Mfin

Topics: Debt, Stock, Stock market Pages: 17 (4933 words) Published: June 25, 2013
Managerial Finance MSc21 Sergio Paya

CLASS 1 CLASS 2 CLASS 3 CLASS 4 CLASS 5 CLASS 6 CLASS 7 CLASS 8 CLASS 9 WRAP-UP CLASS

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1

Managerial Finance MSc21 Sergio Paya

Class 1
1 – Finance 2 - BVD – FVD – value creation ( Financial value drivers – Business value drivers) 3 - Strategy and industry 4 - Shareholder value creation vs triple P What is finance? Shareholders give equity capital once Hardly ever they make new shares, like for example: When the company is in financial trouble When the company is when they want to make a big investment (big acquisition) Shareholders make money from the company by: DPS Dividend per share Company can do stock buy back from shareholders

2

Managerial Finance MSc21 Sergio Paya Pushing up value per share (value creation) -> objective of nowadays companies -Driven by: - Financial parameters (financial value drivers) -Revenue growth (return on invested capital) - Business value drivers Triple P – People – Planet – Prosperity (profit) - Environmentally footprint – Society at large gets a fair deal - People – making sure the employees get a fair deal ( not abused) Acc bs Div A Inventories Account receivable Fixed assets P.P.E. Intangibles (Patents) Goodwill Accounts payable Invested capital: Costly WACC D/D+E x rd x (1 – taxrate) + E/D+E x re After-tax average Interest rate

D = All the interest bank loans re= required rate of return = cost of equity = required rate of return demanded by shareholders rd = interest rate re>rd (Inventories + accounts receivable) - accounts payable = networking capital (NWC) ROIC target = WACC WACC + extra If a company wants to raise the ROIC, ebit has to go up, nwc down, ppe down.

3

Managerial Finance MSc21 Sergio Paya

Class 2
Companies can have the same revenue growth but different ROIC. A lower ROIC means that a company needs to invest more to achieve the same revenue. Could be a result of poor planning, labor restrictions and many other reasons.

value = FCF / WACC – g = cash flow is growing at a constant growth rate forever g / ROIC = the percentage of NOPLAT needed for net investment g = revenue growth rate

ROIC below WACC = bad for company, worse if company is having high growth as it needs more investments to keep growth (lower value) ROIC above WACC = good for company, higher the growth higher the value made. (higher value) Growing faster is a good thing when the ROIC exceeds the WACC Same ROIC as WACC means no value creation, higher value/noplat when ROIC, WACC and growth is low as to when they are high. There are two types of factors that impact the ROIC – Those that result in premium prices and those that create cost/capital efficiency. Price premium Innovative products Quality customer lock-in Rational price discipline Example ROIC = 4 % Invested capital = 1000 D = interest baring loans = 100 4 Cost/Capital efficiency Innovative business methods Unique resources, Economies of scale Scalability and flexibility

Managerial Finance MSc21 Sergio Paya rd = interest rate = 6% Euribor = 1.5% = 450 basis points (6%-1,5%) ROIC = NOPLAT / Inv. Cap NOPLAT = Inv cap.* ROIC = 1000*0.4 = 40 Interest rate = 6 If ROIC is low, you don’t have a strong competitive advantage.

5

Managerial Finance MSc21 Sergio Paya

Class 3
Price Premium Innovative products Quality – relative and perceived by customer, not actual Brand – Customer lock-in – mental switching cost – adoption cost Rational Price discipline Cost and capital efficiency Innovative business methods – if they can be immitated competition will also become more efficient. Unique resources : production technology, business culture Economies of scale Scalability & flexibility

6

Managerial Finance MSc21 Sergio Paya

Class 4
1 – Capital budgeting and risk 2 - Customer value & groupon If NPV business initiative > 0 => GO! Customer value = ultimately customers who create value for shareholders NPV>0 1 project incremental, expected...
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