a. Why is corporate finance important to all managers? Corporate finance is very important for managers because it is a primary factor on how businesses are ran. Managers need to stay informed on how money flows through their business in order to maintain business and build a profit. b. Describe the organizational forms a company might have as it evolves from a start-up to a major corporation. List the advantages and disadvantages of each form. The organizational forms a company might have as
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start with a firm’s expected operating cash flows C1, C2, ... , CT. With all-equity financing, these flows would be discounted at the opportunity cost of capital r. But we assume the firm is financed with debt at a constant ratio L. That is, it follows Financing Rule 2, so that D/V = L in each future period. Consider firm value in the next-to-last period: VT-1 = DT-1 + ET-1. We can write the total cash payoff to debt and equity investors in two ways: Cash payoff in T = CT + TCT rD DT-1
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• A firm generates cash flows by selling goods and services produced by its produc)ve assets and human capital • When the cash flows generated from the produc@ve asset exceed the cash ouQlows (such as opera@ng cash flows) the remaining cash is called residual cash flows • The company can choose to pay any profit to the owners as a cash dividend, or reinvest the cash in the business Cash =low diagram 5 The role of the =inancial manager It is all about cash flows: • A company
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Financial Analysis & Management Discounted cash flow techniques Discounted cash flow is a method used to evaluate a company based on the concept of time value of money, cash flows of the future are estimated then discounted to their present value, There are four discounted cash flow techniques which are; Net present value technique(N.P.V), Internal rate of return technique(I.R.R), Discounted payback technique and The profitability index technique (P.I) and every one of those techniques
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creditors, and investors of its financial status. Corporations complete financial statements, such as the income statements, balance sheets, retained earnings statement, and statement of cash flows on a monthly or annually basis. Financial statements must indicate true, accurate, and precise information according to the rules and regulations mandated by the United States of America government. Management, creditors, and investors review the financial statements that will provide him or her with precise
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which in turn generate the cash flows that ultimately determine its profitability, value and viability. In principle, a firm’s decision to invest in a new project should be made according to whether the project increases the wealth of the firm’s shareholders. For example, the Net Present Value (NPV) rule specifies an objective process by which firms can assess the value that new capital investments are expected to create. As Graham and Harvey (2001) document this rule has steadily gained in popularity
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Lost in Translation Ever been to a place where you don’t understand the language of the people around you? A place where you’re native language and their native language doesn’t meet. There are a lot of reasons why not knowing how to speak the language of the place you are staying can be exhausting. One of the reasons is for practicality. When you can’t speak the language, you’ll feel really useless because basically, you can’t communicate what you want. I experienced that firsthand while I was
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including: * What you would analyse in order to find information on previous profit/loss? * How would investigate the reasons for previous profit/loss? * How would you analyse identify future expenses etc…? * How would you analyse cash flow trends? * What requirements might you have in relation to taxation? * What types of software might you need for financial management? * Then discuss the steps involved in creating a budget: * Then you will need to discuss the
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the short run. Rule of thumb: the current ratio should be at least 2:1 (current ratio = current assets/ current liabilities, quick ratio = current assets – inventory/current liabilities, cash ratio = cash/current liabilities) 2. Profitability Ratios – return on sales shows the profit percentage for each dollar of sales, some income measures + some balance sheet accounts (return on sales = net income/sales) return on equity is the overall measure of performance of a company. Rule of thumb is that
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overcome the limitations addressed will also be discussed. Most organisations base their managers evaluations and rewards on accounting based financial measures which come in two forms, residual measures and ratio measures, which are derived from rules defined by accounting standard setters. Residual measures include such accounting profit measures such as net income, operating profit, EBTDA or residual income. Ratio measures consist of such things as ROI, ROE, return on net assets, or risk adjusted
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