1. THE FOUNDATIONS OF CORPORATE FINANCE: INTRODUCTION TO THE FINANCIAL STATEMENTS Lesson 1 Castellanza, 21 st September, 2011 Corporate Finance

2. The foundations of Corporate Finance: role and objective  What is Corporate Finance  The Financial Division in a company  Who is the Financial Manager  Financial Decision making  The objective function  The tools of Corporate Finance

3. Corporate Finance What is Corporate Finance Corporate Finance concerns the financing of enterprises - that is, unique combination of physical and human capital – and the investing of financial resources. Core of Corporate Finance: 3 principles financing investment dividends

4. Corporate Finance The Financial Manager stands between the firm’s operations and the financial markets, where investors hold the financial assets issued by the firm. Firm’s operations Financial ManagersFinancial Markets (Real assets)(Financ. Assets) Chief Financial Officer (CFO): Treasurer / Controller Treasurer: cash management/raising capital/banking relationships Controller: preparation of financial statements / accounting /taxes The Financial Manager

5. Corporate Finance Financial decisions: ordinaryshort termcash / working capital medium-long termfinancing / investing extraordinaryfloatation / M&A, … maximize the value of the firm but value for who? stockholders firm Financial Decision making

6. Corporate Finance 6 The classical objective function

7. Corporate Finance The real world

8. Corporate Finance 8 The real world

9. Corporate Finance The tools of Corporate Finance Financial Statements Time value of money Valuation of companies

10. Corporate Finance Introduction to the Financial Statements Objective: to maximize the value of the firm How can we check the objective? financial analysis (financial anlysts, investment banks, …) technical fundamental candlestick, …Financial Statements staticdynamic ratios analysisflows analysis

11. Corporate Finance Static financial analysis (ratio analysis) picture of the financial position of the firm at a point in time Dynamic financial analysis (flows analysis) changes in year and why Introduction to Financial Statements: tools

12. Corporate Finance Introduction to Financial Statements Static AnalysisDynamic Analysis Flows Flows from operations Flows from investment and financing Ratios

13. Corporate Finance Introduction to Financial Statements Static Analysis Dynamic Analysis Assets = Liabilities Uses of funds = Sources of funds

14. Corporate Finance Introduction to Financial Statements: the balance sheet Fixed Assets Financial Assets Current Assets Intangible Assets LT fin. Debt Other LT liabil. (ex. provisions) Current Liabilit. Equity Non Current

15. Corporate Finance Introduction to Financial Statements: the balance sheet Fixed Assets Financial Assets Net Working Cap. Intangible Assets LT fin. Debt Other LT obligat. (ex. provisions) Equity

16. Corporate Finance Introduction to Financial Statements: Net Working Capital Accounts receivable Inventories Accounts payable NWC Cash and Marketable securities Other current assets Other current liabil. (ex: accrued income taxes) Financ. s. term loans

17. Corporate Finance Introduction to Financial Statements: Net Working Capital (operating or non cash) Accounts receivable Inventories Accounts payable NWC op. Other current assets Other current liabil. Non cash current assets Non cash current liabilities

18. Corporate Finance 18 Introduction to Financial Statements: the balance sheet Non curr. Assets (fixed, intang., fin.) Other LT assets and liabil. NWCNFP. Equity

19. Corporate Finance Introduction to Financial Statements: the income statement (Profit and Loss) Sales - Operating expenses = EBITDA - Depreciation and Amortization = EBIT - Financial expenses/revenues - Extraordinary items = EBT - Taxes = Net Earning

20. Corporate Finance Ex. Prepare a balance sheet for ABC co. from the following information. What is the equity? Bank loans short term of 200 Cash of 100 Inventory of 800 Building and fixtures of 1500 Accounts receivable of 1200 Mortgage loan of 1300

21. Corporate Finance Ex. Prepare a balance sheet financial reclassification using the following data Short-term Financial Debt 55,062 Cash40,419 Long-Term financial debt93,832 Accounts receivable80,214 Other current liabilities33,016 Inventories41,156 Other current assets31,660 Employees' Termination Pay14,087 Equity98,186 Financial Assets5,281 Fixed Assets67,893 Intangible Assets 66,114 Allowance for doubtful receivable accounts 2,519 Marketable Securities 14,039 Trade accounts payable50,074