FINANCE MAP By Gaylen K. Bunker

Objectives of Workshop Principles: Time lag between investment and return. Compounding versus Summing Value = Discounted future cash flows. Decisions: Convert into today’s dollars Discount rate = Cost of Capital Finance focus on Cash Flows Cost & Return are the same thing.

CAPITAL FUNCTIONS $ Financing Liabilities & Equity Investing PP&E Operating Revenue Expense Profit A/R & InvA/P Operate Balance Sheet Income Statement

Financing Decisions $ Financing Liabilities & Equity Investing PP&E Operating Revenue Expense Profit A/R & InvA/P Operate Balance Sheet Income Statement

Financing Decisions $ Financing Liabilities & Equity Revenue Expense Profit Income Statement Capital Structure Cost of Capital Financial Leverage WACC Cost of Debt (Interest) Cost of Equity (Stock) Dividend Discount Model Capital Asset Pricing Model (Dividend Yield & Growth) (Risk-free rate, Beta, Market Return) Risk and Return Trade-off DE Risk Return

Investing Decisions $ Financing Liabilities & Equity Investing PP&E Operating Revenue Expense Profit A/R & InvA/P Operate Balance Sheet Income Statement

Investing Decisions Investing PP&E Revenue Expense Profit Operate Income Statement Capital Budgeting Capital Rationing Free Cash Flow Net Present Value Internal Rate of Return Profitability Index Payback FCF Inv Metrics

Operating Decisions $ Financing Liabilities & Equity Investing PP&E Operating Revenue Expense Profit A/R & InvA/P Operate Balance Sheet Income Statement

Operating Decisions Operating Revenue Expense Profit A/R & InvA/P Income Statement Working Capital Credit Management Days Sales Outstanding Cash Discounts Just-in-time Systems Financial Ratios EBIT Operating Leverage NOPAT Free Cash Flow Capital Charge Economic Value Added

Valuation Decision $ Financing Liabilities & Equity Investing PP&E Operating Revenue Expense Profit A/R & InvA/P Operate Balance Sheet Income Statement Free-Cash-Flow; Net Invested and Operating Capital Time Value of Money; Present Value; Future Value; & Annuities WACC; and Future Growth

VALUE = Future Free Cash Flows Summarized in Today’s Dollars

Fundamental Building-blocks FV = PV x (1 + r) PV = FV / (1 + r)