Managerial Finance Lecture 1 - Introduction 2022 PDF

MANAGERIAL FINANCE Lecture 1 – introduction LEARNING OBJECTIVES 1. What is the role of finance? 2. What is the role of financial manager? 3. Review of financial statements  MANAGERIAL FINANCE Finance ?????????????? What is the best investment?...

MANAGERIAL FINANCE Lecture 1 – introduction LEARNING OBJECTIVES 1. What is the role of finance? 2. What is the role of financial manager? 3. Review of financial statements  MANAGERIAL FINANCE Finance ?????????????? What is the best investment? Ret vs risk  Quiz 1 What do actually investors get as a return when they invest their money in any organization listed in a stock exchange? Profits? Part of the firms assets? Part of the firms cash flows? Any ideas!!! Assume that you invested in Carrefour on Jan 1st 2019. You paid for each share 27.52 Euro. During the year of 2019, Carrefour paid dividends for each share the amount of 1.08 cents. On December 31st, 2019, the shares of Carrefour were 33.06Euro each. What is your return on investment for the whole year 2019? ********************************************************************* SOLUTION: Return = (capital gains + dividends) / investment   Carrefour 2020 What is your return on investment for the whole year 2020?  What is the role of finance? 4 3 2 By generating By making the right By making the right Sales revenue financing decisions. Investment decisions at the lowest cost Borrow or issue stock? (if internal cash n/a) 1 By satisfying the shareholders-owners, (via increase in stock price & payment of dividends) By generating By generating Cash from opers profit CASH IS KING!! 6 5  Example-1: What is the role of finance? INVESTMENTS (assets) NEEDED? $1000 Loan cash flow (operations) Dividends repayment =40 $80 FINANCING NEEDS? Profit DEBT $500 $100 EQUITY $500 ASSETS $1000 Revenue $2000  What is the role of finance? Retention INVESTMENTS Riskiness Rate=60% (debt/assets)=50% (1-(div/profit) (assets) NEEDED? $1000 Cash flow (operations) Dividends $80 =40 Quality of Profits=80% FINANCING NEEDS? (Cash fl/profit) Profit DEBT $500 $100 EQUITY $500 ASSETS $1000 Revenue Net Profit $2000 Margin = 5% Efficiency of (profit/revenue) Assets = 2 (revenue/assets)  The Financial Management Function: Relationship to Accounting Finance and accounting differ with respect to decision-making. While accounting is primarily concerned with the presentation of financial data, the financial manager is primarily concerned with analyzing and interpreting this information for decision- making purposes. The financial manager uses this data as a vital tool for making decisions about the financial aspects of the firm.  2 1 Financial Markets 4b (eg. CSE, Firm´s 3 Financial manager 4c NYSE operations 1. Raise funds (F) 2. Invest (I) 4a Banks 3. Generate cash from operations (M) 4a. Repay interest and loan obligations (F) 4b. Reinvest cash (I) 4c. Return cash to investors (dividends) (F) F: financing; I: Investing; M: Management of resources What is Finance????? ………..  Financial statements. Financial statements Income statement Balance sheet Statement of cash flows S h ow s p rofi tability S h ow s th e fin. perform an ce S h o w s th e ch ang e in cash (revenu es - exp en ses) o f the fi rm at a certain tim e w h y ch ang ed? (W h at it O W NS an d it O W E S ). (o p eratin g, in vestin g and fi n ancin g ch ang es) What is the use of financial statements?  Carrefour [Income Stat for the year 2017 (in millions of Euro] Revenues or sales 91,513* - Expenses 90,945 =Profit (or Loss) 568 Shows the profitability during a certain period (year) Does not show cash  Quiz….. ALWAYS the profit from the operations of Carrefour (or any firm) EQUALS the cash flow from the operations of Carrefour (or that firm). Hope you agree with me. If you disagree, tell us why?????? And even if it differs, whooooo cares??????? Do you? PROFIT = CASH FLOW: AGREEEEEEEE??????  Carrefour BALANCE SHEET \ statement of financial position As at Dec 31, 2017(in millions of Euro) ASSETS 53,650 LIABILITIES 43,087 SHAREHOLd. E. 10,563 ______ 53,650 53,650 OWN OWE ALWAYS: Assets = Liabilities + Shareholders equity: Why? The balance sheet shows the financial position of the firm at a certain time only. It is like a ´snapshot´, a ´picture´. 14  Long-lived assets The Classified Balance Sheet that do not have physical substance. The Classified Balance Sheet What did we learn?? What is next????? Lecture 2 …………