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MindMap Gallery 2024 Financial Cost Management Chapter 1-2 Mind Map
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2024 Financial Cost Management Chapter 1-2 Mind Map
This is a mind map about financial cost management. The main content includes: financial statement analysis and financial forecasting, and basic principles of financial management.
Edited at 2024-03-28 17:18:51
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2024 Financial Cost Management Chapter 1-2 Mind Map
- bacteria
This is a mind map about bacteria, and its main contents include: overview, morphology, types, structure, reproduction, distribution, application, and expansion. The summary is comprehensive and meticulous, suitable as review materials.
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- Outline
financial cost management
Basic principles of financial management
Enterprise organizational form
Personal owned enterprises
partnership
Advantages: Easy to start, low cost, no corporate income tax Disadvantages: Unlimited joint and several liability, limited lifespan, difficulty in financing, difficulty in transferring ownership
corporate enterprise
Advantages: unlimited existence, transferable equity, limited liability Disadvantages: Double taxation, high establishment costs, agency problems
Main contents of financial management
Long-term financing, long-term investment, working capital management.
financial management objectives
profit maximization
1. Failure to consider the time for profit acquisition 2. Failure to consider the relationship between profits obtained and capital invested 3. Failure to consider the relationship between profits obtained and risks assumed
Maximize earnings per share
1. Failure to consider the time when earnings per share are obtained 2. Failure to consider the risk of earnings per share
Maximizing shareholder wealth (the view adopted in this book)
If shareholders’ investment capital remains unchanged, then maximizing stock price = maximizing shareholder wealth
Market added value of shareholders’ equity = Market value of shareholders’ equity – Shareholders’ investment capital
If the value of shareholders’ investment capital and company debt remains unchanged, then company value maximization = shareholder financial maximization
Enterprise value = Market value of shareholders’ equity Market value of debt
Stakeholder requirements
with operators
Specific manifestations: 1. Moral hazard (don’t use force when you are strong) 2. Adverse selection (use force randomly when you are strong)
Solution: 1. Supervision (hire accountants to audit) 2. Incentives (cash, equity awards)
The best solution is to strive to monitor costs and motivate costs The sum of the three losses and the loss from deviation from shareholder targets is the smallest.
with creditors
Specific manifestations: 1. Shareholders invest in new projects with higher risks 2. Shareholders issue new bonds, making the old bonds less valuable
Solutions: 1. Seek legislative protection 2. Take institutional measures
Basic concepts of financial management
time value of money
Risk and reward
Basic theories of financial management
Cash flow theory (the most basic theory)
Value evaluation theory (the core theory)
Risk Assessment Theory (Sensitivity Analysis)
Portfolio theory (reducing unsystematic risk)
Capital structure theory (MM theory, etc.)
Financial tool
feature
deadline
fluidity
risk
Profitability
type
Fixed income securities: securities that offer fixed income based on fixed formulas (low correlation)
Equity securities: common stocks (highly correlated)
Derivative securities: financial options, forward contracts, futures and interest rate swaps (risk transferable)
Financial market
Function: Financing, risk allocation
currency market
Within 1 year
Short-term treasury bonds, negotiable certificates of deposit, commercial papers, bank acceptance bills, etc.
Low interest rates and large interest rate fluctuations
capital market
More than one year
Shareholders, corporate bonds, long-term government bonds, long-term bank loans, etc.
High interest rates and small interest rate fluctuations
efficient capital market
basic condition
rational investor
independent rational bias
Arbitrage
Implications for financial management
Managers cannot increase stock value by changing accounting methods
Managers cannot profit from financial speculation
It’s good to keep an eye on your own company’s share price
capital market efficiency
ineffective capital market
Information that affects stock prices: historical information
weak form efficient capital market
Type of information reflected: historical information
Information that affects stock price: public information, internal information
Testing methods: random walk model, filtering test
semi-strong form efficient capital market
Type of information reflected: historical information, public information
Information that affects stock prices: inside information
Testing methods: event study method, investment fund performance study method
strong form efficient capital market
Types of information reflected: historical information, public information, internal information
Test method: Insider information obtainer
Financial statement analysis and financial forecasting
Financial Statement Analysis
Analytical method
comparative analysis
factor analysis
limitation
Financial statement information disclosure issues
The reliability of financial statements
More basic questions
financial ratio analysis
Short-term solvency
formula
Working capital = current assets - current liabilities = long-term capital - long-term assets
Current ratio = current assets/current liabilities
Quick ratio = quick assets/current liabilities
Quick assets: monetary funds, trading financial assets, notes receivable, accounts receivable
Cash ratio = monetary funds/current liabilities
Monetary funds: cash on hand, bank deposits
Cash flow ratio = net cash flow from operating activities/current liabilities
Current liabilities as of end of period
Working capital allocation ratio = working capital/current assets
in conclusion
The larger the amount of working capital, the stronger the company's short-term debt repayment ability.
Working capital is an absolute value and is not suitable for comparison between companies.
off-balance sheet factors
Available bank credit line
Non-current assets that can be quickly converted into cash
Good debt repayment reputation
Contingent liabilities related to guarantees
long term solvency
formula
Asset-liability ratio = total liabilities/total assets
Equity ratio = Total liabilities/Shareholders’ equity
Equity multiplier = total assets/shareholders’ equity
All three change in the same direction
Long-term capital gearing ratio = non-current liabilities/(non-current liabilities shareholders’ equity)
Interest coverage ratio = profit before interest and tax / interest expense = (net profit, interest expense, income tax) / interest expense
Cash flow interest coverage ratio = net cash flow generated from operating activities/interest expense
Interest expenses include both capitalized interest and expensed interest
Ratio of cash flow to debt = net cash flow from operating activities/total liabilities
off-balance sheet factors
pending litigation
debt guarantee
operating capacity ratio
Accounts receivable turnover rate = operating income/accounts receivable
Accounts receivable = notes receivable, accounts receivable, bad debt provision
Current asset turnover rate = operating income/current assets
Working capital turnover rate = operating income/working capital
Non-current assets turnover rate = operating income/non-current assets
Total asset turnover rate = operating income/total assets
Inventory turnover rate = operating income (operating costs) / inventory
When analyzing short-term solvency and decomposing total asset turnover, use operating income
When evaluating the level of internal inventory management, use operating costs
Turnover days = 360/turnover rate
profitability ratio
Operating net profit margin = net profit/operating income
Net profit rate of total assets = net profit / total assets = net operating profit rate * total asset turnover rate
Net interest rate on equity = net profit/shareholders’ equity = net operating interest rate * total asset turnover rate * equity multiplier
market price ratio
P/E ratio = market price per share/earnings per share
Earnings per share = (net profit - preferred stock dividends) / weighted average number of common shares outstanding
Price-to-book ratio = market price per share/net assets per share
Net assets per share = common stockholders’ equity/number of common shares outstanding at the end of the period
Common shareholders’ equity = shareholders’ equity – preferred shareholders’ equity
Preferred stockholders’ equity = Liquidation value of preferred stock Preferred stock dividends in arrears
Price-to-sales ratio = market price per share/operating income per share
Operating income per share = operating income/weighted average number of common shares outstanding
DuPont Financial Analysis System
Core ratio: Net interest rate on equity = net operating interest rate * total asset turnover rate * equity multiplier
limitation
"Total assets" and "net profit" used to calculate total asset net interest rate do not match
No distinction is made between operating profits and losses and financial profits and losses
No distinction is made between operating assets and financial assets
No distinction is made between operating liabilities and financial liabilities
financial statements for management
balance sheet for management
Operating assets = Operating current assets – Operating current liabilities
Net operating long-term assets = Operating long-term assets – Operating long-term liabilities
Net operating assets = operating working capital net operating long-term assets
Universal Identity: Net Operating Assets = Net Liabilities Shareholders’ Equity
Income statement for management
Financial profit and loss = - interest expense * (1 - tax rate)
Interest expense is a broad concept
Operating profit and loss = operating profit before tax = (1-tax rate)
Net profit = net operating profit after tax – interest expense after tax
Net operating profit after tax = Net profit After tax interest expense
cash flow statement for management
Gross operating cash flow (operating cash flow) = net operating profit after tax, depreciation and amortization
Net operating cash flow = Gross operating cash flow - Increase in operating working capital
Entity cash flow = net operating cash flow - capital expenditures
Capital expenditures = increase in net operating long-term assets Depreciation and amortization
Entity cash flow = net operating profit after tax - increase in net operating assets
Equity cash flow = dividend distribution - net increase in equity capital = net profit - increase in shareholders' equity
Debt cash flow = after-tax interest expense - increase in net debt
financial analysis system for management
After-tax operating net profit margin = after-tax operating net profit/operating income
Net operating asset turnover = operating income/net operating assets
Net operating asset turnover rate = net operating profit after tax/net operating assets = net operating interest rate after tax * net operating asset turnover rate
After-tax interest rate = after-tax interest expense/net debt
Operating variance rate = net operating assets net interest rate - after-tax interest rate
Net financial leverage = net debt/shareholders’ equity
Leverage contribution rate = operating difference rate * net financial leverage
Net interest rate on equity = Net interest rate on net operating assets (Net interest rate on net operating assets – After-tax interest rate) * Net financial leverage
finance prediction
Steps to Financial Forecasting
Sales Forecast
Estimated Operating Assets Operating Liabilities
Estimated expenses and profit retention
Estimate required external financing needs
Financial Forecasting Methods
percentage of sales method
Total financing needs = increase in net operating assets = increase in operating assets – increase in operating liabilities
Financing pecking order theory: decrease in financial assets, retention of profits, increase in financial liabilities, issuance of stocks
Amount of external financing = operating asset sales percentage * operating income increase - operating liability sales percentage * operating income increase - available financial assets - profit retention
External financing sales growth ratio = operating asset sales percentage - operating liability sales percentage - (1 growth rate) / growth rate * operating net profit margin * (1 - dividend payout rate)
embedded growth rate
Prerequisites
There are no financial assets that can be mobilized, and there is no intention to raise funds from the outside. It only relies on the sales growth rate achieved by internal accumulation.
formula
0=operating asset sales percentage-operating liability sales percentage-(1 growth rate)/growth rate*operating net profit margin*(1-dividend payout rate)
sustainable growth rate
Prerequisites
When no new shares are issued or shares are repurchased, and operating efficiency (“operating net profit margin” and “asset turnover rate” remain unchanged) and financial policies (“equity multiplier” and “profit retention rate” remain unchanged) remain unchanged), the sales in the next period achievable growth rate
Operating income growth rate = Total assets growth rate = Liability growth rate = Shareholders’ equity growth rate = Profit retention growth rate
formula
According to the beginning shareholders’ equity
Sustainable growth rate = current period increase in shareholders’ equity/beginning of period shareholders’ equity = Net profit for the current period * Profit retention rate / Beginning shareholders’ equity =Net interest rate for the current period on equity at the beginning of the period*Profit retention rate =Operating net profit margin * Total asset turnover rate at the end of the period * Total assets at the end of the period, equity multiplier at the beginning of the period * Profit retention rate
Only used when no new shares are issued or shares are repurchased
Based on closing shareholders’ equity
Sustainable growth rate = current period increase in shareholders’ equity/beginning of period shareholders’ equity = Net profit for the current period * Profit retention rate / Beginning shareholders’ equity =Net profit for the current period*Profit retention rate/(Shareholders’ equity at the end of the period-Net profit for the current period*Profit retention rate) Operating net profit margin * Total asset turnover rate at the end of the period * Equity multiplier at the end of the period * Profit retention rate =------------------------------------------------ 1-Operating net profit margin * Total asset turnover rate at the end of the period * Equity multiplier at the end of the period * Profit retention rate
Indicators involving assets remain unchanged, this year’s actual growth rate = this year’s sustainable growth rate