澳门科技大学财务学期末复习资料.pdf

Finance Calculation 2 out of 4 Essay question 3 out of 6 20 for each Section1 Calculation P 117 3 2 P176 Bank ABC P270 Example 8 1 P202 Example 6 1 P403 11 1 P 404 12 1 Section 2 Essay question 1 Analyzing a company p91 1 Definition of financial ratios Financial ratios are ways of comparing and investigating the relationships between different pieces of financial information 2 Categorize these ratios p92 Short term solvency or liquidity ratios The primary concern is the firm s ability to pay its bill over the short run without under stress Consequently these ratios focus on current assets and current liabilities Long term solvency or financial leverage ratios Long term solvency ratios are intended to address the firm s long run ability to meet its obligations Asset management or turnover ratios The specific ratios we discuss can all be interpreted as measures of turnover Profitability ratios They are intended to measure how efficiently the firm uses its assets and how efficiently the firm manage its operations Market value ratios Referring to the market price per share of the stock 3 Common financial ratios 2 The time value of money 1 Definition p132 In the most general sense the phrase time value of money refers to the fact that a dollar in hand today is worth more than a dollar promised at some time in the future 2 Influence factors ppt Interest forgone If the money is tied up in an investment for a year the business cannot invest it elsewhere so there is an interest opportunity cost Inflation Owing to the loss of purchasing power of money if there is inflation in the economy 1 will not buy as many goods and services next year as it will this year Risk 1 paid out today is certain but the 1 anticipated receipt next year is not 3 Future Value FV p133 Refers to the amount of money an investment will grow to over some period of time at some given interest rate 4 Discount cash flow DCF calculation p140 Calculation calculating the present value of a future value of future cash flow to determine its value today 5 Other definitions p133 p139 ppt Compounding the process of accumulation interest in an investment over time to earn more interest Simple interest interest earned only on the ordinal principal amount invested Present value the current value of future cash flows discounted at the appropriate discount rate Risk free rate risk free rate is the theoretical rate of return of an investment with zero risk 3 Bonds 1 YTM p199 The yield on any particular bond is a reflection of a variety of factors Some common to all and some are specific to the issue under consideration 2 Bond yields and the yield curve p227 This plot is called the Treasury yield curve 國債收益率曲線 or yield curve 收益率曲線 This is almost the same as the term structure of interest The only differences that the term structure is based on pure discount bonds Whereas the yield curve is based on coupon bond yields 3 Bonds yields represent the combined effect of p227 Real rate of interest Nominal rates 名義利率 have not been adjusted for inflation Real rates are rates that have been adjusted for inflation Expected future inflation It is important to note that financial rates Such as interest rates discount rates and rate of return are almost always quoted in nominal terms All other thing being equal the longer the time to maturity the greater the interest rate risk All other things being equal the lower the coupon rate the greater the interest rate risk Interest rate risk Credit rating companies Moody s Standard Poor s and Fitch Rating Default risk The real rate expected future inflation and the interest rate risk premium Taxability Investors demand the extra yield on a taxable bond as compensation for the unfavorable tax treatment Lack of liquidity All else being the same less liquid bonds will have higher yield than more liquid bonds 4 Investment techniques 1 Net present value NPV p268 Definition the difference between an investment s market value and its cost Rules of practices an investment should be accepted if the net present value is positive and rejected if it is negative PV cost Advantage A time adjusted measure of financial benefits A total logical way of assessing investment opportunities because Directly related to the objective of maximization of value of the business It takes full account of the timing of investment outlay and of the benefits All relevant measurable financial information concerning the decision is taken into account It is practical and easy to use once the anticipated cash flows have been identified Disadvantage Need to estimate the discount rate Do not take into account the cash flow pattern 2 Pay back rule p271 Definition the amount of time required for an investment to generate cash flows sufficient to recover its initial cost Rules of practices Based on the payback rule an investment is acceptable if its calculated payback period is less than some prespecified number of years Advantage and disadvantage p274 Advantages Disadvantages Intuitive and Easy to understand Ignore the the value of money Adjusts for uncertainty of later cash flows Requires an arbitrary cutoff point Give insights into projects that the NPV method fails to provide particularly on the question of liquidity Ignores cash flows beyond the cutoff date Biased against long term projects such as research and development and new projects 3 Internal rate of return IRR p277 Definition the discount rate that makes the NPV of an investment zero Rules of practices Based on the IRR rule an investment is acceptable if the IRR exceeds the required return It should be rejected otherwise Advantage and disadvantage p285 Advantages Disadvantages Closely related to NPV often leading to identical decisions May result in multiple answers with nonconventional cash flows Easy to understand and communicate May lead to incorrect decisions in comparisons of mutually exclusive investments 5 Risk and return 1 Type of risk and example p386 Systematic risk These risks affect a larger number of assets and have marketwide effects They are sometimes called market risk E g uncertainties about general conditions such as GDP interest rates Unsystematic risk These risks affect a single asset or a small group of assets They are unique to individual companies or assets they are sometimes called unique or asset specific risks E g the announcement of an oil strike 2 Eliminate risk p389 Unsystematic risk is essentially eliminated by diversification so a relatively large portfolio has almost no unsystematic risk 3 Definition of beta coefficient p391 Amount of systematic risk present in a particular risky asset relative to that in an average risky asset 4 Security market line SML p399 Positively sloped straight line displaying the relationship between expected return and beta Theoretical SML for single asset should be the same as that of market portfolio Capital asset pricing model CAPM is that created which indicates the relationship between systematic risk and rate of return 6 Short term financing 1 The short term financial policy will be reflected in the following ways The size of the firm s investment in current assets Flexible policy maintain a relatively high ratio of current assets to sales Restrictive policy a low ratio of current assets to sales The financing of current assets Flexible policy less short term debt and more long term debt Restrictive policy a high proportion of short term debt relative to long term financing Flexible short term financial policy actions Keeping large balances of cash and marketable securities Make large investments in inventory Granting liberal credit terms Restrictive short term financial policy actions Keeping low cash balances and little investment in marketable securities Making small investment in inventory Allowing few or no credit sales thereby minimizing accounts receivable Carrying cost Cost rise with increases in the level of investment in current assets Opportunity costs associated with current assets Shortage cost Trading or order cost Cost of placing an or