The investment subject is the company, and the object is operating long-term assets (long-term equity investments in subsidiaries, joint ventures, and associates are operating long-term assets)

It is a direct investment - it is easier to succeed if you understand the industry

The purpose of investment is to obtain physical resources required for business activities

The investment subject is a company (legal person), and the object is long-term capital (including long-term debt capital and equity capital)

Financing can be done directly or indirectly through financial institutions.

The purpose of investment is to meet the long-term capital needs of the enterprise

The topic is capital structure and dividend distribution

time factor not considered

Failure to consider risk issues

The input-output relationship is not considered and there is a lack of comparability.

time factor not considered

Failure to consider risk issues

Premise: shareholders’ investment capital remains unchanged and the capital market is efficient, which is equivalent to maximizing shareholder wealth.

Sometimes stock prices fall, but shareholder wealth remains unchanged because invested capital decreases

Capital markets are not completely efficient

Premise: shareholders’ investment capital remains unchanged and debt value remains unchanged, which is equivalent to shareholder financial maximization.

Enterprise value = Debt market value Equity market value = Debt market value Shareholders’ investment capital Shareholders’ equity market value added

Moral hazard (not working hard enough)

Adverse selection (deviation from goals)

Find solutions that minimize the sum of monitoring costs, incentive costs and losses from deviations from shareholder objectives

supervise

excitation

Default investments in high-risk projects - such as increasing the asset-liability ratio and increasing the guarantees provided to other companies

Issuing new debt devalues ​​old debt

deed restrictions

Termination of cooperation and early recovery of loan

major client

supplier

staff

Abide by contracts, meet basic requirements, abide by social ethics and coordinate conflicts

consumer

Community residents, etc.

Social responsibility policies have a significant impact on non-contractual stakeholders

fixed rate bond

floating rate bonds

preferred stock

perpetual bond

Highly relevant to the issuer’s operating results

forward contract

futures contract

swap contract

options contract

convertible bonds

currency market

capital market

debt market

equity market

IPO primary market

Secondary market, also known as circulation market or secondary market

floor market

OTC market

That is, market prices can simultaneously and completely reflect all available information.

external identification

The basic conditions for the capital market to be effective - (the existence of one of the three means it is effective)

Small price fluctuations are rational markets - milk tea

Managers cannot increase stock value through accounting techniques

Managers cannot profit from financial speculation

It’s helpful to pay attention to your own company’s stock price

Market information classification

Capital market efficiency classification

The greater the amount of working capital, the more stable the financial situation

Working capital is positive, and some current assets are funded by long-term capital.

Working capital is negative, and some long-term assets are funded by current liabilities.

Disadvantages of working capital analysis: working capital is an absolute number, which is inconvenient for comparison between different periods and between enterprises.

Comparative Analysis of Working Capital

Assuming that all current assets can be turned into cash and used to repay debts, all current liabilities need to be paid off. In fact, the book amount of some current assets is significantly different from the realized amount, and operating current assets are necessary for operations and cannot All used to pay debts. Operating payables can be rolled over without the need to use cash to settle them all.

Issues to note when analyzing

Inventory is a current asset

Quick assets = monetary funds, trading financial assets and various accounts receivable/non-quick assets = inventories, prepaid accounts, non-current assets due within one year

Things to note: Quick ratios vary greatly across industries

Factors affecting credibility: Liquidity of accounts receivable

The net cash flow in the formula is in the cash flow statement

The current liabilities used here are the closing amounts rather than the average amounts.

Available bank loan indicators

Non-current assets that are ready to be liquidated quickly

reputation for solvency

Contingent liabilities related to guarantees

Payments promised in an operating lease contract

Also known as the broad capital structure, it reflects the proportion of total assets obtained through liabilities and can be used to measure the degree of protection of creditors when a company is liquidated.

The lower the asset-liability ratio, the safer the loan

Equity ratio and equity multiplier are two other forms of expression of asset-liability ratio.

Asset-liability ratio analysis

The asset-liability ratio, equity ratio and equity multiplier move in the same direction. The higher the indicator, the greater the financial risk and the greater the degree of financial leverage.

Equity multiplier = 1 equity ratio

Equity multiplier = 1/1-asset-liability ratio

The larger the interest coverage ratio, the more buffer the company has to repay interest.

=Net profit, expensed interest, income tax expense/actual total interest

Profit before interest and tax (EBIT) = profit before tax, interest (financial expenses), interest = interest in financial expenses, capitalized interest = actual interest payable

The interest coverage ratio is slightly greater than 1. The income generated by the company's own operations can barely support the current scale of debt. Because of the operational risks, the company's EBIT is uncertain, and the interest on the debt is contracted and is a fixed payment, so The company's solvency is weak

More reliable than profit-based interest coverage because cash is actually used to pay interest, not earnings.

The total liability here is the ending amount

Long-term lease (long-term or recurring will reduce the company's solvency)

debt guarantee

pending litigation

Contingent liabilities

Sales revenue credit ratio issue

Reliability issues of year-end contracts for accounts receivable

Impairment provisions for accounts receivable

Notes receivable should be included in the accounts receivable turnover rate, named accounts receivable, that is, receipts receivable turnover rate

The fewer the days of receivables turnover, the better.

Should be linked to credit sales analysis and cash analysis

For large orders, inventory is increased first, and inventory turnover days increase.

Sales volume shrinks, which is reflected in a decrease in inventory turnover days, which is not good

If there is a large backlog of finished products, sales will be sluggish.

The increase in the proportion of front-end inventory such as raw materials indicates future sales growth.

Changes in the number of shares that cause changes in total owners' equity need to be weighted by month, such as additional issuance and repurchase of shares, issuance of stock dividends that do not cause changes, stock splits, etc., and do not need to be calculated based on the actual increase month.

Indicates the price common shareholders are willing to pay for each dollar of net profit.

Forecast huge earnings growth, high P/E ratio

Forecast earnings fall sharply from current levels, and P/E ratios are low

The price that shareholders of apparent common stock are willing to pay for each dollar of net assets.

The price that surface common shareholders are willing to pay for each dollar of sales revenue

It is mainly affected by the asset-liability ratio. The greater the debt ratio, the higher the equity multiplier, which brings more leverage effects and more risks to the company.

It reflects the profitability level of sales revenue. The ways to improve this indicator are: increasing sales revenue and reducing sales costs. It is difficult for outsiders to obtain relevant information.

An indicator that reflects the ability to use assets to generate sales revenue. Asset turnover can be improved by increasing revenue, reducing asset occupation, and improving the utilization efficiency of accounts receivable, inventory, current assets, etc.

It has a different meaning from the term operating activities in the accounting cash flow statement

Sales of goods or provision of services and other business activities

Investment activities in productive assets related to business activities

Fundraising activities and utilization of excess funds

It is the assets and liabilities involved in the process of selling goods or providing services.

Assets and liabilities involved in using excess funds from operating activities to invest during the financing process

Operating liabilities refer to liabilities incurred by an enterprise due to its operating activities, such as notes payable, accounts payable, accounts received in advance and employee compensation payable, etc.

Interest expenses after deducting interest income, gains from changes in fair value, etc., due to the existence of income taxes, should be calculated to change the interest expense after-tax results, that is, net financial profits and losses

Leverage existing financial assets

Utilization of retained earnings = Estimated operating income × Estimated operating net profit rate (1-dividend payout rate)

increase financial liabilities

Issuance of new shares

When the dividend payout ratio is 100%, the net sales interest rate has no impact on external financing needs

The extension of the turnover days of net operating assets will increase the funds occupied by net operating assets, resulting in an increase in the sales percentage of net operating assets, thereby increasing the amount of external financing

Similarly, the asset-liability ratio has no impact

Equity multiplier or gearing ratio remains unchanged

Dividend payout ratio remains unchanged

Increased owner's equity = increased retained earnings

Net sales profit margin remains unchanged

Asset turnover rate remains unchanged

Actual growth rate > Sustainable growth rate

Sustainable growth rate for this year＞Sustainable growth rate for the previous year

If the four indicators are full, only the issuance of new shares can increase the sales growth rate.

Beginning Equity = Closing Equity - Increase in Retained Earnings

Equity at the beginning of the period Total assets multiplier at the end of the period = Total assets at the end of the period / Shareholders’ equity at the beginning of the period

It can only be used to calculate operating net profit margin and profit retention rate.

Bonds issued as collateral for corporate real estate

bond not secured by property

PV=coupon interest/i

Sometimes you have to discount once after calculation

Issuing at a premium - the bond interest rate is higher than the discount rate

At-the-money issue - the bond interest rate is equal to the discount rate

Issued at a discount - the interest rate on the bond is lower than the discount rate

Shows cyclical changes between two interest payment dates

The value gradually rises and approaches the face value

g is the dividend growth rate

Note that it is D1 and cannot be calculated directly using the current dividend.

The return on investment is greater than the cost of capital

That is, the time required for the future net cash flow of an investment project to offset the original investment amount.

shortcoming

The payback period must be added to the construction period

time value considered

Still does not take into account the income after the payback period

Not taking into account the time value of money

Reset the project so that both projects reach a common age

Calculate the equal annuity of the project's net present value, then calculate the perpetuity, and choose the project with the largest perpetuity.

inflation

Technological progress cannot be copied

Competition leads to projects being eliminated

Relevant costs are related to decisions, such as: difference cost, future cost, replacement cost, opportunity cost

Non-relevant costs have nothing to do with decision-making, such as sunk costs and past costs.

That is, the difference between the increase in operating current assets and the increase in operating current liabilities.

Calculated by average annual cost

When equipment replacement does not change the production capacity and does not increase the company's cash inflow, and when the future useful life is different, the average annual cost method is used

Calculate the annual cost directly without considering the present value.

Consider time value, i.e. consider discounting, etc.

The economic life of a fixed asset is the period in which the average annual cost is the smallest.

For items that can be tax exempted, the income tax deduction should be deducted, that is, after-tax cost = expenditure amount (1-tax rate)

After-tax income = income amount × (1-income tax rate)

Depreciation tax deduction = depreciation × income tax rate

Calculation of after-tax cash flow

Income tax on sale of assets

Advance working capital

-Acquisition expenses

-Advance working capital

-Realizable value of original assets

-The impact of the realizable value of original assets on income tax

Operating income - cash costs - income tax

Net profit after tax Depreciation

Operating income × (1-tax rate)-cash cost (1-tax rate) Depreciation tax deduction

Recovery of advanced working capital

Recovery of net residual value of investment projects

The difference between the net residual value and the book value of fixed assets affects income tax