COMM 300: Financial Analysis

From BluWiki

• Capital in capital budgeting: the budgeting of the use of the assets in the firm
• Capital in weighted average cost of capital: the average cost of the "capital structure"

Class notes

10/4/2005

• COMM 300: Basic Finance
• COMM 300: Taxes
• COMM 300: Details about financial statements

10/5/2005

• COMM 300: Basic Finance
• COMM 300: Financial Health Exam

10/27/2005

• COMM 300: Time value of money
• COMM 300: Financial markets

10/31/2005

• COMM 300: Financial markets

11/02/2005

• COMM 300: Capital budgeting

11/03/2005

Writing a case

• Major parts:
  • Intro
    • KNOW EVERYTHING about the situation
    • Contries
    • Significance of era
    • Who are the players
    • Everything about it
  • Issues
    • What are the problems
    • What do the people need?
  • Analysis

• • Alternatives & decision
  • Action plan

11/09/2005

• COMM 300:

Risk & return

Definations:

Event - particular outcome Probability: percentage chance that an event will occur Probability distribution: the probability of all possible events Uncertainty: variability in outcomes (this can be anything - not just money) Risk: probability of realizing low or negative returns

Determing returns

See notes for finance version of standard deviation

Coefficient of variation = standard deviation / expected return (Normalizes std. dev. for the return - $1 deviation on a $10 return is more risky than on a $100 return)

portfolio returns

The weighted average of all the returns (weighted for the percentage amt

portfolio risk

diversification reduces risk

random diversification can only reduce risk so much. This will only diversify firm-specific risk, not diversify systemaic (macro-economic) risk.

Misc. Notes

Using the financial calculator

• Problem:
  • -50k inital outflow
  • 10 k inflow for 7 years
  • 8k inflow in year 8
  • cost of capital of 9%

• Calculating on calculator
  • -50,000 button: CFj (enter -50k into Cash flow register)
  • 10,000 CFJ
  • 7 Nj (do that previous command 7 times)
  • 8,000 CFj (year 8)
  • 9 I/YR (enter cost of capital)
  • PRESS NPV for Net Present Value

Finanacial health

• Memo on top, giving a diagnosis (what's up)
• Interpreting the test results
  • Historical ratio analysis
  • Cross sectioanl ratio
  • Sources & uses of funds
    • THIS MUST BALANCE
    • MUST TALKE ABOUT WHERE THEY ARE GETTING THEIR MONEY FROM

Financial forcasting

• Memo on top, giving PROGNOSIS
  • Tell them what will happen, and how do you know this.
  • Pro forma
  • Explain assumptions
  • What the result will be (in three years?)
    • Tell what income statement & balance sheet will be like in the next three years
    • BALANCE SHEET MUST BALANCE
    • Surplus or deficit? (must be on one side)
    • Realize: you can get money from a loan, increasing notes payable, increasing AR, cost cutting etc.
  • WE DON'T HAVE TO CALCULATE BETA COEEFICIENT OR STOCK PRICE

Intro to excel

• $B$2 is a static reference to B2

Notes on personal budget

• make it realisitc
• determine discount rate by figuring out the cost of capital, then moving it up or down because of risk

the market share reporter

11/14/2005

• COMM 300: Weighted Average Cost of Capital