets           $1,118 $1,035      Preferred stock                       $39    $39
                                                    Common stock ($1 per value)             55     32
                                                    Capital surplus                        347    327
                                                   Accumulated retained earnings           390    347
                                                     Less treasury stock                   (26)   (20)
                                                      Total equity                       $805   $725
Total assets                   $1,879   $1,742    Total liabilities and stockholder's   $1,879 $1,742
                                                  equity
               資產負債表與損益表
   Net working capital (淨營運資金)
       current assets –current liabilities
   Net fixed assets =
       Fixed assets – Acc. Depreciation
   Net Income :
        股利
        保留盈餘
U.S.C.C. Income Statement
   Total operating revenues                        $2,262
   Cost of goods sold                               1,655
   Selling, general, and administrative expenses      327
   Depreciation                                        90
   Operating income                                  $190
   Other income                                        29
   Earnings before interest and taxes                $219
   Interest expense                                    49
   Pretax income                                      $170
    Taxes                                               84
             Current: $71
            Deferred: $13
    Net income                                           $86
             Addition to retained earnings:        $43
               Dividends:                          $43
              Cash flow from assets

   投資所創造出的現金流量
   Cash flow from assets =
       cash flow to creditors +
       cash flow to stockholders
   Cash flow from assets =
       capital spending +
       change in net working capital +
       operating cash flow
        Capital Spending資本支出
   Cash flow from change in fixed assets
       Change in net fixed assets + Dep.
   資本支出> 0 :本期所購入之固定資產大於售出之
    固定資產,為現金流量之減項。
   資本支出< 0 :本期所售出之固定資產大於購入之
    固定資產,為現金流量之加項。
   在計算cash flow from assets時,要注意須從現金流
    量的角度來考量。
CF from Change in Net Working Capital

   Ending NWC – Beginning NWC
   Change in NWC > 0 :
       淨營運資金的增加,是現金流量的減項。
           例如:應收帳款增加。

   Change in NWC < 0 :
       淨營運資金的減少,是現金流量的加項。
           例如:應付帳款增加。
                U.S.C.C. Balance Sheet
       $252m = $707- $455

                                    2006     2005                                               2006      2005
 Current assets:                                      Current Liabilities:
  Cash and equivalents               $140    $107      Accounts payable                          $213      $197
  Accounts receivable                 294     270      Notes payable                               50        53
  Inventories                         269     280      Accrued expenses                           223       205
  Other                                58      50        Total current liabilities               $486      $455
    Total current assets             $761    $707
                                                      Long-term liabilities:
 Fixed assets:                                         Here we see NWC grow to$104
                                                       Deferred taxes                $117
   Property, plant, and equipment     $1,423 $1,274    Long-term debt                  471   458
    Less accumulated depreciation       (550)  (460    $275 million in 2006 from $562
                                                         Total long-term liabilities $588
   Net property, plant, and equipment
   Intangible assets and other
                                         873
                                         245
                                                814
                                                221
                                                       $252 million in 2005.
                                                      Stockholder's equity:
      Total fixed assets              $1,118 $1,035
                                                       $23 million value)
                                                        Preferred stock
                                                        Common stock ($1 par
                                                                                      $39
                                                                                        55
                                                                                            $39
                                                                                              32

$275m = $761m- $486m                                    Capital increase of $23 million is
                                                       Thissurplus
                                                       Accumulated retained earnings
                                                                                       347
                                                                                       390
                                                                                             327
                                                                                             347
                                                           cash outflow of the firm. (20)
                                                       aLess treasury stock            (26)
                                                          Total equity                           $805      $725
 Total assets                      $1,879   $1,742    Total liabilities and stockholder's equity $1,879   $1,742
    Operating Cash Flow營運現金流量
   由營運現金流量此一名詞可知,係要計算營運所
    產生的現金流量,故可推論應與損益表有關。
   OCF = EBIT + Dep. - Tax
       Tax:為實際支付給政府,故需扣除。
       Interest:不考慮利息費用,因它是屬於融資成
        本。
       Dep.:只是會計上的減項,實際並無此項支出。
           Cash Flow to Creditors and
                 Stockholders
   Cash flow to creditors = interest paid - net new
    borrowing
       net new borrowing = issue new bonds - buy back old bonds

   Cash flow to stockholder = dividends paid -
    net new equity raised
       net new equity raised = issue new stocks - repurchase
        stocks
   U.S.C.C. Financial Cash Flow
Cash Flow of the Firm                         Operating Cash Flow:
Operating cash flow                    $238
 (Earnings before interest and taxes          EBIT           $219
  plus depreciation minus taxes)
Capital spending                       -173   Depreciation   $90
 (Acquisitions of fixed assets
  minus sales of fixed assets)
Additions to net working capital       -23
                                              Current Taxes -$71
    Total                              $42
                                              OCF            $238
Cash Flow of Investors in the Firm
Debt                                   $36
 (Interest plus retirement of debt
  minus long-term debt financing)
Equity                                   6
 (Dividends plus repurchase of
  equity minus new equity financing)
    Total                              $42
    U.S.C.C. Financial Cash Flow
Cash Flow of the Firm
Operating cash flow                    $238
 (Earnings before interest and taxes          Capital Spending
  plus depreciation minus taxes)
Capital spending                       -173   Purchase of fixed assets   $198
 (Acquisitions of fixed assets
  minus sales of fixed assets)                Sales of fixed assets      -$25
Additions to net working capital       -23
                                              Capital Spending           $173
    Total                              $42
Cash Flow of Investors in the Firm
Debt                                   $36
 (Interest plus retirement of debt
  minus long-term debt financing)
Equity                                    6
 (Dividends plus repurchase of
  equity minus new equity financing)
    Total                              $42
   U.S.C.C. Financial Cash Flow
Cash Flow of the Firm
Operating cash flow                    $238
 (Earnings before interest and taxes          NWC grew from $275
  plus depreciation minus taxes)
Capital spending                       -173   million in 2006 from $252
 (Acquisitions of fixed assets                million in 2005.
  minus sales of fixed assets)
Additions to net working capital       -23    This increase of $23
    Total                              $42
                                              million is the addition to
Cash Flow of Investors in the Firm
Debt                                   $36    NWC.
 (Interest plus retirement of debt
  minus long-term debt financing)
Equity                                    6
 (Dividends plus repurchase of
  equity minus new equity financing)
    Total                              $42
   U.S.C.C. Financial Cash Flow
Cash Flow of the Firm
Operating cash flow                    $238
 (Earnings before interest and taxes
  plus depreciation minus taxes)
Capital spending                       -173
 (Acquisitions of fixed assets
  minus sales of fixed assets)
Additions to net working capital       -23
    Total                              $42
Cash Flow of Investors in the Firm
Debt                                   $36
 (Interest plus retirement of debt
  minus long-term debt financing)
Equity                                    6
 (Dividends plus repurchase of
  equity minus new equity financing)
    Total                              $42
    U.S.C.C. Financial Cash Flow
Cash Flow of the Firm
Operating cash flow                    $238
 (Earnings before interest and taxes          Cash Flow to Creditors
  plus depreciation minus taxes)
Capital spending                       -173   Interest                  $49
 (Acquisitions of fixed assets
  minus sales of fixed assets)                Retirement of debt        73
Additions to net working capital       -23
    Total                              $42               Debt service   122
Cash Flow of Investors in the Firm
Debt                                   $36    Proceeds from new debt sales
 (Interest plus retirement of debt                                    -86
  minus long-term debt financing)
Equity                                    6   Total                     $36
 (Dividends plus repurchase of
  equity minus new equity financing)
    Total                              $42
   U.S.C.C. Financial Cash Flow
Cash Flow of the Firm
Operating cash flow                    $238
 (Earnings before interest and taxes          Cash Flow to Stockholders
  plus depreciation minus taxes)
Capital spending                       -173   Dividends                       $43
 (Acquisitions of fixed assets                Repurchase of stock              6
  minus sales of fixed assets)
Additions to net working capital       -23                Cash to Stockholders 49
    Total                              $42    Proceeds from new stock issue
Cash Flow of Investors in the Firm                                            -43
Debt                                   $36
                                              Total                            $6
 (Interest plus retirement of debt
  minus long-term debt financing)
Equity                                    6
 (Dividends plus repurchase of
  equity minus new equity financing)
    Total                              $42
   U.S.C.C. Financial Cash Flow
Cash Flow of the Firm
Operating cash flow                    $238   The cash flow received
 (Earnings before interest and taxes
  plus depreciation minus taxes)
                                              from the firm’s assets
Capital spending                       -173   must equal the cash flows
 (Acquisitions of fixed assets
  minus sales of fixed assets)
                                              to the firm’s creditors and
Additions to net working capital       -23    stockholders:
    Total                              $42
Cash Flow of Investors in the Firm                         CF ( A) 
                                                CF ( B )  CF ( S )
Debt                                   $36
 (Interest plus retirement of debt
  minus long-term debt financing)
Equity                                    6
 (Dividends plus repurchase of
  equity minus new equity financing)
    Total                              $42

								
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