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職稱：金程教育高級培訓(xùn)教育背景：英國赫特福德大學(xué)金融系榮譽等級證書職稱：金程教育高級培訓(xùn)教育背景：英國赫特福德大學(xué)金融系榮譽等級證書，金融理論知識扎實，對CFA教學(xué)有獨到的研究和看著作：參編金程教育CFA一級、二級中文Notes；組織并研發(fā)金程CFA中英文對照Notes及英文Notes授課：目前為止，共講授CFA?LevelI30次，CFA?LevelII15，中國銀行總行CFA授課3次，中國工商銀行總行CFA授課3次客戶：中國工商銀行（總行）、中國銀行、復(fù)旦大學(xué)、綜合開發(fā)研究院（中國.深圳）、上海證券交易所、上海銀行、江蘇南京今世緣酒業(yè)有限公司、Google等。金程教育2010年12月CFA一級基礎(chǔ)班講Corporate講師：楊日期：2010年8地點北深上海金程國際金融專修學(xué)CopyRight2010By2TopicWeightingsinCFALevelRoleofTheFinancialCashraisedfromCashinvestedinCashgeneratedbyoperations(4a)Cashreinvested(4b)CashreturnedtoCopyRight2010ByCopyRight2010By34SessionStudySessionEthics&ProfessionalStudySession2-QuantitativeStudySession4-StudySession7-FinancialReportingandStudySessionCorporate8StudySessionPortfolioManagementandWealth5StudySession13-EquityStudySession15-FixedStudySession5StudySessionAlternative3Corporate TheBasicofCapitalCapitalbudgetingistheprocessofdeterminingandselectingCorporate TheBasicofCapitalCapitalbudgetingistheprocessofdeterminingandselectingthemostprofitablelong-termprojectsIdeaGeneratinggoodinvestmentideasfromanumberofAnalyzingprojectGatheringtheinformation→Cashflowforecasting→Evaluatingproject’sprofitabilityCreatethefirm-widecapitalThetimingofproject’scashTheavailabilityofcompany’sFitthecompany’soverallMonitoringdecisionsandconductingapost-ComparingtheactualresultwiththeprojectedandexplaintheReading44:CapitalReading45:CostofReading46:WorkingCapitalReading47:FinancialStatementReading48:TheCorporateGovernanceofListedCompanies:AforCopyRight2010ByCopyRight2010By56TheBasicofCapitalCapitalprojectscanbeclassifiedReplacementdecisiontomaintaintheReplacementdecisionforcostreductionExpansionExpansionprojectsforexistingExpansionprojectsfornewproductornewDecisionarebasedonCashflows,notaccountingIncrementalcashflows:theCFthatisrealizedbecauseofaSunkcosts(anycoststhatcannotbeavoided,eveniftheprojectisnotundertaken).Financingcosts/interestcost(financingcostsareincludedintheprojectcostofcapitalorWACC).ApositiveAnegativeexternalitiesOpportunityThetimingofcashflowsisimportantTimevalueofCashflowareanalyzedonanaftertaxMandatoryinvestment:regulatory,safety,andenvironmentalOtherprojects:projectsarenoteasilyanalyzedthroughthecapitalbudgetingprocessCopyRight2010ByCopyRight2010By78MutuallyExclusivevs.IndependentProjectevaluationIndependentProjectsareunrelatedtoeachotherandallowforeachprojecttobeevaluatedbasedonitsownprofitabilityMutuallyExclusive OnlyoneofseveralpotentialprojectsMutuallyExclusivevs.IndependentProjectevaluationIndependentProjectsareunrelatedtoeachotherandallowforeachprojecttobeevaluatedbasedonitsownprofitabilityMutuallyExclusive Onlyoneofseveralpotentialprojectscanbe RankallalternativesandselectthebestPaybackperiodDiscountpaybackperiodAverageaccountingrateofNetpresentvalueProjectsomeprojectsmustbeundertakeninacertainorder,sothatinvestinginaprojecttodaycreatestheopportunitytoinvestinotherprojectsinthefuture.InternalrateofreturnProfitabilityindexUnlimitedFundsvs.CapitalUnlimitedfunds:companycanraisethefundsitwantsforallprofitabilitymanyfirmshaveconstraintsontheamountofcapitaltheycanraise,andmustusecapitalrationing(choosemoreprofitabilityprojects).CopyRight2010ByCopyRight2010By9ThePaybackPeriodThePaybackPeriodMutuallyExclusivevs.IndependentProject:shorterMinimumAcceptanceVS.industryActually,noeconomicallyAnindicationofaproject’sriskandIgnoresthetimevalueofIgnorescashflowsafterthepaybackIgnorestheprofitabilityoftheDefinition:thenumberofyearsittakestorecovertheinitialcostofanPaybackPeriod=thenumberofyearstorecoverinitialCopyRight2010ByCopyRight2010Byunrecoveredcostatthebeginningoflastpaybackperiod=fullyearsuntilrecoveryunrecoveredcostatthebeginningoflast cashflowduringthelastcashflowduringthelastpaybackperiodA=2+(200/600)=2.33Year01234NetcashCumulativeTheDiscountedPaybackTheDiscountedPaybackAssumethatthefirm’scostofcapitalis10%andthefirm’smaximumdiscountedpaybackperiodis4years.MinimumAcceptanceVS.IfNPV<0,whatisAnindicationofaproject’sriskandConsiderstimevalueofIgnorescashflowsafterTheDiscountedPaybackTheDiscountedPaybackAssumethatthefirm’scostofcapitalis10%andthefirm’smaximumdiscountedpaybackperiodis4years.MinimumAcceptanceVS.IfNPV<0,whatisAnindicationofaproject’sriskandConsiderstimevalueofIgnorescashflowsafterthepaybackApoormeasureTheNetPresentDiscountedpaybackA=2+(430/451)=2.95Definition:thenumberofyearsittakesforthecumulativediscountedcashflowsfromaprojecttoequaltheoriginalinvestmentCopyRight2010ByCopyRight2010ByAverageAccountingRateofReturnAverageAccountingRateofReturnCompanyPinvests$400,000inaprojectthatisdepreciatedonastraight-linebasisover4yearstoazerosalvagevalue.Salesrevenues,operatingexpenses,andnetincomeforeachyearareshowninthetable.AverageNI:AverageBookValuefortheasset:($400,000-AAR=averageNI/averagebookDepreciationandresidualFinancialaccounting:accountingCapitalbudgeting:assumeazeroresidualFinancialanalysis:trueeconomicdepreciationandmostaccurateresidualARR=averagenetincome/averagebookCopyRight2010ByCopyRight2010ByYearYearYearYearCashTaxes(atNetYear01234NetcashDiscountedCumulativeAverageAccountingRateofReturnTheNetPresentValueAssumethatthefirm’scostofcapitalisAccepttheprojectswithaAARhigherthanthetargetAverageAccountingRateofReturnTheNetPresentValueAssumethatthefirm’scostofcapitalisAccepttheprojectswithaAARhigherthanthetargetEasytoEasytobeunderstoodandacceptedbynonUsingaccountingprofitratherthancashViolateoneofthekeyNIisnotIgnoresthetimevalueofNPV=(-2000)+909+661+451+137=Definition:PVofthefutureafter-taxcashflowsminustheinvestmentNetPresentValue(NPV)=TotalPVoffutureCF’s+Initial CopyRight2010ByCopyRight2010ByTheNetPresentValueTheInternalRateofDefinition:discountratethatmakesthePVofthefutureafter-taxcashflowsequalthatinvestmentoutlayForindependentprojects:AcceptifNPV>Formutuallyexclusiveprojects:Choosetheonewiththehighestn1+IRRiSizeShowstheamountofgainsascurrencyTheNPVofprojectincreasesthevalueofshareholdersinsteadofRealisticdiscountrate–opportunitycostofDecisionMinimumAcceptanceCriteria:AcceptifIRR≥requiredrateofRankingCriteria:ChoosethehighestAdvantage:ReflecttheprofitabilityoftheAssumethereinvestmentrateisNoIRR&multipleCopyRight2010ByCopyRight2010ByYear01234NetcashDiscountedNPV&IRRNPV&IRRSolution：CisQ1.Giventhefollowingcashflowsforacapitalproject,calculatetheNPVandIRR.Therequiredrateofreturnis8percent.NPV=-=-50,000+NPV&IRRNPV&IRRSolution：CisQ1.Giventhefollowingcashflowsforacapitalproject,calculatetheNPVandIRR.Therequiredrateofreturnis8percent.NPV=-=-50,000+13,888.89+12,860.08+15,876.64+7,350.30+=-50,000+53,378.83=TheIRR,foundwithafinancialcalculator,is10.88A.B.C.CopyRight2010By CopyRight2010ByNPV&IRRNPV&IRRQ2.KimCorporationisconsideringaninvestmentof750millionwonwithexpectedafter-taxcashinflowsof175millionwonperyearforsevenyears.Therequiredrateofreturnis10percent.Whatistheproject’sSolution：Ais7 TheNPV=102million157million193millionfoundwithafinancialThePVis—750,N=7,I/Y=10,PMT=TheIRRis14.02ThePVis—750,N=7,andPMT=CopyRight2010ByCopyRight2010By012345Cash—NPVandMultipleTherearetwoIRRsforthisNPVissuperiortoAdvantagesofNPV&BasedonCashConsideringTimevalueofTakeintoaccountthecashflowsgeneratedoverthewholeprojectDisadvantagesofConventionalcashflowspatternVs.UnconventionalcashflowMultipleNPVandMultipleTherearetwoIRRsforthisNPVissuperiortoAdvantagesofNPV&BasedonCashConsideringTimevalueofTakeintoaccountthecashflowsgeneratedoverthewholeprojectDisadvantagesofConventionalcashflowspatternVs.UnconventionalcashflowMultipleIRRsornoIRRunderunconventionalUnrealisticreinvestmentshouldwe3-012100%=2-0%=DiscountKeyadvantageofNPV:ConsistentwiththegoalofshareholdersCopyRight2010ByCopyRight2010ByProfitabilityIndexNPVDefinition:thePVofaproject’sfuturecashflowsdividedbytheinitialPIPVoffuturecashfolow1MinimumAcceptanceCriteria:AcceptifPI>Project’sNPVAdvantage:profitabilityofthecomplexCostofCapital5CopyRight2010ByCopyRight2010ByNPVWhichoneisProjectB’sNPVLocation:EuropeancountriesusethepaybackperiodmethodasmuchasormorethanNPVandIRRmethods.ProjectA’sNPVSizeoftheNPVWhichoneisProjectB’sNPVLocation:EuropeancountriesusethepaybackperiodmethodasmuchasormorethanNPVandIRRmethods.ProjectA’sNPVSizeofthecompany:LargercompaniestendedtoprefertheNPVandIRRoverthepaybackperiod.CrossoverPublicandPrivate:Privatecompaniesusedthepaybackperiodmoreoftenthandidpublicones.CostofCapitalManagementeducation:Thehigherthelevelofeducation(i.e.,MBA),themorelikelythecompanywastousediscountedcashflowmethodssuchastheNPVandIRR.5WhenNPVandIRR NPVCopyRight2010ByCopyRight2010ByImpactofNPVRuletoImpactofNPVRuletoCompanyPisinvesting$500millioninnewequipment,thepresentvalueofthefutureafter–taxcashflowsresultingfromtheequipmentis$750WhentheNPVispositive,firmvalueisincreasedandshareholderwealthisincreasedCompanyPcurrentlyhas$100millionsharesoutstandingwithacurrentmarketpriceof$45pershare.AnNPVofzeromeanstheprojectdoesnotincreaseshareholderAnnegativeNPVmeansdecreaseshareholderAssumingthatthisprojectisnewinformation,calculatetheeffectofthenewequipmentinvestmentonthevalueofthecompanyandtheeffectoncompanyP’sstockprice.WhentheNPVispositive,PstockisNPVofthenewequipmentproject=$750million-$500million=$250Valueofcompanypriortonewequipmentproject=100millionshares$45pershare=$4.5TheNPVoftheproject=thechangeofthemarketvalueoftheCopyRight2010ByCopyRight2010ByCorporate ImpactofNPVRuletoReading44:CapitalValueofthecompanyafternewequipmentproject=$4.5billion+$250million=$4.75billionReading45:CostofPricepershareafterCorporate ImpactofNPVRuletoReading44:CapitalValueofthecompanyafternewequipmentproject=$4.5billion+$250million=$4.75billionReading45:CostofPricepershareafternewequipmentproject=$4.75billion/100millionshares=$47.50pershare>$45.00pershareReading46:WorkingCapitalReading47:FinancialStatementReading48:TheCorporateGovernanceofListedCompanies:AforAcapitalgain$2.50perCopyRight2010ByCopyRight2010ByFranMcClureofAlbaAdvisersisestimatingthecostofcapitalofFrontierCorporationaspartofhervaluationanalysisofFrontier.McClurewillbeusingthisestimate,alongwithprojectedcashflowsfromFrontier’snewprojects,toestimatetheeffectofthesenewprojectsonthevalueofFrontier.McClurehasgatheredthefollowinginformationonFrontierCorporationWACC(wd)[kd(1t)](wps)(kps)(wce)(kstisthefirm'smarginaltaxwistheproportionofeachtypeofTarget/optimalcapitalMarketTrendsincompany’scapitalAverageofcomparablecompany’scapitalTheweightsthatMcClureshouldapplyinestimatingFrontier’scostofcapitalfordebtandequityare,respectively：Wd=0.223;We=0.777kisthecurrentcostofeachtypeofcapital(debt,preferredstockandcommonstock)CopyRight2010ByCopyRight2010ByCurrentForecastedforNextBookvalueofMarket,valueofBookvalueofshareholders’Marketvalueofshareholders’CostofthedifferentsourcesofAfter-TaxCostofKd=r(1-t)=interestrate–taxShouldusethemarketinterestrateonnewdebt,notthecoupon(wd)[kd(1t)](wps)(kps)CostofthedifferentsourcesofAfter-TaxCostofKd=r(1-t)=interestrate–taxShouldusethemarketinterestrateonnewdebt,notthecoupon(wd)[kd(1t)](wps)(kps)(wce)(ksYieldtomaturityYieldtomaturityapproach(annualCostofKd=kps=?Ks=Debt-ratingCAPMIfthecompanyhasneverissuedbond,whichmethoddoesyouIfthedebtwithoption,whichmethoddoesyouIfthedebtwithfloating-rate,whichmethoddoesyouCostofBondyieldplusriskpremiumCopyRight2010ByCopyRight2010ByAfter-TaxCostofAfter-TaxCostofExample2(debtratingIftheSmithInc’scapitalstructureincludesthedebtwithanaveragematurityof5yearsandthefirm’smarginaltaxrateis30%.IftheSmithInc’sratingAAAandtheyieldonadebtwithsameratingand10year’smaturityis10%.10%×(1-30%)=Example1(YTMSmithInc’sbondwithremaining5yearsissoldat$1,030,parvalueis$1,000andcouponrate10%andthecouponispaidsemiannually.ThemarginaltaxrateofSmithIncis30%,calculatetheafter-taxcomponentcostofdebtofSmithInc.?So:I/Y=4.62,andthen,Theafter-taxcostofdebtis:rd=9.24%X(1-30%)=CopyRight2010ByCopyRight2010By[×][2][=[CPT]101,000501,030[+/-][2nd][CLRDDMCostofpreferredDebt-ratingCostofPreferredCostofPreferredMorganInsuranceLtd.issuedafixed-rateperpetualpreferredstockthreeyearsagoandplaceditprivatelywithinstitutionalinvestors.Thestockwasissuedat$25persharewitha1.75dividend.Ifthecompanyweretoissuepreferredstocktoday,theyieldwouldbe6.5percent.Thestock’scurrentvalueisDkPCostofPreferredCostofPreferredMorganInsuranceLtd.issuedafixed-rateperpetualpreferredstockthreeyearsagoandplaceditprivatelywithinstitutionalinvestors.Thestockwasissuedat$25persharewitha1.75dividend.Ifthecompanyweretoissuepreferredstocktoday,theyieldwouldbe6.5percent.Thestock’scurrentvalueisDkPD:preferredP:marketpriceofpreferredAnswer：ThecompanycanissuepreferredstockatP=$1Ifthepreferredstockwithoptionorthepreferredstockisconvertible,howtodo?CopyRight2010ByCopyRight2010ByCostofBondyieldplusriskpremiumBondyieldplusriskpremiumks=bondyield+riskkce=bondyield+riskCAPMks=rf+β(rm-Bondyield=marketyieldonthefirm’slong-termDiscountedcashflowks=g=(1-payoutrate)Riskpremium=historicalspreadsbetweenbondyieldandstockEmergingmarket,riskpremiumshouldbe3-CopyRight2010ByCopyRight2010ByCAPMStep1:Estimatetheriskfreerate,AnanalystgatheredthefollowinginformationaboutacompanyandtheStep2:Estimatethestock’sStep3:EstimatetheexpectedCAPMStep1:Estimatetheriskfreerate,AnanalystgatheredthefollowinginformationaboutacompanyandtheStep2:Estimatethestock’sStep3:Estimatetheexpectedrateofreturnonthemarket,ormarketriskStep4:Useks=rf+β(rm-UsingtheCapitalAssetPricingModel(CAPM)approach,thecostofretainedearningsforthecompanyisclosestto:A.B.C.CopyRight2010ByCopyRight2010ByCAPMCAPM——BetaandcostofBusinessriskandFinancialproject’sbetaisameasureofitssystematicormarketBetascanbeobservedforfirmsinthesameinvestmentclassastheproposedinvestment.Aproject’sCountryequity1[]DE 1(1 [1(1t)D ECopyRight2010ByCopyRight2010ByCurrentmarketpricepershareofcommonMostrecentdividendpersharepaidoncommonstock(D0)ExpecteddividendpayoutExpectedreturnonequityBetaforthecommonExpectedrateofreturnonthemarketRisk-freerateofCAPM——BetaandcostofCAPM—CountryequityriskCountryequityriskpremiumindevelopingKce=Rf+β[E(Rmkt)-Rf+CRP:countryCAPM——BetaandcostofCAPM—CountryequityriskCountryequityriskpremiumindevelopingKce=Rf+β[E(Rmkt)-Rf+CRP:countryriskAtwo-stepprocessisused(pure-playStep1:Converttheobserved,equitybetaofthecomparablepubliccompany,intoanassetbeta,orpureprojectbeta,u.1CRP[] DEAnnualizedstandarddeviationofequityindex1(1spread( developing AnnualizedstandarddeviationofsovereignbondintermsofthedevelopedmarketSovereignStep2:Calculatethenewequitybetaofthisnon-publiccompanytheproposedcapitalstructureofthenewlineofSovereignyieldspread=differencebetweentheyieldofgovernmentbondsintheDevelopingcountrydenominatedinthelocalcurrencyandTreasurybondsofsimilarmaturities [1(1t)D ECopyRight2010ByCopyRight2010ByCAPM—CountryequityriskCAPM—CountryequityriskCountryriskExample:countryriskRobertRodriguez,ananalystwithOmniCorporation,isestimatingacountryriskPremiumtoincludeinhisestimateofthecostofequityforaprojectOmniisStartinginVenezuela.Rodriguezhascompiledthefollowinginformationforhisanalysis,thencalculatethecountryriskpremiumandthecostofequityforOmni’sVenezulelanproject.CRP=(0.086-0.048)(0.32/0.22)==0.0553,orCostofequity:Kce=Rf+β[E(Rmkt)-Rf+=0.042+1.25(0.104-==0.1886,orVenezuelan10-yeargovernmentbondyield=10-yearU.S.treasurybondyield=AnnualizedstandarddeviationofVenezuelanstockindex=AnnualizedstandarddeviationofVenezuelanU.S.dollar-denominated10-yeargovernmentbond=22%Projectbeta=Expectedmarketreturn=Risk-freerate=CopyRight2010ByCopyRight2010ByDDMapproachDividendDiscountModelWhatisGGM(GordongrowthP0=D1/(Kce-AnanalystgatheredthefollowinginformationaboutacompanyDDMapproachDividendDiscountModelWhatisGGM(GordongrowthP0=D1/(Kce-AnanalystgatheredthefollowinginformationaboutacompanyandtheKce=D1/D1/P0:dividendg=(retentionrate)(ROE)=(1-payoutrate)Payoutrate=Usingthedividenddiscountmodel(DDM)approach,thecostofretainedearningsforthecompanyisclosestto:A.B.C.CopyRight2010ByCopyRight2010ByDDMapproachCostofCS&PS—FlotationFloatationcost:thecostsassociatedwiththeissuanceofnewchargedbyinvestmentbank,whilebasedonthesizeandtypeofPreferredstock&debt:donotusuallyincorporateflotationcostsintheestimatedcostofcostofcapitalcausethiscostisquitesmall<1%Commonstock:shouldbeconsidered(aboutMethodSolution:CisTheexpectedreturnisthesumoftheexpecteddividendyieldplusexpectedgrowth.Theexpectedgrowthis(1-0.4)15%=9%.Theexpecteddividendyieldis$2.18/$28=rr eThesumisP0(1-eP-0MethodInfact,floatationcostsareacashflowattheinitiationoftheconsiderasCopyRight2010ByCopyRight2010ByCurrentmarketpricepershareofcommonMostrecentdividendpersharepaidoncommonstockExpecteddividendpayoutExpectedreturnonequityCostofCS&PS—FlotationCostofCS&PS—FlotationExample:correctlyaccountingforflotationOmnicorporationisconsideringaprojectthatrequiresa$400,000cashoutlayandisexpectedtoproducecashflowof$150,000peryearforthenextfouryears.Omni’staxrateCostofCS&PS—FlotationCostofCS&PS—FlotationExample:correctlyaccountingforflotationOmnicorporationisconsideringaprojectthatrequiresa$400,000cashoutlayandisexpectedtoproducecashflowof$150,000peryearforthenextfouryears.Omni’staxrateis35%,andthebeforetaxcostofdebtis6.5%.thecurrentsharepriceOmni’sstockis$36pershare,andtheexpecteddividendnextyearis$2.00pershare.Omni’sexpectedgrowthrateis5%.After-taxcostofdebt=6.5%(1-Costofequity=($2/$36)+0.05=0.1055,or10.55%Sincetheprojectisfinancedwith50%equity,theamountofequitycapitalraisedisFlotationcostsare4.5%,whichequatestoadollarcostofAssumethatOmnifinancestheprojectwith50%debtand50%equitycapital,andthatflotationcostsforequityare4.5%.TheappropriatediscountratefortheprojectistheWACC. $150,000NPV=-$400,000-$9,000+$150,000 $150,000++CalculatetheNPVoftheprojectusingthecorrecttreatmentofflotationcosts,anddiscusshowtheresultofthismethoddiffersfromresultobtainedfromtheincorrecttreatmentofflotationcosts? =$94640CopyRight2010ByCopyRight2010ByMarginalCostofExample:CalculatingbreakTheOmniCorporationhasatargetcapitalstructureof60%equityand40%ThescheduleoffinancingcostsfortheOmniCorporationisshowninthefigurebelow.ScheduleofCapitalCrossfor$120CalculatethebreakpointsforOmniCorporationandGraphthemarginalcostofcapitalBreakpointamountofcapitalatwhichthecomponent'scostofcapitalweightofthecomponentinthecapitalCopyRight2010ByCopyRight2010ByAmountofNewDebt(inAmountofNewEquity(inCostof$0to$0to$100to$200to$200to$$400toMCCisWACCforonemoredollarofMarginalcostofcapitalMarginalcostofcapitalBreakpointamountofcapitalatwhichthecomponent'scostofcapitalThetableshowsOmniCorporation’sWACCforthedifferentbreakWACCforAlternativeLevelsofweightofthecomponentinthecapitalOmniwillhaveabreakMarginalcostofcapitalMarginalcostofcapitalBreakpointamountofcapitalatwhichthecomponent'scostofcapitalThetableshowsOmniCorporation’sWACCforthedifferentbreakWACCforAlternativeLevelsofweightofthecomponentinthecapitalOmniwillhaveabreakpointeachtimeacomponentcostofcapitalchanges,foratotaloffourbreakpoints.Breakpoint=$100million/0.4==$200million/0.4=BreakpointBreakpointEquity>$200million=$200million/0.6=$333millionBreakpointEquity>$400million=$400million/0.6=CopyRight2010ByCopyRight2010ByMarginalcostofcapitalCostofcapitalappliedincapitalThefigureshowsOmniCorporation’sCostofWACCCopyRight2010ByCopyRight2010ByCostofCorporate LiquidityIflessfinancialextreme:insolvencyReading44:CapitalExample:thecompanyhaslotsofReading45:CostofHowtoliquidatetheProceedsfromthesaleofmarketableReading46:WorkingCapitalCorporate LiquidityIflessfinancialextreme:insolvencyReading44:CapitalExample:thecompanyhaslotsofReading45:CostofHowtoliquidatetheProceedsfromthesaleofmarketableReading46:WorkingCapitalReading47:FinancialStatementReading48:TheCorporateGovernanceofListedCompanies:AforPayforPaybyCashCashCashonCopyRight2010ByCopyRight2010ByIntroductionofWorkingLiquiditycurrentcurrentcurrentquickratio=cash+short-termmarketablecurrentWorkingcapitalmanagementisaconcernregardingFirmHowafirmmanagesitsworkingHowafirmmanagesitsshort–termfinancingHowafirmmanagesitssourcesofshort–termfinancingforliquiditycash+short-termmarketablecashcurrentCopyRight2010ByCopyRight2010ByCurrentAssetslessCurrentLiabilities=NetWorkingCashtiedLiquidityLiquiditynetannualpayablesturnoveraveragetradeaveragenumberofdaysnumberofdaysofreceivablepayblesturnoverinventoryturnover=costofgoodsoperatingcycle=daysofinventory+daysofLiquidityLiquiditynetannualpayablesturnoveraveragetradeaveragenumberofdaysnumberofdaysofreceivablepayblesturnoverinventoryturnover=costofgoodsoperatingcycle=daysofinventory+daysofCashconversioncycle=daysofinventory+daysofreceivables–daysofnumberofdaysinventoryCopyRight2010ByCopyRight2010ByInventoryAccountsreceivableAccountsreceivableCalculatingAveragedaysofA/RbasedonReceivableagingMakecomparisonwithHistoricaltrends&OtherInventoryCalculatingAveragedaysofinventoryandInventoryturnoverMakeWithinthesameindustryandbusinessExample:Grocerybusiness→highinventoryturnoverAnautopartsfirm→lowinventoryturnoverCopyRight2010ByCopyRight2010ByInanybusiness,inventorymanagementisanimportantcomponenteffectiveoverallfinancialReceivables$Days*<3131-6061-90>90WeightedAverageCollection50.3Payable2/20netOnapurchaseofTypicaltermsonpayables(tradecredit)containadiscountavailabletothosewhopayquicklyaswellasaduedate.Termsof“2/10net60”meanthattheinvoiceispaidwithin10days,thecompanygetsa2%discountontheinvoicedamountandthatifPayable2/20netOnapurchaseofTypicaltermsonpayables(tradecredit)containadiscountavailabletothosewhopayquicklyaswellasaduedate.Termsof“2/10net60”meanthattheinvoiceispaidwithin10days,thecompanygetsa2%discountontheinvoicedamountandthatifthecompanydoesnottakeadvantageofthediscount,thenetamountisdue60daysfromthedateofthe2060Pay(Save$2buthavetoraisefinanceforextra40days)ifcostoftradecreditifpaidonday20=CopyRight2010ByCopyRight2010By2/20netCashForecastingcashflowsisimportanttoensureCashmaybeneededforunforeseencostsaswellastotakeadvantageofopportunitiesShorttermcashflowCurrentdailyandweeklycash0.98(1EAR)365112%MediumtermTakerecenttrendsintoEAR=ThecostofdebtoftheLongtermStatisticalCopyRight2010ByCopyRight2010Bycostoftradecredit=(1+discount)365/No.ofdaysbeyonddiscountperiodWorthwhile?Effectiveannualizedcostoftradecredit=(1+discount)365/No.ofdaysbeyonddiscountperiodCashCashThepurposeofmanagingafirm’sdailycashpositionistomakesurethereissufficientcash,buttoavoidkeepingexcesscashbalances.U.S.TreasuryShort-termfederalCashCashThepurposeofmanagingafirm’sdailycashpositionistomakesurethereissufficientcash,buttoavoidkeepingexcesscashbalances.U.S.TreasuryShort-termfederalagencyBankcertificatesofBanker’sTimeRepurchaseCommercialMoneymarketmutualAdjustable-ratepreferredCopyRight2010ByCopyRight2010ByCashShortterminvestmentThemoneymarketyieldTheriskofcompany’sshort-termCreditMarketLiquidityForeignexchangePassivestrategy&activeInvestmentIncludes:investmentstrategy;theproduct;whytochooseproduct;whattheamount;securityrating;limitationsor/andThebondequivalentyieldCopyRight2010ByCopyRight2010ByBEY=(F-P)(365)=HPR(365 =(F-P)(360)=HPR(360 ThepercentagediscountfromfacevalueThediscount-basisyield(bankdiscountyieldorBDY)discountbasisyield=(FV-P)(360 =%discount(360t%discount=(FV-PShortTermShorttermdeficientincashbalancecanbemanagedbythefollowingThecashmanagerforWickerEnterprisesisinvestigatingthepurchaseofabanker’sacceptance(BA).The$1,000,000facevalueBAhas150daystomaturityandisquotedat4.05%onadiscount-basisyield.IfWicker’smarginaltaxrateis25%,thenthemoneymarketyieldontheBAisclosestto:A.B.C.SourcesofShortTermShorttermdeficientincashbalancecanbemanagedbythefollowingThecashmanagerforWickerEnterprisesisinvestigatingthepurchaseofabanker’sacceptance(BA).The$1,000,000facevalueBAhas150daystomaturityandisquotedat4.05%onadiscount-basisyield.IfWicker’smarginaltaxrateis25%,thenthemoneymarketyieldontheBAisclosestto:A.B.C.SourcesofShort–termFundingfromLinesofcredit:forlarge,financiallysoundUncommittedLineofcredit:bankmayrefusetoextendanofferofCommittedLineofcredit:bankchargesafeeformakingacommitmentforshorttermlending,morereliableArevolvinglineofcredit:acommitmentforlongertermlending,morereliablethanCommittedtermlendingPledgeassetsascollateralforbankBanker’sacceptances:mainlyusedbyfirmsthatexportgoods,whogetguaranteefromthebuyer’sbankFactoring:saleA/RtoCisSolution：Moneymarketyield=discount-basisyield*(facevalue/purchaseprice).Purchaseprice=facevalue-[facevalue*discount-basisyield*(daystomaturity/360)]=$1,000,000-[$1,000,000*0.0405*(150/360)]=Moneymarketyield=4.05%*($1,000,000/$983,125)=Non-BankSourcesofShort–termExpensiveforsmallerfirmsandfirmswithpoorCommercialpaper:creditworthycompaniescanissueshort–termdebtCopyRight2010ByCopyRight2010ByCorporate FinancialStatementDuPontReading44:Capitalnetaveragetotalaveragetotal averageshareholdersReading45:CostofReading46:WorkingCapitalROEReading47:FinancialStatementRAveragetotalReading48:TheCorporateGovernanceofListedCompanies:AforAveragetotalAverageROE=operatingprofitmargin×effectofnon-operatingitems×tax×totalassetturnover×financialCopyRight2010ByCopyRight2010Byfinancial