Notes for Corporate Finance

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Corporate Finance Notes * Chapter One: Introduce to Corporate Finance 1. Three Questions: A. What Long-term asset should be invested? Capital Budgeting B. How to raise cash for capital expenditures? Capital Structure C. How to manage short-term cash flow? Net Working Capital 2. Capital Structure:
Marketing Value of Firm = MV of Debt + MV of Equity 3. Finance perspect and Accountant perspect:
Finance: Cash Flow !
Accountant: A/R means profit ! 4. Sole proprietorship, parternership and corporation | 5. The goal of financial management:
Maximize the current value per share of the existing stock. 6. Agency problem and Control of the Corporation
Agency Relations: stockholders with
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The total
Remarks:
* Net Income is not Cash Flow, always different number * Outflow is -, Inflow is +

8. Statement of Cash Flow
Cash Flow from Operation (OP CF): Net Income + Non-cash Expense + Adjustment in CA&CL (except Cash & N/P)
Cash Flow from Investing (Capital Spending): Acquisition of FA (-) + Sales of FA (+)
Cash Flow from Financing: changes in equity and debt

* Chapter Three (Part One): Financial Statement Analysis 1. Standardizing Statement & Common-size Balance Sheets
Common-size Balance Sheet / Income Statement: percent – noted sheet 2. Short-term Solvency or Liquidity Measures: A. Current Ratio = CA / CL
CA: the book value and market value are likely to be similar B. Quick Ratio (Acid-Test) = (CA – INV) / CL
INV is least liquid CA. Thus the BV of INV is least reliable. C. Cash Ratio = Cash / CL 3. Long-term Solvency Measures (Financial Leverage / Leverage Ratio) A. Total Debt Ratio = (TA – TE) / TA
Debt-Equity Ratio = TD / TE
Equity Multiplier = TA / TE B. Times Interest Earned (TIE) = EBIT / INT
Interest coverage ratio C. Cash Coverage = (EBIT + Dep.) / INT
EBIT + Dep. is called EBITD,
A basic measurement of the firm`s ability to generate cash from OP. 4. Asset
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