This document discusses financial statement analysis and the time value of money. It covers:
- Reasons for analyzing financial statements like performance evaluation and checking projections.
- Benchmarking methods like comparing to peers or historical trends.
- Calculating future value over time using compound interest formulas for single deposits or regular cash flows.
- How present value considers the time value of money by discounting future cash flows.
Discounted cash flow valuation uses present value calculations to determine the value of investment projects and companies. It discounts future cash flows back to the present using a discount rate. The net present value (NPV) of a project is calculated by taking the present value of all expected future cash flows. A positive NPV means the project adds value while a negative NPV means it destroys value. Proper valuation requires forecasting cash flows, determining the appropriate discount rate, and discounting the cash flows to get the NPV.
This document discusses how to value bonds and stocks. It defines bonds, how bond values are determined from present values of coupon payments and par value, and how bond prices are inversely related to market interest rates. It also discusses how to value common stocks based on present values of expected future dividends and capital gains, using dividend discount models for stocks with zero, constant, or differential growth. Growth opportunities can increase stock value if positive NPV projects are undertaken. The price-earnings ratio is also discussed.
This document discusses the cost of capital and its importance in corporate finance. It covers determining the cost of equity, cost of debt, weighted average cost of capital (WACC), and how taxes impact these calculations. The chapter outline includes sections on the cost of equity, costs of debt and preferred stock, WACC, and divisional/project costs of capital. Worked examples are provided for calculating each component of the cost of capital and the overall WACC.
This chapter discusses net present value (NPV) analysis and time value of money concepts. It introduces formulas for calculating future value, present value, and NPV for single-period and multi-period cash flows. It also covers compounding periods, perpetuities, annuities, and growing cash flows. The key concepts of this chapter are NPV analysis, discounting future cash flows, and accounting for the time value of money.
This chapter discusses key accounting statements used to analyze the financial performance and cash flows of a company. It includes:
1) The balance sheet, which provides a snapshot of assets, liabilities, and equity on a given date.
2) The income statement, which measures revenues and expenses over a period of time to determine net income.
3) The statement of cash flows, which reconciles cash flows from operating, investing, and financing activities to understand a company's actual cash position.
This chapter introduces corporate finance and the goals of corporate firms. It discusses the balance sheet model of the firm and how corporate finance addresses what investments firms should make, how to raise capital for investments, and how much cash is needed. It also covers different forms of business organization, the role of financial markets, and contrasts debt and equity as contingent claims on firm value.
I have covered the following topics and which Financial instruments should be applied in what situations:
1. Present Value Approach
2. Dividend Discounting model
3. P/E - Profit to Equity Ratio
I hope it should be helpful to all students,professionals who work in capital markets
Discounted cash flow valuation uses present value calculations to determine the value of investment projects and companies. It discounts future cash flows back to the present using a discount rate. The net present value (NPV) of a project is calculated by taking the present value of all expected future cash flows. A positive NPV means the project adds value while a negative NPV means it destroys value. Proper valuation requires forecasting cash flows, determining the appropriate discount rate, and discounting the cash flows to get the NPV.
This document discusses how to value bonds and stocks. It defines bonds, how bond values are determined from present values of coupon payments and par value, and how bond prices are inversely related to market interest rates. It also discusses how to value common stocks based on present values of expected future dividends and capital gains, using dividend discount models for stocks with zero, constant, or differential growth. Growth opportunities can increase stock value if positive NPV projects are undertaken. The price-earnings ratio is also discussed.
This document discusses the cost of capital and its importance in corporate finance. It covers determining the cost of equity, cost of debt, weighted average cost of capital (WACC), and how taxes impact these calculations. The chapter outline includes sections on the cost of equity, costs of debt and preferred stock, WACC, and divisional/project costs of capital. Worked examples are provided for calculating each component of the cost of capital and the overall WACC.
This chapter discusses net present value (NPV) analysis and time value of money concepts. It introduces formulas for calculating future value, present value, and NPV for single-period and multi-period cash flows. It also covers compounding periods, perpetuities, annuities, and growing cash flows. The key concepts of this chapter are NPV analysis, discounting future cash flows, and accounting for the time value of money.
This chapter discusses key accounting statements used to analyze the financial performance and cash flows of a company. It includes:
1) The balance sheet, which provides a snapshot of assets, liabilities, and equity on a given date.
2) The income statement, which measures revenues and expenses over a period of time to determine net income.
3) The statement of cash flows, which reconciles cash flows from operating, investing, and financing activities to understand a company's actual cash position.
This chapter introduces corporate finance and the goals of corporate firms. It discusses the balance sheet model of the firm and how corporate finance addresses what investments firms should make, how to raise capital for investments, and how much cash is needed. It also covers different forms of business organization, the role of financial markets, and contrasts debt and equity as contingent claims on firm value.
I have covered the following topics and which Financial instruments should be applied in what situations:
1. Present Value Approach
2. Dividend Discounting model
3. P/E - Profit to Equity Ratio
I hope it should be helpful to all students,professionals who work in capital markets
The document discusses stock returns and dividend policy. It explains that stock returns have two components: capital gains and dividend yield. It then discusses the dilemma firms face in deciding whether to retain earnings to finance investments or pay them out as dividends. The document considers different viewpoints on whether dividend policy is important and explores factors like taxes, signaling effects, and catering to different investor preferences. It also outlines various dividend policies and procedures firms use.
Prepared by Students of University of Rajshahi
Pranto Karmoker Ariful Islam Tonmoy Halder Monir Hossain
1711033122 1710733119 1710833120 1711033205
Ashikur Rahman Mahfuzul Haque Jibon Rahman Sohag Miah
1710133113 1710933297 1711033210 1710933202
Siam Hossain Shammira Parvin Farhana Afrose Anjuman Ara
1710333148 1712033136 1712033209 1712433159
Shakil Hossain
1710833138
presented by Group 2
For downloading this contact- bikashkumar.bk100@gmail.com
Ratio analysis is used to evaluate the financial performance and health of a business. Ratios show the mathematical relationship between two related figures and can be used for trend analysis and comparisons between firms. There are several types of ratios including liquidity ratios that measure short-term financial strength, activity/turnover ratios that measure efficiency, and profitability ratios. Current ratio, quick ratio, and inventory turnover ratio are some examples discussed. Ratios should be interpreted both individually and in comparison to past ratios and industry standards to evaluate performance over time.
STOCKS, SHARES, EQUITY SHARES, PREFERENCE SHARES, BONDS, DEBENTURES, STOCK VALUATION, FEATURES OF COMMON STOCK, DETERMINING COMMON STOCK VALUES, EFFECTIVE MARKETS, etc.
The document discusses dividend policy and theories, including the residual dividend model. It defines dividend policy as the decision to pay out earnings or retain profits. The three main theories discussed are the dividend irrelevance theory, bird-in-hand theory, and tax preference theory. The residual dividend model determines dividends by first funding capital budget needs and then paying out any remaining profits.
There are two main approaches to valuing common stock:
1) The present value or discounted cash flow approach values stock based on the discounted value of expected future cash flows such as dividends. It requires estimating the discount rate and cash flow stream.
2) The multiples approach values stock relative to financial metrics like earnings or book value using ratios like the P/E ratio. The appropriate P/E depends on growth rate, payout ratio, and required return.
Both approaches have limitations in estimating uncertain future variables but can provide reasonable valuations when used together.
The document discusses working capital management and short-term financing. It defines current and long-term assets and liabilities, and explains the risk-return tradeoff between financing with short-term vs long-term sources. The hedging principle is introduced, which states that permanent assets should be financed with permanent sources while temporary assets use temporary financing. Methods for calculating the cost and annual percentage rate of short-term credit are provided, as well as sources of short-term financing like trade credit, bank loans, and secured loans.
If your company needs to submit a Financial Advisory Proposal PowerPoint Presentation Slides look no further.Our researchers have analyzed thousands of proposals on this topic for effectiveness and conversion. Just download our template, add your company data and submit to your client for a positive response. http://bit.ly/2HwkAEs
This document summarizes key aspects of long-term corporate financial planning. It discusses what financial planning involves, including creating sales forecasts, pro forma financial statements, and addressing asset/liability requirements and financing needs. It also covers determining a company's sustainable growth rate and how various factors like profit margins, assets, debt, and equity issuance influence a company's ability to grow. The document cautions that financial planning models simplify reality and changing conditions may alter the best financial policies for a company.
This document discusses the weighted average cost of capital (WACC) and its components. It addresses how to calculate WACC using the costs of debt, preferred stock, and common equity weighted by the target capital structure. It also discusses adjusting component costs for taxes and risk and determining the weights. Project risk can be standalone, corporate, or market risk and may require adjusting the composite WACC. Risk adjustments are made subjectively based on a project's estimated beta.
This document discusses various methods for valuing common stock, including:
1. The discounted cash flow model, which values a stock based on the present value of its expected future cash flows.
2. The dividend discount model (DDM), which values a stock based on the present value of its expected future dividends. Constant and variable growth DDM are discussed.
3. Other valuation methods like the free cash flow model, P/E ratio approach, and price-to-sales ratio are also presented. The document concludes that the best estimate of a stock's value is usually the present value of its estimated future dividends.
The document discusses the components of the cost of capital, including debt, preferred stock, and common equity. It provides methods for calculating the costs of each component, such as using bond yields for the cost of debt. The weighted average cost of capital (WACC) is calculated using the costs of each component weighted by the target capital structure weights. Factors that influence the WACC include market conditions, the firm's capital structure and investment policy. The document also discusses approaches for adjusting the cost of capital for divisions or projects based on their specific risks.
The document discusses the cost of capital and how it is calculated. It can be summarized as:
1) The cost of capital is the weighted average rate that a firm is expected to pay to fund its assets and operations with different sources of capital such as debt, preferred stock, and common equity.
2) It is calculated by determining the market value proportion of each capital component, the market return expected by investors in each component, and adjusting for factors like taxes and flotation costs.
3) The weighted average cost of capital (WACC) represents the firm's hurdle rate and is used to evaluate whether potential projects can earn more than this required return.
This document summarizes methods for valuing bonds and stocks. It discusses how to value bonds based on their coupon payments and maturity date by discounting expected cash flows. It also explains models for valuing stocks based on expected future dividends, including the dividend discount model for zero, constant, and differential growth. Key parameters like growth rates and discount rates are discussed. Methods include using the dividend discount model or separating value into a "cash cow" portion and growth opportunities.
99999999999999999999999999999999999999999999999Nata Rajan
This document summarizes key topics from Chapter 4 of the textbook "Fundamentals of Corporate Finance" on valuing stocks. It discusses different valuation methods like comparable companies, dividend discount models, and growth models. It also covers the efficient market hypothesis and anomalies like the small firm effect. Behavioral finance concepts like risk attitudes and probability beliefs are also introduced.
SBI Dynamic Asset Allocation Fund: An Open-ended Dynamic Asset Allocation Sch...SBI Mutual Fund
SBI Dynamic Asset Allocation Fund is an open-ended dynamic asset allocation scheme which aims to provide investors an opportunity to invest in a portfolio of a mix of equity and equity-related securities and fixed-income instruments which will be managed dynamically so as to provide investors with long-term capital appreciation.To know more about this mutual fund check SBI Mutual Fund page
https://www.sbimf.com/Products/HybridSchemes.aspx
SBI Magnum Balanced Fund: An Open-ended Balanced Scheme - Sep 16SBI Mutual Fund
SBI Magnum Balanced Fund invests in a mix of equity and debt investments. It provides a good investment opportunity to investors who do not wish to be completely exposed to equity markets, but are looking for relatively higher returns than those provided by debt funds. The scheme invests in a diversified portfolio of equities of high growth companies and balances the risk through investing the rest in a relatively safe portfolio of debt.To know more about this mutual fund check SBI Mutual Fund page
https://www.sbimf.com/Products/HybridSchemes/Magnum_Balanced_Fund.aspx
The document discusses various topics related to investing, including:
1) Compound interest and how it allows investments to grow exponentially over time through reinvestment of interest.
2) The three main asset classes - equities, fixed income, and cash equivalents - and how proper allocation between them can optimize returns while minimizing risk.
3) Different types of investments including stocks, bonds, mutual funds and their basic characteristics. Key factors like earnings, price-earnings ratios, and yields are discussed for evaluating investments.
The document discusses how to analyze a business using financial ratios. It explains that ratios show the relationship between two numbers and can be used to compare a company's performance over time and to other companies in the same industry. The document then outlines 12 steps for conducting a basic financial analysis of a company, including acquiring financial statements, calculating common size ratios and other key financial ratios related to liquidity, debt, profitability, efficiency and stock value. These ratios can provide insights into a company's strengths and weaknesses.
Management Accounting: A Road of Discovery discusses capital budgeting and the balanced scorecard. It explains the need for multiple capital budgeting methods like net present value (NPV) and accounting rate of return (ARR) to evaluate investments. A balanced scorecard uses non-financial measures from four perspectives - financial, customer, internal processes, and innovation/learning - to assess long-term value in addition to traditional financial metrics. The document provides examples of goals and measures for each balanced scorecard perspective from various companies.
This document provides an introduction to corporate finance concepts including:
- The roles and responsibilities of financial managers in making capital budgeting, capital structure, and working capital decisions.
- The three major forms of business organization: sole proprietorship, partnership, and corporation.
- The goal of financial management and agency problems that can arise between owners and managers.
- Basic definitions related to present and future value, interest rates, and discount rates.
- Formulas for calculating future and present values of single and multiple cash flows.
The document discusses stock returns and dividend policy. It explains that stock returns have two components: capital gains and dividend yield. It then discusses the dilemma firms face in deciding whether to retain earnings to finance investments or pay them out as dividends. The document considers different viewpoints on whether dividend policy is important and explores factors like taxes, signaling effects, and catering to different investor preferences. It also outlines various dividend policies and procedures firms use.
Prepared by Students of University of Rajshahi
Pranto Karmoker Ariful Islam Tonmoy Halder Monir Hossain
1711033122 1710733119 1710833120 1711033205
Ashikur Rahman Mahfuzul Haque Jibon Rahman Sohag Miah
1710133113 1710933297 1711033210 1710933202
Siam Hossain Shammira Parvin Farhana Afrose Anjuman Ara
1710333148 1712033136 1712033209 1712433159
Shakil Hossain
1710833138
presented by Group 2
For downloading this contact- bikashkumar.bk100@gmail.com
Ratio analysis is used to evaluate the financial performance and health of a business. Ratios show the mathematical relationship between two related figures and can be used for trend analysis and comparisons between firms. There are several types of ratios including liquidity ratios that measure short-term financial strength, activity/turnover ratios that measure efficiency, and profitability ratios. Current ratio, quick ratio, and inventory turnover ratio are some examples discussed. Ratios should be interpreted both individually and in comparison to past ratios and industry standards to evaluate performance over time.
STOCKS, SHARES, EQUITY SHARES, PREFERENCE SHARES, BONDS, DEBENTURES, STOCK VALUATION, FEATURES OF COMMON STOCK, DETERMINING COMMON STOCK VALUES, EFFECTIVE MARKETS, etc.
The document discusses dividend policy and theories, including the residual dividend model. It defines dividend policy as the decision to pay out earnings or retain profits. The three main theories discussed are the dividend irrelevance theory, bird-in-hand theory, and tax preference theory. The residual dividend model determines dividends by first funding capital budget needs and then paying out any remaining profits.
There are two main approaches to valuing common stock:
1) The present value or discounted cash flow approach values stock based on the discounted value of expected future cash flows such as dividends. It requires estimating the discount rate and cash flow stream.
2) The multiples approach values stock relative to financial metrics like earnings or book value using ratios like the P/E ratio. The appropriate P/E depends on growth rate, payout ratio, and required return.
Both approaches have limitations in estimating uncertain future variables but can provide reasonable valuations when used together.
The document discusses working capital management and short-term financing. It defines current and long-term assets and liabilities, and explains the risk-return tradeoff between financing with short-term vs long-term sources. The hedging principle is introduced, which states that permanent assets should be financed with permanent sources while temporary assets use temporary financing. Methods for calculating the cost and annual percentage rate of short-term credit are provided, as well as sources of short-term financing like trade credit, bank loans, and secured loans.
If your company needs to submit a Financial Advisory Proposal PowerPoint Presentation Slides look no further.Our researchers have analyzed thousands of proposals on this topic for effectiveness and conversion. Just download our template, add your company data and submit to your client for a positive response. http://bit.ly/2HwkAEs
This document summarizes key aspects of long-term corporate financial planning. It discusses what financial planning involves, including creating sales forecasts, pro forma financial statements, and addressing asset/liability requirements and financing needs. It also covers determining a company's sustainable growth rate and how various factors like profit margins, assets, debt, and equity issuance influence a company's ability to grow. The document cautions that financial planning models simplify reality and changing conditions may alter the best financial policies for a company.
This document discusses the weighted average cost of capital (WACC) and its components. It addresses how to calculate WACC using the costs of debt, preferred stock, and common equity weighted by the target capital structure. It also discusses adjusting component costs for taxes and risk and determining the weights. Project risk can be standalone, corporate, or market risk and may require adjusting the composite WACC. Risk adjustments are made subjectively based on a project's estimated beta.
This document discusses various methods for valuing common stock, including:
1. The discounted cash flow model, which values a stock based on the present value of its expected future cash flows.
2. The dividend discount model (DDM), which values a stock based on the present value of its expected future dividends. Constant and variable growth DDM are discussed.
3. Other valuation methods like the free cash flow model, P/E ratio approach, and price-to-sales ratio are also presented. The document concludes that the best estimate of a stock's value is usually the present value of its estimated future dividends.
The document discusses the components of the cost of capital, including debt, preferred stock, and common equity. It provides methods for calculating the costs of each component, such as using bond yields for the cost of debt. The weighted average cost of capital (WACC) is calculated using the costs of each component weighted by the target capital structure weights. Factors that influence the WACC include market conditions, the firm's capital structure and investment policy. The document also discusses approaches for adjusting the cost of capital for divisions or projects based on their specific risks.
The document discusses the cost of capital and how it is calculated. It can be summarized as:
1) The cost of capital is the weighted average rate that a firm is expected to pay to fund its assets and operations with different sources of capital such as debt, preferred stock, and common equity.
2) It is calculated by determining the market value proportion of each capital component, the market return expected by investors in each component, and adjusting for factors like taxes and flotation costs.
3) The weighted average cost of capital (WACC) represents the firm's hurdle rate and is used to evaluate whether potential projects can earn more than this required return.
This document summarizes methods for valuing bonds and stocks. It discusses how to value bonds based on their coupon payments and maturity date by discounting expected cash flows. It also explains models for valuing stocks based on expected future dividends, including the dividend discount model for zero, constant, and differential growth. Key parameters like growth rates and discount rates are discussed. Methods include using the dividend discount model or separating value into a "cash cow" portion and growth opportunities.
99999999999999999999999999999999999999999999999Nata Rajan
This document summarizes key topics from Chapter 4 of the textbook "Fundamentals of Corporate Finance" on valuing stocks. It discusses different valuation methods like comparable companies, dividend discount models, and growth models. It also covers the efficient market hypothesis and anomalies like the small firm effect. Behavioral finance concepts like risk attitudes and probability beliefs are also introduced.
SBI Dynamic Asset Allocation Fund: An Open-ended Dynamic Asset Allocation Sch...SBI Mutual Fund
SBI Dynamic Asset Allocation Fund is an open-ended dynamic asset allocation scheme which aims to provide investors an opportunity to invest in a portfolio of a mix of equity and equity-related securities and fixed-income instruments which will be managed dynamically so as to provide investors with long-term capital appreciation.To know more about this mutual fund check SBI Mutual Fund page
https://www.sbimf.com/Products/HybridSchemes.aspx
SBI Magnum Balanced Fund: An Open-ended Balanced Scheme - Sep 16SBI Mutual Fund
SBI Magnum Balanced Fund invests in a mix of equity and debt investments. It provides a good investment opportunity to investors who do not wish to be completely exposed to equity markets, but are looking for relatively higher returns than those provided by debt funds. The scheme invests in a diversified portfolio of equities of high growth companies and balances the risk through investing the rest in a relatively safe portfolio of debt.To know more about this mutual fund check SBI Mutual Fund page
https://www.sbimf.com/Products/HybridSchemes/Magnum_Balanced_Fund.aspx
The document discusses various topics related to investing, including:
1) Compound interest and how it allows investments to grow exponentially over time through reinvestment of interest.
2) The three main asset classes - equities, fixed income, and cash equivalents - and how proper allocation between them can optimize returns while minimizing risk.
3) Different types of investments including stocks, bonds, mutual funds and their basic characteristics. Key factors like earnings, price-earnings ratios, and yields are discussed for evaluating investments.
The document discusses how to analyze a business using financial ratios. It explains that ratios show the relationship between two numbers and can be used to compare a company's performance over time and to other companies in the same industry. The document then outlines 12 steps for conducting a basic financial analysis of a company, including acquiring financial statements, calculating common size ratios and other key financial ratios related to liquidity, debt, profitability, efficiency and stock value. These ratios can provide insights into a company's strengths and weaknesses.
Management Accounting: A Road of Discovery discusses capital budgeting and the balanced scorecard. It explains the need for multiple capital budgeting methods like net present value (NPV) and accounting rate of return (ARR) to evaluate investments. A balanced scorecard uses non-financial measures from four perspectives - financial, customer, internal processes, and innovation/learning - to assess long-term value in addition to traditional financial metrics. The document provides examples of goals and measures for each balanced scorecard perspective from various companies.
This document provides an introduction to corporate finance concepts including:
- The roles and responsibilities of financial managers in making capital budgeting, capital structure, and working capital decisions.
- The three major forms of business organization: sole proprietorship, partnership, and corporation.
- The goal of financial management and agency problems that can arise between owners and managers.
- Basic definitions related to present and future value, interest rates, and discount rates.
- Formulas for calculating future and present values of single and multiple cash flows.
Lecture 12816 and 20216 for chapters 3+43 Evaluation m.docxsmile790243
Lecture 1/28/16 and 2/02/16 for chapters 3+4
3 Evaluation methods for working with financial statements.
The first is RATIO ANALYSIS.
This helps you evaluate the financial performance of a company.
Chapter 3+4 are combined. You try to answer one main question: How ratio
analysis is used to evaluate the financial performance of a company.
In order to do ratio analysis you need data, and the data comes from financial
statements. The two main statements that we used to calculate the ratio: balance
sheet and income statement. 3 & 4 chapters are accounting review. He imported info
that reminds us of those two statements. All we need to study is this power point.
Review of balance sheet:
How finance people read balance sheet is a bit different because it fits our needs.
Balance sheet is two sides. One side is called assets and other side is called liabilities
and equity.
The assets side is everything the company owns.
The liability side is everything the company owes others.
Other definition could be, the assets could be considered the companies investment.
If asset is the companies the investments then liabilities is where we get the money
from to fund the investments.
Capital budgeting team from finance determines if they can afford the projects and
liabilities they can afford before accounting department gets its it.
Assets should always equal the liabilities.
Bonds are long term debt. Total debt equals depts. Plus equity. Short‐term debt is
current liabilities and long term debt is bonds. Short term is like A.P., s‐t notes
payable, current liabilities.
Total assets tell you the value of the company.
The value=D + E.
Income statements = revenues‐expenses=net income or net loss.
They show whether the company makes profit or losses, revenues and expenses.
The very important number is net income. Whether it is positive or negative.
If it positive then perfect, everyone is happy…to a certain extent.
As soon as you have profit, you have to deduct taxes (corporate taxes)
The rest is divided between dividends and retained earnings, depends how much is
distributed where. Depends on many factors. They usually start by putting a lot in
retained earning and use it as an internal source of finance, the management will do
anything they can do in order to maximize RE.
The ratio we use to calculate the RE from Net Income is called the
RETENTION RATIO= THE RATIO THAT WE USE TO CALCULATE RETAINED
EARNING FROM NET INCOME.
The name of the ratio that goes to dividends from net income is called dividend
payout ratio.
Revenues maybe up to 90% of them comes from SALES. The other 10% come from
like investments from shares you receive dividends, you receive INTERESTS from
BONDS.
Expenses, since most of the money comes from sales then the most of the expenses
come from COGS. The rest is salaries, maintenance etc.
Sales‐COGS=Gross profit‐rest=net incomes‐taxes=real net income that goes two
ways.
Earning per share=EPS =Total ne ...
This document provides an overview of financial statement analysis and various methods used for analysis. It discusses the key users and purposes of analysis, as well as common analysis techniques like horizontal analysis, vertical analysis, trend analysis, and ratio analysis. It then provides an example of calculating ratios for a company called Norton Corporation using information from their financial statements.
The document discusses how to value a pest control firm. It outlines several factors that contribute value, such as annual revenue, earnings, assets, and most importantly, the customer list. It also describes different valuation methods like adjusted book value, capitalized earnings, and discounted cash flow. The key points are that the customer list is usually the most valuable asset, and maintaining growth, retention, margins, and service quality can maximize a firm's value for potential acquisitions or sales.
The document discusses how to value a pest control firm. It explains that a firm's value is primarily based on its recurring revenue and profitability. Several valuation methods are discussed, including adjusted book value, capitalized earnings, and discounted cash flow. However, the preferred "hybrid" method values key assets like vehicles, equipment, and most importantly the customer list. It emphasizes growing the value of the customer list through high contract retention and margins. Large firms are actively acquiring smaller firms, driving up prices, but this high acquisition activity may not last forever. Overall, the document provides an overview of factors that contribute to a pest control firm's value and the methods used to determine that value.
The document discusses how to value a pest control firm. It outlines several factors that contribute value, such as annual revenue, earnings, assets, and most importantly, the customer list. It also describes different valuation methods like adjusted book value, capitalized earnings, and discounted cash flow. The key points are that the customer list is usually the most valuable asset, and maintaining growth, retention, margins, and service quality can maximize a firm's value for potential buyers such as private equity firms.
Knowledge varsity dec 2011 study_session_2finexcel
This document provides an overview of key concepts related to time value of money. It discusses [1] the importance of understanding present and future value when evaluating investments, [2] how to calculate present and future value for single cash flows and annuities using formulas and a financial calculator, and [3] how to draw and interpret timelines to analyze problems with multiple cash flows. The document also covers effective annual rates and solving time value problems with non-annual compounding periods.
This document provides an overview of the key concepts covered in a reading on time value of money. It discusses that time value of money links cash flows, interest rates, and time periods to calculate present and future values. It also reviews calculating effective annual rates given periodic compounding. The document emphasizes the importance of drawing timelines to solve problems and introduces how to use a financial calculator for time value of money calculations involving single sums, annuities, and unequal cash flows.
This document provides an overview of financial statement analysis techniques including horizontal analysis, vertical analysis, common-size statements, trend percentages, and ratio analysis. It discusses various liquidity, profitability, and market ratios and provides an example of calculating ratios for Norton Corporation using information from their financial statements. Key ratios discussed include the current ratio, acid-test ratio, accounts receivable turnover, inventory turnover, equity ratio, return on sales, and return on equity.
Return on Capital (ROC), Return on Invested Capital (ROIC) and Return on Equity (ROE) are important metrics for measuring the returns generated by a business's existing investments and forecasting returns on future investments. There are two main accounting-based measures - ROIC, which measures return on total capital invested, and ROE, which measures return on equity capital. ROIC is calculated as operating income after taxes divided by the book value of invested capital from the prior year. While accounting-based, this measure provides a reasonable estimate of returns on existing investments. Accurately measuring these returns is crucial for valuation since a business only creates value to the extent returns exceed the costs of capital.
3 Evaluation methods for working with financial statements.The f.docxtamicawaysmith
3 Evaluation methods for working with financial statements.
The first is RATIO ANALYSIS.
This helps you evaluate the financial performance of a company.
Chapter 3+4 are combined. You try to answer one main question: How ratio analysis is used to evaluate the financial performance of a company.
In order to do ratio analysis you need data, and the data comes from financial statements. The two main statements that we used to calculate the ratio: balance sheet and income statement. 3 & 4 chapters are accounting review. He imported info that reminds us of those two statements. All we need to study is this power point.
Review of balance sheet:
How finance people read balance sheet is a bit different because it fits our needs.
Balance sheet is two sides. One side is called assets and other side is called liabilities and equity.
The assets side is everything the company owns.
The liability side is everything the company owes others.
Other definition could be, the assets could be considered the companies investment.
If asset is the companies the investments then liabilities is where we get the money from to fund the investments.
Capital budgeting team from finance determines if they can afford the projects and liabilities they can afford before accounting department gets its it.
Assets should always equal the liabilities.
Bonds are long term debt. Total debt equals depts. Plus equity. Short-term debt is current liabilities and long term debt is bonds. Short term is like A.P., s-t notes payable, current liabilities.
Total assets tell you the value of the company.
The value=D + E.
Income statements = revenues-expenses=net income or net loss.
They show whether the company makes profit or losses, revenues and expenses.
The very important number is net income. Whether it is positive or negative.
If it positive then perfect, everyone is happy…to a certain extent.
As soon as you have profit, you have to deduct taxes (corporate taxes)
The rest is divided between dividends and retained earnings, depends how much is distributed where. Depends on many factors. They usually start by putting a lot in retained earning and use it as an internal source of finance, the management will do anything they can do in order to maximize RE.
The ratio we use to calculate the RE from Net Income is called the
RETENTION RATIO= THE RATIO THAT WE USE TO CALCULATE RETAINED EARNING FROM NET INCOME.
The name of the ratio that goes to dividends from net income is called dividend payout ratio.
Revenues maybe up to 90% of them comes from SALES. The other 10% come from like investments from shares you receive dividends, you receive INTERESTS from BONDS.
Expenses, since most of the money comes from sales then the most of the expenses come from COGS. The rest is salaries, maintenance etc.
Sales-COGS=Gross profit-rest=net incomes-taxes=real net income that goes two ways.
Earning per share=EPS =Total net incomes/shares outstanding. Means like $162/100= $1.62 means eve ...
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2. Review of the Previous Lecture
The Du Pont Identity
Income Distribution
Dividend Payout Ratio
Retention Ratio
Internal and Sustainable Growth
Determinants of Growth
The Du Pont Identity
Income Distribution
Dividend Payout Ratio
Retention Ratio
Internal and Sustainable Growth
Determinants of Growth
3. Topics under Discussion
Using Financial Statement Information
Internal Uses
External Uses
Benchmarking
Time Value of Money
Future Value Concept
One Period valuation
Multi-Period Valuation
Present Value Concept
Using Financial Statement Information
Internal Uses
External Uses
Benchmarking
Time Value of Money
Future Value Concept
One Period valuation
Multi-Period Valuation
Present Value Concept
4. Using Financial Statements Information
Now we take a look at some practical aspects of
the financial statements analysis.
Reasons for doing financial statements analysis
Benchmarking the information
Problems arising in the process
Now we take a look at some practical aspects of
the financial statements analysis.
Reasons for doing financial statements analysis
Benchmarking the information
Problems arising in the process
5. Why Evaluate Financial Statements
Primary reason for looking at the accounting
information is that we don’t have and cant expect to
get market value information. But if we have such
information, we will use it instead of accounting
data.
If there is a conflict between accounting and market
data, market data would be preferred.
Primary reason for looking at the accounting
information is that we don’t have and cant expect to
get market value information. But if we have such
information, we will use it instead of accounting
data.
If there is a conflict between accounting and market
data, market data would be preferred.
6. Why Evaluate Financial Statements
Financial statements analysis is an application of
management by exception and boils down to
comparing ratios for one business with some
average or representative ratios.
The ratios differing considerably from averages are
studied further.
Financial statements analysis is an application of
management by exception and boils down to
comparing ratios for one business with some
average or representative ratios.
The ratios differing considerably from averages are
studied further.
7. Internal Uses
Performance Evaluation
Profit margin and return on equity
Comparing the performance of different divisions
Planning for the future
Historical information used for generating projections
Checking the realism of assumptions for the
projections
Performance Evaluation
Profit margin and return on equity
Comparing the performance of different divisions
Planning for the future
Historical information used for generating projections
Checking the realism of assumptions for the
projections
8. External Uses
Customers:
To evaluate the credit standing of a new customer
Large customers would eye on the sustainability of the
firm
Suppliers:
Evaluate the financial worth of the supplier
Suppliers would be concerned about the
creditworthiness of the firm
Customers:
To evaluate the credit standing of a new customer
Large customers would eye on the sustainability of the
firm
Suppliers:
Evaluate the financial worth of the supplier
Suppliers would be concerned about the
creditworthiness of the firm
9. External Uses
Competitors
Potential strength of the competitors in case of a new
product launched by a firm
Acquisition of new firms
Identification of potential targets
What to offer.
Competitors
Potential strength of the competitors in case of a new
product launched by a firm
Acquisition of new firms
Identification of potential targets
What to offer.
10. Choosing a Benchmark
Benchmarking is to establish a standard to follow
for comparison.
Some methods of benchmarking are:
Time-Trend analysis
Peer Group Analysis
Benchmarking is to establish a standard to follow
for comparison.
Some methods of benchmarking are:
Time-Trend analysis
Peer Group Analysis
11. Time-Trend Analysis
Based on the historical data of the firm
If the current ratio of a firm is 2.4 for the recent
financial statements, we may compare it with the
current ratios for last 10 years.
We may find that current ratio has declined over the
years because of
More efficient usage of current assets
Change in the nature of business of the firm
Change in business practices of the firm
Based on the historical data of the firm
If the current ratio of a firm is 2.4 for the recent
financial statements, we may compare it with the
current ratios for last 10 years.
We may find that current ratio has declined over the
years because of
More efficient usage of current assets
Change in the nature of business of the firm
Change in business practices of the firm
12. Peer Group Analysis
Identifying the firms
competing in the same markets,
Having similar assets,
Operate in similar ways
Benchmarking:
1. averages for this group of firms OR
2. the top firms among the group
Identifying the firms
competing in the same markets,
Having similar assets,
Operate in similar ways
Benchmarking:
1. averages for this group of firms OR
2. the top firms among the group
13. Problems with Financial Statements
Analysis
No underlying theory to help identify the items
or ratios to look at or to guide in establishing
benchmark
Very little help on value and risk
Which ratios matter the most?
What a high or low value might be?
Firms with many diversified businesses
Different accounting standards and procedures in
different parts of the world
No underlying theory to help identify the items
or ratios to look at or to guide in establishing
benchmark
Very little help on value and risk
Which ratios matter the most?
What a high or low value might be?
Firms with many diversified businesses
Different accounting standards and procedures in
different parts of the world
14. Time Value of Money
It refers to the fact that a dollar in hand today is
worth more than a dollar promised at some time
in future.
The trade-off between money today and money
later depends on, among other things, the rate
one can earn by investing the money today for
some interest income.
It refers to the fact that a dollar in hand today is
worth more than a dollar promised at some time
in future.
The trade-off between money today and money
later depends on, among other things, the rate
one can earn by investing the money today for
some interest income.
15. Simple Interest vs. Compound Interest
In its most basic form, interest is calculated by
multiplying principal (amount invested) by rate (% of
interest) multiplied by time (number of periods the
interest is calculated). This is called simple interest.
I = P x r x t
Where
P => principal amount
r => interest rate
t => time periods (years)
I => simple interest
16. Simple Interest vs. Compound Interest
However, if interest is left in the account to
accumulate for a longer period (usually longer
than one year), common practice requires that
after interest is earned and credited for a given
period, the new sum of principal + interest must
now earn interest for the next period, etc. This is
compound interest.
I = P x rt
However, if interest is left in the account to
accumulate for a longer period (usually longer
than one year), common practice requires that
after interest is earned and credited for a given
period, the new sum of principal + interest must
now earn interest for the next period, etc. This is
compound interest.
I = P x rt
17. Future Value
It refers to the amount of money an investment
will grow to over some period of time at some
given interest rate.
Alternatively, future vale is the cash value of an
investment at some time in future.
It refers to the amount of money an investment
will grow to over some period of time at some
given interest rate.
Alternatively, future vale is the cash value of an
investment at some time in future.
18. Future Value
Simple Interest is calculated as:
I = P x r x t
A $1,000 deposit at 8% per year for 3 years' simple
interest:
I = 1000 x .08 x 3 = 240
A $1000 deposit at 8% simple interest for three years
earns $240 interest.
19. Future Value
The future value (FV) of a simple interest calculation
is derived by adding the original principal back to the
interest earned.
$1,000 + $240 = $1,240
Expressed as a formula:
FV = P(1 + rt)
FV = 1000+(1000 x .08 x 3) = 1,240
20. Future Value
In the one-period case, the formula for FV can be
written as:
FV = C0×(1 + r)
Where C0 is cash flow today (time zero) and
r is the appropriate interest rate.
In the one-period case, the formula for FV can be
written as:
FV = C0×(1 + r)
Where C0 is cash flow today (time zero) and
r is the appropriate interest rate.
21. If $100 are invested at 10% interest rate, the future
value of this $100 in each proceeding year would be:
1. $110 = $100 x (1 + .10)
2. $121 = $110 x (1 + .10) = $100 x 1.10 x 1.10
= $100 x 1.102
3. $133.10 = $121 x (1 + .10) = $100 x 1.10 x 1.10 x .10
= $100 x (1.10)3
Future Value for a Lump Sum
22. The Multiperiod Case:
Future Value
Generalizing the future value of an investment over
many periods:
FV = C0×(1 + r)t
Where
C0 is cash flow at date 0,
r is the appropriate interest rate, and
t is the number of periods over which the cash is invested.
The expression (1 + r)t
is the future value interest factor.
Generalizing the future value of an investment over
many periods:
FV = C0×(1 + r)t
Where
C0 is cash flow at date 0,
r is the appropriate interest rate, and
t is the number of periods over which the cash is invested.
The expression (1 + r)t
is the future value interest factor.
23. The Multiperiod Case:
Future Value
Year Beginning
Amount
Interest
Earned
Ending
Amount
1 $100.00 $10.00 $110.00
2 110.00 11.00 121.00
3 121.00 12.10 133.10
4 133.10 13.31 146.41
5 146.41 14.64 161.05
Total
Interest
$61.05
24. The Multiperiod Case:
Future Value
Future Value,
Simple interest,
and compound
interest
$110
$121
$133.10
$146.41
$161.05
100
110
120
130
140
150
160
1 2 3 4 5
Future
Value ($)
Time
(Years)
25. Future Value Projections
1 2 3 4 5
6
7 8 9 10
1
2
3
4
5
6
7
Future value
of $1 ($)
Time (Years)
0%
5%
10%
15%
20%
26. Future Value and Compounding
0 1 2 3 4 5
10.1$
3
)40.1(10.1$ ×
02.3$
)40.1(10.1$ ×
54.1$
2
)40.1(10.1$ ×
16.2$
5
)40.1(10.1$ ×
92.5$
4
)40.1(10.1$ ×
23.4$
Future values of $1.10 at 40% rate of interest
27. Future Value Interest Factors (FVIF)
Number
of Periods
Interest Rates
5% 10% 15% 20%
1 1.0500 1.1000 1.1500 1.2000
2 1.1025 1.2100 1.3225 1.4400
3 1.1576 1.3310 1.5209 1.7280
4 1.2155 1.4641 1.7490 2.0736
5 1.2763 1.6105 2.0114 2.4883
28. Summary
Using Financial Statement Information
Internal Uses
External Uses
Benchmarking
Time Value of Money
Future Value Concept
One Period valuation
Multi-Period Valuation
Using Financial Statement Information
Internal Uses
External Uses
Benchmarking
Time Value of Money
Future Value Concept
One Period valuation
Multi-Period Valuation