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Hoorcollege 1
A______L
FCF | E + D
|
𝐹𝐶𝐹𝑡
𝑉𝑐 = ∑
(1 + 𝑊𝐴𝐶𝐶)𝑡
With,
Buisness
FCFt
Asset/Buisness Risk + Financial risk
o Equity risk Re
o Credit risk Spread Rd
Re +Rd = WACC
Profitibility analysis
Valuation is relative to other company’s
Different Ratio’s
Working capital = the money that is needed in the period between payment to supplier and
client pays. Net working capital is linked to cash conversion cycle.
Risk reduction by AH trough not having inventory negative cash conversion cycle.
Supplier gives invoice buyer invoice send the same day to the bank bank pays
supplier cash, but with a discount because it is immediate.
For instance, the discount is 2% and this will go to the bank and is waiting for the invoice of
BIG company which gets extended by 3 months and thus gives even more profit to BIG
company because he can lend for “free”.
Big company has way less interest costs because they are so big and thus does not mind.
IS not recognized as a loan only as accounts payable.
Liquidity management
Match funding, conservative finance.
For smaller companies, the high risk they take is compensated by conservative finance.\\
Correction working capital acc resc + inv + cash + acc pay + ST debt / total assets
If you leave short term debt and cash out of the working capital, you get a more clear and
‘true’ working capital.
Accounts receivable and accounts payable are stickier and can’t be corrected through
normal companies. In slides (week 1) the improvements come from inventories.
Cash income – cash outflow – inv CG = FCF => Change in cash balance
In opdracht rekening houden dat de cash payments en cash income geshift moeten
worden want invoice is niet gelijk
Long-term financing need Conservative financing is costly because you finance when you
don’t need money.
Hoorcollege 2
Topic 2
- MM = m and miller
- Why does book equity go down?
- Cash and book equity are very close related
o Shows in the regression coefficient of 0,86
Book equity goes down and debt increases which is logical
Debt increases because it is cheaper to lend nowadays.
Hoorcollege 4
Topic 2
Pecking order