CORPORATE FINANCE

Nguyen Thu Hang

[email protected]
CORPORATE FINANCE

Nguyen Thu Hang

[email protected]
CORPORATE FINANCE

Nguyen Thu Hang

[email protected]
 Outline
• Chapter 1: Introduction
• Chapter 2: Financial Statement Analysis
• Chapter 3: Capital Budgeting
• Chapter 4: Capital Structure
• Chapter 5: Payout Policy
• Chapter 6: Return, Risk and Capital Asset
Pricing Model (CAPM)
• Chapter 7: Working capital Management
 Assessment
• Performance +warming-up activities: 10%
• Mid-term test: 30%
• Final term test : 60%

3
 Course materials
1. Ross, Westerfiled & Jordan, Corporate
Finance
2. Berk DeMarzo, Corporate Finance
3. CFA Program Curriculum, Level II, Volume 3,
Corporate Finance (2016)
4. CFA Program Curriculum, Level I, Volume 3,
Financial Reporting Analysis (2016)

4
CHAPTER 1
INTRODUCTION
( 3 hours)
 Outline
• Four major types of firms (main advantages and
disadvantages).
• Financial decisions in corporations.
• Goal of Corporate Finance Decisions/ Goal of CEO
• Agency problem
• Solutions to the agency problem
 Four types of firms
▪ A business is an organization involved in the trade
of goods, services, or both to consumers, for profit
or not-for profit.
Types of Business Ownership
▪ (Sole) Proprietorships.
▪ Partnerships.
▪ Limited Liability Companies
▪ Corporations

7
 (Sole) Proprietorship
• Is a business owned and run by one person
• Sole proprietorships are very small with few, if any,
employees.
• Although they do not account for much sales revenue
in the economy, they are the most common type of
firm in the world.
• Straightforward to set up.
• The firm can have only one owner.
• The owner has unlimited personal liability of any firm’s
debts.
• The life of a sole proprietorship is limited to the life of
the owner → It is difficult to transfer ownership of a
sole proprietorship.
 Partnership
• A partnership is identical to a sole proprietorship
except it has more than one owner.
• All partners are liable for the firm’s debt.
• The partnership ends on the death or withdrawal
of any single partner, although partners can avoid
liquidation if the partnership agreement provides
for alternatives such as a buyout of a deceased or
withdrawn partners.
• A limited partnership is a partnership with two
kinds of owners, general partners and limited
partners.
 Limited Liability Companies (LLC)
• A limited liability company (LLC) is a limited
partnership without a general partner.
• All the owners have limited liability, but unlike
limited partners, they can also run the
business.
 pendent
capital
opationspremaersaemens
in
owners <-

Corporations
• The distinguishing feature of a corporation is
that it is a legally defined, artificial being (a
judicial person or legal entity), separate from
its owners → it is solely responsible for its
own obligations.
• The owners of a corporation are not liable for
any obligations the corporation enters into.
• The corporation is not liable for any personal
obligations of its owners.
• A corporation has many of the legal powers
that people have.
 B/S A 1
=
+
E

1 E=>
A
I
+

100B of
120B
=
E -
COB-meaning this to
amount owner!
M10
=> owner has obligation to his debt (base law)
pay on

debtis free from owner's obligation

No one
pains for $20B => risk of Bank
 Ownership of a corporation
• No limit on the number of owners a
corporation can have.
• The entire ownership stake of a corporation is
divided into shares known as stock. The
collection of all the outstanding shares of a
corporation is known as the equity of the
1 M (ND 10,000
x
100B
corporation. F
• Shareholders, or stockholders or equity holders
Y are entitled to dividend payments. statement
Inc

#
are
payparttoshareholder
owners
Not income
 Four types of firms

contributed
-> key difference:liable for the amount
N

↓ Imax
agency ·loss if suffered
problem ↓
affectbehavior
Inbeforetax -Tax -> Netinc
no
maturity ↓ dividend to individual of managers
of stock
-> bonds pay (Re: CFAI 2013, Volume 2,
shareholders
SS. 4)
13
 characteristics of large number of shareholders?

-
can'tsee
day-by-day activities I can'tobserve involve
management I group managers)
of

ownership
=> separation between

-
↑ scale firm (#
of of shareholders, call for capital's contribution
relationship between large firm a bank => low cost capital is avaible

comparedto
small firm
 Types of U.S. Firms

Ref: Berg, Ch 1
• What is corporate finance?
 Financial system
The Financial System
Public Finance

Financial
Market
Financial
Institutions

Corporate Finance Personal Finance

 Financial system (cont.)
Public Finance
▪ Government operations to implement policy.
▪ Efficient resources allocation, income distribution and
economic stabilization.
Business Finance (Corporate Finance)
▪ Business operations to maximize owner’s wealth.
▪ Investing and financing decisions.
Personal Finance
▪ Individual or family activities.
▪ Maximize utilities.

17
 What is corporate finance?
▪ Corporate Finance is the study of financial decisions
in corporations.
Types of Decisions in a Corporation
▪ Investment decisions.
▪ Financing decisions.
Which type of decisions comes first?

18
 Ownership versus Control
of Corporations
• Corporate Management Team
– In a corporation, ownership and direct control are
typically separate.
– Board of Directors
• Elected by shareholders
• Have ultimate decision-making authority
– Chief Executive Officer (CEO)
• Board typically delegates day-to-day decision making
to CEO.
 Organizational Chart of a Typical
Corporation
shareholders
Hi doing = outside of
C
quan tri -

firm
responsible for governance

ofcompanyinoth manager
->

in
team

=
manage
day-by-day&

activities
necessarily
not
of firm
owner
appointed by
share holder
hired employed managers
 Board of Directors
• In companies with complex ownership structures and operations, it is impractical for
shareholders to be involved in strategy formulation and day- to- day activities.
Shareholders thus elect a board of directors to provide broad oversight of the
company.
• Shareholders monitor the board’s performance through exercise of voting power and
participation in general meetings. The board, in turn, appoints the top management of
the company.
• The board is accountable primarily to shareholders and is responsible for the proper
governance of the company; in this regard, the board is the link between shareholders
and managers.
• Ref: CFA,L1V42020, 4.2.2 Board of Director Mechanisms, p.17
• Read Composition of the Board of Directors, Functions and Responsibilities of the
Board in CFA,L1V4,2020, p21-24
 Financial Manager

Ref: Mayers, Principles of Corporate Finance, Ch1

 Financial Manager
• Within the corporation, financial managers
are responsible for three main tasks:
- Making investment decisions
- Making financing decisions
- Managing the firm’s cash flows.
 Investment decisions
• Weigh the costs and benefits of all
investments and projects → Decide which of
them qualify as good uses of the money
stockholders have invested in the firm.
• Shape what the firm does and whether it will
add value for its owners.
→ See Chapter 3
 Financing decisions
• Decide how to pay for the investments.
• Decide whether to raise more money from
new and existing owners by selling more
shares of stock (equity) or to borrow the
money (debt). → See Chapter 4.
Investmentis about assets

2 E
Financing
+
 Cash Management
a role manager
of

• Ensure that the firm has enough cash on hand

to meet its day-to-day obligations.
• Commonly known as managing working
capital.
• In a young or growing company, it can mean
the difference between success and failure.
 Possible corporate objectives

• Shareholder wealth maximisation (SHWM)

↳ Whati s shareholder wealth?
• Maximisation of profit
stock price
• Maximisation of sales > # of stock.
• Survival how stock to
P?
of net inc,
persistentgrowth
• Social responsibility
->

how?- invest
but
inprojectw

positive NPV
Which one should a company follow?
 Goal of Corporate Finance Decisions
Goal of CEO:
▪ Maximize shareholders (long-term) value.
▪ How?

28
 Reading 1
❑ CFA Corporate Finance and Equity, Level IV4-
2020, Reading 31
Introduction to Corporate Governance and Other ESG
Considerations
 Agency cost and information asymmetry

Principal-Agent Problem
▪ Separation between ownership and control.
▪ Managers act for their own self-interest, which
may substantially differs from the interest of the
shareholders.
▪ Manager- Shareholder conflicts, director-
Shareholder conflicts
▪ That imposes a cost to shareholders to monitor
managers (agency cost). how monitor manager
to

Semphoy
...
BOD

30
 Reading 2
❑ CFA Corporate Finance (2016) Level II,
Reading 27
• Manager- Shareholder conflicts
• Director-Shareholder conflicts
Methods to Mitigate Principal-Agent Problem
▪ Ownership.
❖ Jensen and Meckling (1976): positive relationship between management
ownership and performance.
❖ Himmelberg, C. P., R. G. Hubbard, D. Palia (1999), Understanding the determinants
of managerial ownership and the link between ownership and performance,
Journal of Financial Economics 53:

❖ Incentive pay.
▪ Long-term contract.
▪ Corporate Governance

32
 Corporate Governance

▪ Is the system of principles, policies, procedures, and

clearly defined responsibilities and accountabilities
used by stakeholders to:
o Eliminate or reduce conflicts of interest.
o Use the company's assets in a manner consistent with
the best interests of stakeholders.
Relationship between corporate governance
&
agency problem?
-> better financial performance
agency problem
lower
Better corporate governance ->

Chair
=

CEO
=>
duality
BoD of members of BOD
effective Number

Gender of members of BOD

Education -

other
independent:from operates for
stakeholders' interest
 Corporate Governance
Effective Corporate Governance System
▪ Define the rights of shareholders and other important
stakeholders.
▪ Define and communicate to stakeholders the
responsibilities of managers and directors.
▪ Provide for fair and equitable treatment in all dealings
between managers, directors, and shareholders.
▪ Have complete transparency and accuracy in
disclosures regarding operations, performance, risk,
and financial position.
 Corporate Governance
Effective Board of Directors
▪ Composition of the board, election and
independence of board members.
▪ Qualifications of the directors.
▪ Frequency of meetings.
▪ Responsiveness to shareholder proxy votes.
▪ …
 The agency problem

Why does it arise?

- separation
• Divergence of ownership and control
• Managers’ goals differ from shareholders’
• Asymmetry of information.
What are the consequences?
• Shareholder wealth is no longer maximised.
 Reading 3
❑CFA Corporate Finance, Level II, Reading 27
(2016)
• Corporate governance: objectives and guiding
principles
• Corporate governance evaluation (board of
directors)
 Case 1: Divergence VS Concentration of
Ownership

▪ Phương Xuân wants to expand her chain of

fashion shop. She may borrow or sell 30% of her
equity in the chain to raise fund.
▪ If Phương Xuân borrows fund (or sells equity ), $1
incremental income (or expense) from the shops
will increase Phương Xuân’s income by how
much?
▪ Predict Phương Xuân’s behavior in each case.
opt1=100% of ownership -borrow:inc $1,
+

pay for
interest

70%:inc $0.7
opt:sell 30% other
+

to own

managers:highermodica en
=> ownership manager =>
eliminateagenand
 between biz assets of personal of
separation assets owners
company &
Case 2: Shareholders VS Debtholders
E $-C0B =

▪ Phương Xuân Limited Liability Company has a

debt of 100 bil. on the balance sheet payable in
one year. Value of all asset is now 80 bil.
▪ There is one investment opportunity available:
Initial investment 50 bil. In one year there is a
probability of 30% that the return is 100 bil (win).
win: $30B
and 70% that the return is 0 (fail). I fail;A $-70B
A =

-
=

▪ Phương Xuân is the only owner and manager of

the company. Phương Xuân owns a house
whose value is 10 bil.. She also has a 10 bil
bank deposit.
507300 n
v 1%
=

cost
of capital
NPV = -50 + 27.27 =- 22.83 0

+ 0.740 30 (Billion) (FV)

0.3 100
=

17.27
pV =
=

31y= Shareholder Creator

en
Hear Do not invest ⑧ 80

& Wint 30
stor cos

Equity 1
S

Invest 30
E

Fail o 30
oth 100
 Let's research (CEO's interest)
keep bank
relationshipbetween performance
opt 1: money, depositin
cash
holding &
of assets (cash)
-> retain
huge amount

higher
cost
agency
higher cash
holding -> earn bonus fame
+

(pretiguous)
lower performance CEO -> make
tendto over investment
(negative
NPV) damage pretiguous
->

dividend cash
Op+ 2: pay ↑
-
holding
make
Ishareholder's interest)
lower
opportunity to

over investment
 cost debt
cost
equity
shareholder's interest:max shareholders
Nealth
Tuan Bach's interest:pressure to

pay interest, pay principal (dividend

if have
enough cash
they
does need to
manager
not
pay
principal to shareholder

↓
reduce case bank monitors the

firm's
activity
 Case 3: Share Issues in Financial Distress
▪ Phương Xuân Limited Liability Company has a
debt of 100 bil. on the balance sheet payable in
one year. Value of all asset is now 40 bil. E 5 60
=
-

▪ There is one investment opportunity available:

Initial investment 50 bil. In one year there is a
probability of 70% that the return is 100 bil (win).
and 30% that the return is 0 (fail).
▪ Lenders refuse to lend. Phuong Xuan can only
raise capital through equity issue.
 Case 4
• You are the CEO of a company and you are
considering entering into an agreement to
have your company buy another company.
You think the price might be too high, but you
will be the CEO of the combined, much larger
company. You know that when the company
gets bigger, your pay and prestige will
increase. What is your decision?
 Corporate governance and
performance
• Duality
• Independence of board
• Board size
• Managerial ownership
• Institutional ownership
• State ownership
• Foreign Ownership
• Ownership concentration
• Block Shareholder
• …..
 Further reading
• Jensen, M. C. (1986). Agency costs of free cash
flow, corporate finance, and takeovers. The
American economic review, 76(2), 323-329.
• Jensen, M. C. (1993). The modern industrial
revolution, exit, and the failure of internal control
systems. The journal of finance, 48(3), 831-880.
• Jensen, M. C., & Meckling, W. H. (1976). Theory
of the firm: Managerial behavior, agency costs and
ownership structure. Journal of financial
economics, 3(4), 305-360.
• Reading 27- Corporate Governance, CFA 2016, L2, Vol
3 (p.201)
 References
• Jensen, M. C. (1986). Agency costs of free cash
flow, corporate finance, and takeovers. The
American economic review, 76(2), 323-329.
• Jensen, M. C. (1993). The modern industrial
revolution, exit, and the failure of internal control
systems. The journal of finance, 48(3), 831-880.
• Jensen, M. C., & Meckling, W. H. (1976). Theory
of the firm: Managerial behavior, agency costs and
ownership structure. Journal of financial
economics, 3(4), 305-360.
 References
❖ Brown, et. al. (2004), Corporate Governance Study: The
Correlation between Corporate Governance and
Company Performance.
❖ Governance Risk Indicator, Institutional Shareholder
Services.
❖ Shleifer, Vishny (1997), A Survey of Corporate
Governance.
❖ Becht et. al. (2005), Corporate Governance and Control.
❖ Corporate Governance Scorecard Vietnam Report IFC,
WB.
❖ CFAI 2013, Volume 4, SS. 11
• The end of Chapter 1
• The end of Chapter 1
 CHAPTER 2
FINANCIAL STATEMENT ANALYSIS
(15 hours)
Nguyen Thu Hang
 Chapter Outline
1. Financial Statement
- Financial Reporting Mechanics
- Accruals
- Balance sheet
- Income statement
- Statement of cash flows: calculation of CFO, CFI,
CFF
2. Financial Statement Analysis
- Common-Size Analysis
- Ratio Analysis
 Firms’ Disclosure of Financial Information
• Publicly listed companies around the world are
required to file their financial statements with the
relevant listing authorities.
U.S. companies: Generally Accepted Accounting
Principles (GAAP)
VN firms: Vietnamese Accounting Standards (VAS).
• Investors, financial analysts, managers, and other
interested parties such as creditors rely on financial
statements to obtain reliable information about a
corporation.
 Firms’ Disclosure of Financial Information
• Financial reporting: to satisfy reporting
requirements.
• Tax reporting: financial statements for the
taxation authorities.
• For financial reporting:
- The balance sheet
- The income statement
- The statement of cash flows
-Notes to the financial statements
- The statement of changes in shareholders’
equity.
 Reading 1
CFA Financial Reporting and Analysis, Level I,
Reading 23
• The classification of business activities
• Accounting equations
• Financial Reporting Mechanics
• Accruals and Valuation Adjustment
Classification of business activities
Operating activities- the company’s day-to-day
activities that create revenues
Investing activities: include purchasing and
selling long-term assets and other
investments.
Financing activities- include obtaining or
repaying capital, such as equity and long-term
debt.
Financial statements and company’s activities

Example: Which of the following is an operating

activities?
A. Borrow money from a bank.
B. Pay tax.
C. Buy shares of other companies.

7
 Financial statements and company’s activities
Production-Investment Cycles (Cash flow-Production cycle)

principal
cash

②
also
->
↑ funds / debt holders
to

repay
shareholder by
share purchase (repurchase
equity)
①
1
o output
②

(Re: Higgins 2007, Chapter 1) 8

 Accrual Accounting
 Revenue and expenses (and thus profits) do not
coincide with cash flows.
 Cash movement may occur before or after accounting
recognition, in which case accruals are required.
 Accruals are non-cash revenues and expenses.
 If cash flows are so important why do people use
accrual accounting but not cash-basic accounting, i.e.
recognizing revenues and expenses when there are
actual flows of cash?

9
Accrual Accounting vs Cash basis Accounting
• Firm A and firm B have the same revenues (100)
and expenses (90) for each year in the period
from year 1 to year 3. Both firms receive the
whole payment from their customers in actual
cash in year 3. Firm A recognizes its revenue and
expenses when the money is received or paid
out. Firm B records when the revenue is earned
and the expenses are incurred.
• Write income statements of these two firms. Give
your comments on their net income
Cash Basis yM 42 Y3
Rev o O 300

Costs 90 90 90

Net Inc 210 210 210

Accrual Y1 42 43
Rev 100 (AR) noo (AR) 100

cost 90 90 90

↑let Inc 10

a
n

=>
actually profit
 Accrual Accounting
Example: NMH Corp. sells VND 100 million stationary to
Phuong Book Store on 30-day credit. Cost of
production is VND 70 million. On the day of delivery
NMH records: Transaction decrease by 70 mil
Rec increases by 100M
A. Nothing. Rev increases by 100M
COGS increases by 70M
B. A 70 mil increase in sales.
C. A 100 mil increase in liabilities.
D. A 70 mil decrease in inventory and 100 mil increase in
receivables.

11
 Accrual Accounting
Example: NMH Corporation receives VND 30 million
advance payment for an order of stationary on April 1.
On April 1 NMH records (a):
A. Nothing.
B. 30 mil increase in cash.
C. 30 mil increase in liability .
D. 30 mil decrease in revenue.

12
• Suppose your firm receives a $5 million order on the last
day of the year. You fill the order with $2 million worth of
inventory. The customer picks up the entire order the same
day and pays $1 million upfront in cash; you also issue a bill
for the customer to pay the remaining balance of $4 million
in 30 days. Suppose your firm’s tax rate is 0% (i.e., ignore
taxes). Determine the consequences of this transaction for
each of the following:
a. Revenues +
$5M
b. Earnings +
$3M
c. Receivables 54M
+

d. Inventory -

$2M (COGS = +

$2M)
e. Cash +

$1M
 Some accounting equations
• Assets= Liabilities + Owners’ Equity
• Owners’ Equity= Contributed capital +
Retained Earnings
• Ending retained earnings= Beginning retained
earnings +Net Income- Dividends
• Revenues-Expenses= Net Income (Loss)
 Financial statements
• Balance sheet
• Income statement
• Cash flow statement
 Reading 2
Berk DeMarzo, Corporate Finance
• Chapter 2: Balance sheet, Income statement,
Cash flow statement.
 CFA, Financial Reporting and Analysis, Level 1
• Reading 25, Understanding Income Statement
 Alternative Inventory Costing Methods
 Depreciation and Amortization
 Balance Sheet
 A statement of financial condition/position at
a point in time.
 Used to assess a firm’s liquidity, solvency, and
ability to make distributions to shareholders.
 Three elements: assets, liabilities, equity.
 Assets and liabilities are classified as current
and non-current.
 Working capital.
 Capital employed.
Balance Sheet

18
Feb 15 Lesson 4
 Financialreport
Accounting Report
Taxpaid $20
Inc before tax$100

Tax $25

Deferredtax:difference in taxes =
$5
Market Capitalization:measure market value of firm

total
(total equity
or shares
outstanding
 CÔNG TY CP PXL 31/12/2016 31/12/2015
A. Tài sản
1. Tài sản ngắn hạn 949252 1366089
a. Tiền và các khoản tương đương tiền 272585 473657
b. Các khoản đầu tư tài chính ngắn hạn 58799 210
c. Các khoản phải thu ngắn hạn 268541 238048
d. Hàng tồn kho 338117 624434
e. Tài sản ngắn hạn khác 11210 29739
2. Tài sản dài hạn 1660188 1301532
a. Các khoản phải thu dài hạn 0 0
b. Tài sản cố định 507121 242580
c. Bất động sản đầu tư 10098 10098
d. Các khoản đầu tư tài chính dài hạn 979155 932716
e. Tài sản dài hạn khác 163814 116137
Tổng cộng tài sản 2609439 2667619
20
 CÔNG TY CP PXL 31/12/2016 31/12/2015
B. Nguồn vốn
3. Nợ phải trả 169572 194368
a. Nợ ngắn hạn 169128 194091
b. Nợ dài hạn 443 276
4. Vốn chủ sở hữu 2425979 2461868
a. Vốn chủ sở hữu 2425979 2461868
- Vốn góp 2225580 2225607
- Cổ phiếu quỹ -31083 -34537
- Lợi nhuận giữ lại 231482 270798
b. Nguồn kinh phí, quỹ khác 0 0
Lợi ích của cổ đông thiểu số 13889 11383
Tổng cộng nguồn vốn 2609439 266761921
 Some Notes
 Working capital= Current assets– Current liabilities.
 Strictly speaking, WC does not include current financial
assets and liabilities (for instance, excess cash, short-
term debts,…).
 Operating (current) liabilities should not be viewed as
parts of firm’s financial activities.
 Cash is usually viewed as negative debt

22
 Deferred taxes
• Firm A has two sets of financial statements:
one for financial reporting and one for tax
purposes.
• In IS for tax purposes income before taxes
=100, tax=25. In IS for financial reporting,
income before taxes=120, tax=30. How to
record the difference in tax?
 Deferred taxes
• Deferred taxes are taxes that are owed but have
not yet been paid.
• Firms generally keep two sets of financial
statements: one for financial reporting and one
for tax purposes. The rules for the two types of
statements differ.
• Deferred tax liabilities generally arise when the
firm’s financial income exceeds its income for tax
purposes. Because deferred taxes will eventually
be paid, they appear as a liability on the balance
sheet.
 Market Value Versus Book Value
• The book value of equity is distinct from the
market value of equity, or stock market
capitalization.
Market value of equity = Shares outstanding
X market price per share
Market-to-Book Ratio or price-to-book (P/B) ratio
Book value of one share s
=

holders'
equity
(BPS) N

=
in
sareprice
MTB = P/B
• The market-to-book ratio for most successful firms
substantially exceeds 1  The value of the firm’s
assets exceeds their historical cost.
• Analysts often classify firms with low market-to-
book ratios as value stocks, and those with high
market-to-book ratios as growth stocks.
high price in

< HighPB-Growthhotdependassi,eeenchmark
ockmark on a ②
expected stock return
factors
2/3 stock affecting
In Market return

⑤rowth
-

B,p (night
BTM Ys MTB
 Debt-equity ratio
Pebr XST term
long
monitor if
>1
total debt
- <1 = => sth wrong
total assets in calculation
Leverage one better? preferable
in practice, which is =>

fadebttotalequity
to

does always raise alert,

ratio
the larger than 1 not

• A firm’s debt-equity ratio has important hard to

monitor
consequences for the risk and return of its shares
• Probability of financial distress.
More debt

1
firm's
value suffer financial

⑩use
thisdistress to
measure tendency
>debt
 Income Statement
• The income statement reports a firm’s
revenues and expenses over a period of time
and has the following general form:
directly related to productionEBIT = Net income + Interest expense + Tax
expense

= non cash cost

Operating expenses?
Operating income?
compare operating income vs EBIT
DIFF in other inc (operating inc - EBIT):
Other income: could come from investment activities (separated from operating
activities)
how to calculate EBIT:
operating inc - other inc
net income + taxes + interest income

operating expenses vs. operating income?

Income Statement
Format aa UN & TG= nhau why negative? =>

Income Statement
CÔNG TY CP PXL 2016 2015
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7. Chi phí tài chính - 1743 -130698
-Trong đó: Chi phí lãi vay 375 965
8. Chi phí bán hàng ②
25866 15639
9. Chi phí quản lý doanh nghiệp 24682 29223
-

operating
10.Lợi nhuận thuần từ hoạt động kinh doanh
inc
146669 256905
30
 Income Statement
CÔNG TY CP PXL 2016 2015
10. Lợi nhuận thuần từ hoạt động kinh doanh 146669 256905
11. Thu nhập khác 274 1172
12. Chi phí khác 0 481
13. Lợi nhuận khác 274 691
14. Lợi nhuận từ công ty liên doanh, liên kết -13876 2739
15. Tổng lợi nhuận kế toán trước thuế 133068 260335
16. Chi phí thuế TNDN hiện hành 19601 28080
17. Lợi nhuận sau thuế TNDN 113467 232254
- Lợi ích cổ đông thiểu số 2297 602
Lợi nhuận công ty mẹ 111170 231653
Lãi cơ bản trên cổ phiếu 0,00173 0,00365
31
b) stock price is uncertain change in estimated
value
acrual
firm estimates loss value
in
of investment

provision for
debt
shortterm

non-cash (justestimation)
net inbased estimati
Manager can
change on

IG i7 financing ino/expenses
is
①i tai chinh ngat has (ie i vao

phiei), I gainfinancing activities

Vichip

di phi cint
ghistan ion
alpli ray
X
ophiche songrgiaskhoon clau-fisee
t chinh
 Cost of (good) sales
• Cost of (good) sales shows costs directly
related to producing the goods or services
being sold, such as manufacturing costs.
• Other costs such as administrative expenses,
research and development, and interest
expenses are not included in the cost of sales.
• COGS = Beginning Inventory + Purchases-
Ending Inventory
• Revenues- Cost of good sales= Gross Profit
Operating Expenses and operating income
• Operating Expenses: These are expenses from the
ordinary course of running the business that are not
directly related to producing the goods or services
being sold.
• Operating expenses include administrative expenses
and overhead, salaries, marketing costs, and research
and development expenses. The third type of
operating expense, depreciation and amortization, is
not an actual cash expense but represents an estimate
of the costs that arise from wear and tear or
obsolescence of the firm’s assets.
• Gross profit – Operating expenses= Operating income
 Income Statement
General Format

Revenue
- Cost of goods sold
Gross profit
+ Other recurring income
- Other recurring expense
Income from continuing operations
+/- Other non-recurring income/expense
Income before tax
- Taxes
Net income 34
 Example
NMH Company:
Revenue 4 bil
CoGS 3 bil
Other operating expense 0.5 bil
Interest expense 0.1 bil
Provision for income tax 0.12 bil
 Gross profit = ?

35
 cost
non cash expense
Depreciation
income statement $21 year
• Straight-line method Depreciation in
$2
Book value machine:reduce by anually
• Accelerated methods: the allocation of is greater
in earlier years. accumulated I
depreciation: annually inc
recorded
value
price sold book =
as

• Units-of-production method: the allocation of& from investing

(

tax
pay
cost corresponds to the actual use of an asset in a
particular period. Ex: Double- declining balance
method; double- declining method and then
change to straight-line method.
Affect a variety of financial ratios (fixed asset
turnover, asset turnover, operating profit margin,
operating return on assets, return on assets.
See more: CFA, L1, Financial Reporting and Analysis, p.469
 Problem
1. Suppose Global had an additional $1 million
depreciation expense in 2012. If Global’s tax
rate on pretax income is 26%, what would be
the impact of this expense on Global’s
earnings? How would it impact Global’s cash
balance at the end of the year?
non-cash cost
depreciation is
 Revenue

Cash cost

cash cost A +
2000
Non =

A =
-
1000
taxes
Inc
before
260
Taxes (26%) A
-

Net income A =
- 740

-
epreciation #we thre
o the tang I do
Cash
=

->

Application:maxe hair, ten song by

dfish hisphi khail has co 10,
hop Idoten ca than
 Example
Biophar purchases a medicine processing machinery for
550 mil đồng, estimated useful life 5 years. Effective
tax rate 30%. Revenue expected to be 600 mil per year,
expenses other than depreciation are 300 mil.
Calculate Biophar net income and profit margin if the
company depreciates the machinery using (1) the
straight-line method or (2) double declining balance
method or (3) double declining method changing to
straight-line method after 2 years.

38
① annually depreciation expense $110
=

②
-> has111
for

*
↑

NPV
large CF in
ending year => larger
hi nhan Khai had >vao i na sain, NPV bianh hg month It manh)
CF i nam
dains - => NPV
ting
 Example
Biophar purchases a medicine processing machinery for
550 mil dong, estimated useful life 5 years. Tax rate
30%. The company expects to produce 20000 units of
output (6000 in each of the first 2 years and 3000 in
the next 2 years and 2000 in the fifth year). Revenue
expected to be 600 mil per year, expenses other than
depreciation are 300 mil. Calculate Biophar profit
margin if the company depreciates the machinery
using the units of production method.

39
 Example
Example: Compared to straight-line depreciation,
accelerated depreciation method results in
·
A. Higher net income in later years of asset’s life.#
⑥
B. Higher operating cash flow in early years. T
C. Higher net income in early years. #

40
 Example
If the manager wants to report higher net income he can
A. Lengthen the estimate of asset’s life and record a loss
when selling the asset.
B. Lengthen the estimate of asset’s life and write up
value of the asset in a later year.

41
not inc measure
profitability of firm
=

Earnings per Share

 Simple capital structure: no potentially dilutive
securities  Basic EPS &

 Complex capital structure: contains potentially dilutive

securities  Diluted EPS

& N

#lof monthsending
4
(in tail
preferred shares
< common (pho
things
42
 Basic EPS
For the year ended 31 December 2016, NMH Corp. had net income
of $2,500,000. The company declared and paid $200,000 of
dividends on preferred stock. The company also had the following
common stock share information:
Shares outstanding on 1 January 2016 : 1,000,000
Shares issued on 1 April 2016: 200,000
Shares repurchased (treasury shares) on 1 October 2016: (100.000)
Shares outstanding on 31 December 2016: 1,100,000
1. What is the company’s weighted average number of shares
outstanding?
2. What is the company’s basic EPS?
 Diluted EPS fee
e
options mploy
canwhat
c alcino a
!

plen
⑫
a

-convertible band:band -> stock

stock A EPSU
= method to
#
of

price
individual investors evaluate share

⑪Binyuna E > prio

 Ex: Diluted EPS
• For the year ended December 2016, CML Corp
had net income of $1,750,000. The company
had an average of 500,000 shares of common
stock outstanding, 20,000 shares of
convertible preferred, and no other potentially
dilutive securities. Each share of preferred
pays a dividend of $10 per share, and each is
convertible into five shares of the company’s
common stock. Calculate the company’s basic
and diluted EPS.
Diluted EPS

46
 Inventory
 Recorded at the lower of either cost or fair value.
 COGS = Beginning Inventory + Purchases- Ending
Inventory

47
 Inventory
Inventory Systems
 Periodic inventory system.
 Perpetual inventory system (more common).
Valuation Methods
 FIFO.
 LIFO.
 Weighted Average Cost.
 Specific Identification.

48
 Inventory
Example: Use the data in the figure below to calculate
the CoGS in January and ending inventory on January
31 under FIFO, LIFO, and weighted average cost
methods in periodic and perpetual system.

Unit Price Value

Jan 1 (Beginning inventory) 5 $5 $25
Jan 7 purchase 10 $6 $60
Jan 15 sell 8 $9 $72
Jan 22 purchase 6 $7 $42
49
 The Relationship between BS and IS

 Assets = Liabilities + Equity

 Equity = Assets – Liabilities

 Equity = Contributed Capital + Retained Earnings

 Revenue – Expenses = Income/Loss

 Ending retained earnings = Beginning retained earnings

+ Net Income – Dividend

50
 The Relationship between BS and IS

Balance Sheet Income Statement Balance sheet

(at a point in time) (for a period of (at a point in time)
(billion đồng) time) (billion đồng) (billion đồng)

REE 31/12/2009 REE 31/12/2010 REE 31/12/2010

Assets 3345 Revenue 1828 Assets 4911

Liabilities 853 Expenses 1482 Liabilities 2000

Contributed Capital 2156 Net Income 346 Contributed Capital 2413

Retained Earnings 336 Dividends 184 Retained Earnings 498

51
 The Relationship between BS and IS
The Relationship between BS and IS

Changes (VND billion)

Assets 1566
Liabilities 1147
Contributed Capital 257
Retained Earnings 162

(Re: CFAI 2013, Volume 3, SS. 7)

52
 The Relationship between BS and IS

1566 = 1147 + 257 + 162

∆Assets = ∆Liabilities + ∆Con. Capital+ ∆Ret. Earn.
Or:
∆Assets = ∆Sources of Capital
And:
346 = 184 + 162
Net Income= Dividends + ∆ Ret. Earnings.

(Re: CFAI 2013, Volume 3, SS. 7)

53
The Relationship between BS and IS

The Relationship between BS and IS

Example: To reduce tax expense, Phương Xuân Corp.
reports a fake cost that wasn’t actually incurred. How
does this action affect the balance sheet?
A. Increases assets.
B. Decreases liabilities.
C. Increases equity.

54
 The Relationship between BS and IS
Income Statement and Balance Sheet

55
 Statement of Cash flows
• The income statement provides a measure of the firm’s
profit over a given time period. However, it does not
indicate the amount of cash the firm has generated.
 There are non-cash entries on the income statement,
such as depreciation and amortization.
 Certain uses of cash, such as the purchase of a
building or expenditures on inventory, are not reported
on the income statement.
• The statement of cash flows utilizes the information
from the income statement and balance sheet to
determine how much cash the firm has generated, and
how that cash has been allocated, during a set period.
• Net Cash Flow = Ending Cash – Beginning Cash
 Statement of Cash flows
• The cash flow statement provides information
about a company’s cash receipts and cash
payments during an accounting period.
• In addition to information about cash
generated (or, alternatively, cash used) in
operating activities, the cash flow statement
provides information about cash provided (or
used) in a company’s investing and financing
activities.
 Reading 3
CFA, Financial Reporting and Analysis, Level 1
• Reading 27, Understanding Cash flow statement
Financial statements and company’s activities

Types of Company’s Activities

 Operating activities.
 Investing activities.
 Financing activities.
Example: Which of the following is an operating
activities?
A. Borrow money from a bank.
B. Pay tax.
C. Buy shares of other companies.

59
 Statement of Cash flows
 CFO calculation: direct methods
o Add/Subtract cash receipts and cash payments from
operation, or
o Readjust revenue and cost for:
 Non-cash charges or income.
 Non-operation cash-flow.

60
 Statement of Cash flows
Cash Flow Statement
 CFO indirect calculation: adjust net income (or income
before tax) for
o Non-cash income (-), non-cash charges (+).
o Non-operation income or charges.

61
 Statement of Cash flows
Example: PXL Company
Income Statement 2016
1.Sales 100.0
2.Cost of Good Sold 52.0
3.Gross Profit (1)-(2) 48.0
4.Interest Expense 0.5
5.Operating Profit 47.5
6.Other income (sales of land) 10.0
7.Earnings before Tax 57.5
8.Tax 20.0
9.Net Income 37.5
62
 Statement of Cash flows
Balance Sheet
Assets 2016 2015 Liabilities and Equity 2016 2015
1.Cash 33 9 6. Trade payables 9 5
2.Receivables 10 9 7. Staff payables 4.5 8
3.Inventories 5 7 8. Interest payables 3.5 3
4.Fixed assets 79 61 9.Tax payables 5 4
4.1.Cost 95 70 10.Long-term debts 21 11
4.2.Accum. Depr. (16) (9) 11.Deffered tax liabilities 20 15
5.Real Estates 35 40 12.Contributed Capital 40 50
13.Retained earnings 59 30
Total 162 126 Total 1162 126
63
 The Statement of Cash flows
Direct Method
CFO = Cash revenue – Cash cost
Cash revenue = Revenue- non-cash revenue= Revenue – change in
receivables = 100 – 1 = 99
- Cash cost= - CoGS+ depreciation - change in inventory
+ change in trade payables + change in staff payables
+ change in interest payables – interest expenses
+ change in DTL + change in tax payables– tax
= -52 + 7 + 2 + 4 – 3.5 + 0.5 – 0.5 + 5 + 1 – 20
= -56.5
Hence: CFO = 99 – 56.5 = 42.5 (VND billion) 64
 The Statement of Cash flows
Indirect Method
CFO = Net income+ Non-cash charges– non-cash revenue
–/+ Income / expenses from investment activities
Non-cash revenue = change in receivables= 1
Non-cash charges = + depreciation – change in in inventory + change in
trade payables + change in interest payables +
change in staff payables + change in DTL +
change in tax payables
= + 7 + 2 + 4 + 0.5 – 3.5 + 1 + 5 = 16
Income from investment activities = 10
CFO = 37.5 -1 + 16 – 10 = 42.5 (VND billion) 65
• CFO= Net income (after adjusting for Income / expenses
from investment activities) + depreciation– change in
inventory- change in receivables + change in payables= NI +
depreciation– Change in Net WC.

• NI= CFO + (Change in Net WC – depreciation)

NI = CFO+ Accruals

Net WC= Current assets- Current liabilities

Net WC= Inventories+ Receivables- Payables
Change WC= change in inventories+ change in receivables –
change in payables
Accruals-based earnings management
 Statement of Cash flows
Example: PXL Company (con’t)
CFI = - increase in non-current assets + income/expense from
sales of non-current assets
= - (95 – 70) + ( 40– 35) + 10 = -10 (VND billion)
CFF = + increase in debts – decrease in equity – dividend
= 10 – 10 – (net income – increase retained earnings)
= - 8.5 (VND billion)
Total cash flows
= CFO + CFI + CFF = 42.5 – 10 – 8.5 = 24 (VND billion)
67
 Evaluation of the sources and uses of Cash
• Evaluate where the major sources and uses of cash
flows are between operating, investing and financing
activities  Vary with the stage of firm growth
• Evaluate the primary determinants of operating cash
flow
• Evaluate the primary determinants of investing cash
flow.
• Evaluate the primary determinants of financing cash
flow.
 Determinants of operating cash flow
• What are the major determinants of operating
cash flow? Increases/decreases in receivables,
inventory, payables.
• The relationship between net income and
operating cash flow. Is operating cash flow
higher or lower than net income? Why?
Conservative or aggressive accounting
choices?
 Example
• Blue Bayou, a fictitious advertising company,
reported revenues of $50 million, total
expenses of $35 million, and net income of
$15 million in the most recent year. If
accounts receivable decreased by $12 million,
how much cash did the company receive from
customers?
A. $38 million.
B. $50 million.
C. $62 million.
 Example
• Orange Beverages Plc., a trading company of
tropical drinks, reported cost of goods sold for
the year of $100 million. Total assets increased by
$55 million, but inventory declined by $6 million.
Total liabilities increased by $45 million, but
accounts payable decreased by $2 million. How
much cash did the company pay to its suppliers
during the year?
A. $96 million.
C. $104 million.
C. $108 million.
 Free Cash-Flow to the Firm (FCFF)

FCFF = NI + NCC + Int(1 – t) – FCInv – WCInv

Where:
NI: Net income
NCC: Non-cash charges
Int: Interest expense
t: Tax rate
WCInv: Working capital investment
FCInv: Fixed capital investment

72
 Free Cash-Flow to the Firm (FCFF)
FCFF = NI + NCC – WCInv + Int(1 – t) – FCInv
= CFO + Int(1 – t) – FCInv
= EBIT*(1 – t) + NCC – FCInv – WCInv
If Depreciation is the only NCC:
FCFF = EBIT*(1 – t) + Dep– FCInv – WCInv
= EBITDA*(1 – t) + Dep*t – FCInv – WCInv

73
 Free Cash Flow to Equity (FCFE)

FCFE = FCFF – Int(1 – t) + Net Borrowings

= NI + NCC – FCInv – WCInv + Net Borrowings
= CFO – FCInv + Net Borrowings

74
 Example
CML Textile Company.

Income Statement 2012 (forecast) 2011

Revenue 300 250
CoGS 170 140
Gross profit 130 110
SG&A 35 30
EBIT 95 80
Interest 15 10
EBT 80 70
Tax (at 30%) 24 21
Net income 56 49
75
 Example
Balance Sheet
2012 2011 2012 2011
Cash 10 5 Payables 20 20
Receivables 30 15 Short-term debts 20 10
Inventory 40 30 Current liabilities 40 30
Current assets 80 50 Long-term debts 114 100
Non-current assets 400 300 Common stock 50 50

Accumulated Dep. (190) (140) Retained earnings 86 30

Total liabilities and

Total Assets 290 210 290 210
equity
76
 Empirical research
 Empirical researches shows that cash flows component
of earnings are more persistent than accrual
component.
 See more: Richardson, S. A., Sloan, S. G., Soliman, M. T. and Tuna, I. (2005),
“Accrual reliability, earnings persistence and stock prices”, Journal of Accounting
and Economics, Vol. 39, pp. 437-485

77
 Problem 1
• On 31 December 2009, a company issued a
£30,000 180-day note at 8 percent and used the
cash received to pay for inventory and issued
£110,000 long-term debt at 11 percent annually
and used the cash received to pay for new
equipment. Which of the following most
accurately reflects the combined effect of both
transactions on the company’s cash flows for the
year ended 31 December 2009 under IFRS? Cash
flows from:
A. operations are unchanged.
B. financing increase £110,000.
C. operations decrease £30,000.
 Problem 2
• A company recorded the following in Year 1:
• Proceeds from issuance of long-term debt: €300,000
• Purchase of equipment: €200,000
• Loss on sale of equipment: €70,000
• Proceeds from sale of equipment: €120,000
• Equity in earnings of affiliate€10,000
On the Year 1 statement of cash flows, the company
would report net cash flow from investing activities
closest to:
A. (€150,000).
B. (€80,000).
C. €200,000.
 Problem 3
• Copper, Inc., a fictitious brewery and
restaurant chain, reported a gain on the sale
of equipment of $12 million. In addition, the
company’s income statement shows
depreciation expense of $8 million and the
cash flow statement shows capital
expenditure of $15 million, all of which was
for the purchase of new equipment.
 Problem 3
• Using the above information from the
comparative balance sheets, how much cash
did the company receive from the equipment
sale?
Balance sheet item 12/31/2009 12/31/2010 Change
Equipment (Hist. cost) $100 million $109 million $9 million
Accumulated $30 million $36 million $6 million
depreciation-equipment
 Further reading
• Inventory: CFA L1, Vol3, p.170-174
• Depreciation: CFA L1, Vol3, p.175-178
• EPS: CFA L1, Vol3, p.186-194
• Cash flow statement: CFA L1, Vol3, p.266-312
 Financial Statement Analysis
• Compare the firm with itself by analyzing how
the firm has changed over time.
• Compare the firm to other similar firms using
a common set of financial ratios.
 Evaluate a firm’s ability to meet obligations.

 Evaluate a firm’s ability to growth.

 Assess management’s performance.

 Reading 3
Berk, Chapter2
• 2.6. Financial Statement Analysis
 CFA, Financial Reporting and Analysis, Level 1
 Reading 28  Common ratios in financial
analysis
 Financial Statement Analysis
 Common-Size Analysis
 Ratio Analysis
 Profitability Ratios
 Liquidity Ratios
 Working Capital Ratios
Interest Coverage Ratios
 Leverage Ratios
 Valuation Ratios
 III. RACommon-Size Analysis

 On the Balance sheet:

%Current assets= Current assets/ Total assets

 On the Income statement:

%CoGS = CoGS / Sales
Ví dụ
 Profitability Ratios
Measure the company’s ability to generate profits from
its resources (assets).
 Liquidity Ratios
• Measure the company’s ability to meet its
short-term obligations.
 Working
capital
Ratios
To gauge how
efficiently the
firm is utilizing
its net working
capital.
 Quiz
Assuming inflation and stable or increasing quantities of
inventory, compare LIFO to FIFO with regard to:
 Inventory turnover

91
 QUIZ
Example: Compared to FIFO, a firm that uses LIFO methods
will have (assume inflation environment):
A. Higher tax expense and lower net income because NI =
EBT – T.
B. Lower tax expense and higher net income because NI =
EBT – T.
C. Lower current ratio, higher debt-to-equity due to lower
inventory.
D. Higher inventory turnover, lower profit margins, cash
flows unchanged.
E. C and D are both correct.

92
 III. RATIO ANALYSIS
Liquidity: Cash Conversion Cycle

Cash Conversion Cycle

= days of inventory on hand
+ days of sales outstanding
- days of payables
 Cash Conversion Cycle

• Ref: Berk, Ch26, p.888

 Discussion
Please list industries (strategies) which tend to
have (lead to):
• High/low inventory days
• High/low receivable days
• High/low payable days
 Some industries
• Telecommunications
• Computer Hardware
• Beverages
• Airlines
• Internet Retail
• Restaurants
• Software
• Pharmaceuticals
• Grocery Stores
• Superstores
• Footwear
• Homebuilding
• Luxury Goods
• Constructions (bridge-building, road construction)
 Liquidity
 The level of liquidity needed differs from one
industry to another.
 To judge whether a company has adequate
liquidity:
Historical funding requirements
Current liquidity position
 Anticipated future funding needs, and options
for reducing funding needs or attracting
additional funds.
Interest Coverage Ratios
 Problem
 Please discuss the impact of an additional
depreciation expense on EBIT interest
coverage.
Leverage Ratios
 Valuation Ratios
Analysts use a number of ratios to gauge the market
value of the firm.
Operating Ratios
 III. RATIO ANALYSIS
Dupont Analysis
Net income
Return on equity =
Equity
Net income Sales Assets
= X X
Sales Assets Equity
III. RATIO ANALYSIS
ROE

Net Profit Margin Assets Turnover Financial Leverage

Gross profit Inventory

turnover D/E
margin

Receivables
Tax turnover Interest
coverage

Fixed-assets
Common-size turnover
income statement Debt payment
coverage…

Common-size
balance sheet
 Table 2.5
2009–2013 Financial
Statement Data and Stock
Price Datafor Mydeco
Corp.
Cash Flow Ratios- Performance ratios
Cash flow to revenue: CFO/Net Revenue
Cash return on assets: CFO/ Average total assets
Cash return on equity: CFO/ Average
shareholders’ equity
Cash to income: CFO/ Operating Income
Cash flow per share: (CFO- Preferred dividends)/
number of common shares outstanding
Ref: CFA, L1, Financial Reporting and Analysis, P.304
Cash Flow Ratios- Coverage Ratios
Debt coverage: CFO/Total Debt
Interest coverage: (CFO+ Interest Paid + Taxes
Paid)/Interest Paid
Reinvestment: CFO/Cash for long-term assets
Debt Payment: CFO/ Cash paid for long-term
debt repayment.
Dividend payment: CFO/dividends paid
Investing and financing: CFO/(Cash outflows for
investing and financing activities)
Ref: CFA, L1, Financial Reporting and Analysis, P.304
 Earnings management
 Dechow, Patricia M. and Douglas J. Skinner (2000). Earnings Management:
Reconciling the Views of Accounting Academics, Practitioners, and Regulators.
Accounting Horizons Vol. 14 No. 2: 235-250.
 Roychowdhury, Sugata (2006). Earnings management through Real Activities
Manupulation. Journal of Accounting and Economics 42: 335-370.
 Degeorge, Francois, Jayendu Patel, Rechard Zeckhauser (1999). Earnings
Management to Exceed Thresholds. Journal of Business Vol. 72 No. 1: 1-33.

109
• The end of Chapter 2