1- 1 © Financial Management, Anton Miglo Financial Management 1 Lecture 1: Introduction Anton Miglo Fall 2015.

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© Financial Management, Anton Miglo

Financial Management 1

Lecture 1: Introduction

Anton Miglo

Fall 2015

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Organizational comments Blackboard: course outline, grades,

announcements, PPT slides Assignments Business cases: Golden State Canning Investment game: Stock Track Excel practice and exercises Class participation

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Mini-case that will be used in this class

You have been searching for a business with growth possibilities that you can own by yourself or with some partners, possibly members of your family. Recently, an old school classmate called to tell you that the family of a friend of hers was planning to sell a small canning and preserving business in northern California. The property consists of two small plants equipped for the canning of fruits and vegetables, located in a rural town near farms and orchards that supply the produce to be canned. The business, currently known as The Golden State Canning Company, Inc., has been managed by Richard Cota and owned by Mr. Cota and his wife. At age 58, Mr. Cota plans to retire and none of his children or their spouses wants to run the business. Though you have no experience with food processing, your friend suggests that you have a look at Golden State. She believes there are expansion possibilities, particularly in new product development and marketing.

See Introduction Video from the website

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Investment game

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Some topics covered in the course Introduction Financial Markets and Introduction to Stock Track Game Introduction to Financial Analysis and Financial Ratios Investment Decisions Basics of Risk Portfolios and Diversification Cash Management and Working Capital Management Introduction to Cost of Capital and Capital Structure Introduction to Real Estate Investment and Finance International Aspects of Financial Management

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Lecture 1:

Finance and other branches of business Money and finance Types of business organization Financial decisions and organizational chart Financial information versus accounting

reports Introduction to Excel Additional readings: coursepack intro, video

intro

Topics Covered

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Finance and other branches of business

Finance and Marketing Finance and Human Resources Management Finance and General Business

Now a little more challenging….

Finance and Accounting

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Checkpoint

For each of the following activities determine their type (accounting, finance or general management): Preparing budgets for future investment

projects Preparing financial statements Making decisions about firm’s strategy

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Money and Finance

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Forms of Business OrganizationSole proprietorship

Partnership Corporation

Ease of formation/termination

Easy Relatively Easy Complex

Owners liability Unlimited Usually unlimited Limited

Separate legal entity

No Yes

Degree of control Complete Strong Separation of control and ownership

Taxes Based on personal Income taxes Corporate Income Tax & tax on dividends

Transfer of ownership

Limited Requires agreement of the partners

Unlimited

Opportunities to raise capital

Limited Large

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Checkpoint

Which form of business organization can be recommended for:

A) An accounting firm with several senior specialists and a small group of support staff

B) A house cleaning company with Mrs. Jones taking phone calls from customers on her pager and providing the most services and hiring friends for occasional help

C) An aluminum company with sales of 250 million and 50,000 employees

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Organization Chart

Board of Directors

CFO GM Production

Treasurer:raising capital

banking relationship

CEO

GM Marketing

Controller:Prepares financial statements

and budgets,

Internal accounting, taxes

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Financing decisions (do not confuse with financial decisions): Capital structure choice Debt/equity ratio Long-term debt/short-term debt

Capital budgeting (investment) decisions Projects’ choice To buy or to lease Assets’ choice

Financial Decisions

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Change in Google

The shuffle also looked to have the markings of Ruth Porat, who joined Google as its chief financial officer in March from Morgan Stanley. In Google's recent quarterly conference call, Porat repeatedly emphasized keeping expenses under control.

Porat will serve as the CFO of both Alphabet and Google. Page will serve as the CEO of the newly created holding company and Sundar

Pichai, a long-time Google executive who most recently served as the company's senior vice president of products, will head Google. The company's current directors will become directors of Alphabet.

Google co-founder Brin will become president of Alphabet, and Eric Schmidt will be executive chairman.

Analysts said the move, which was mainly about transparency and accountability, could be followed by more structural changes in the future.

"This may be step one of several steps," said Morningstar analyst Rick Summer.

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Checkpoint

Are the following capital budgeting decisions or financing decisions?

A) Sun Life issues new shares.

B) RIM purchases a license to own and operate an NHL team.

C) Encana decides to construct a pipeline to transport natural gas through the Rocky Mountains.

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The Balance Sheet (Accounting View)

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Cash 5.2

Receivable s 70.5

Inventory 13.2

Short-term

Investments 0

Fixed Assets 374.9

Intangible Assets 0

Total Assets 463.8

Bank loans 50.7Ac. Payable 17.4Other accrued expenses 5.2Long Term Bank Debt 70.0Capital 320.5 Additional capital 0Retained earnings 0

Liab&Shareholders’ Equity 463.8

ASSETS LIAB&EQUITY

Book Values!!!!

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The Financial View of the Firm

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Assets in place 463.8

Growth Assets 0

Total Assets 463.8

Debt 143.3

Equity 320.5

Liab&Shareholders’ Equity 463.8

ASSETS LIAB&EQUITY

Market Values!!!!

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Checkpoint

For shareholders the following information is usually more important:

A) Market values of firm’s assets/liabilities

B) Book values of firm’s assets/liabilities

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Income Statement Sales 842.0

Cost of Googs sold 735.5

EBITDA 106.5

Depreciation & Amortization 39.1

EBIT 67.4

Net interest expense 8.7

Income Before Taxes 58.7

Income Taxes 21.1

Net Income After Taxes 37.6

Cash Dividends 37.6

Retained earnings 0.00

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Checkpoint

Income statement is more like:

A) A snapshot (a picture of firm’s assets and liabilities on a given date)

B) A video (a history of firm’s earnings and expenses for a period of time)

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Financial Management: Current Issues

Sales drop Revenues loss Dividend cuts?!

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Excel practice

Introduction Creating simple formulas

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Try to put important variables in one place and use formulas instead of numbers

A B C D E

1Interest rate 10.50%

2 Investment 1000

3

4

5 Earnings 105 C1*C2

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Avoid using blank columns to accommodate cell “spillovers”

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Do not forget to name your spreadsheets

You can name sheets by clicking on the sheet tab.

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Simple formulas

A B C D E

1Interest rate 10.50%

2 Investment 1000

3

4

5 Earnings 105 C1*C2

1- 1 © Financial Management, Anton Miglo Financial Management 1 Lecture 1: Introduction Anton Miglo Fall 2015.

Documents

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