1 financiering jeroen e. ligterink [email protected]

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1 Financiering Jeroen E. Ligterink [email protected] www.fee.uva.nl/fm

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Page 1: 1 Financiering Jeroen E. Ligterink jeroenl@fee.uva.nl

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Financiering

Jeroen E. [email protected]

www.fee.uva.nl/fm

Page 2: 1 Financiering Jeroen E. Ligterink jeroenl@fee.uva.nl

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BMM 18: Financial Planning

Topics Covered

• What is Financial Planning?

• Financial Planning Models

• Example: Executive Cheese

• Planners Beware

• External Financing and Growth

Page 3: 1 Financiering Jeroen E. Ligterink jeroenl@fee.uva.nl

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Financial Planning

The Financial Planning Process Analyzing the investment and financing choices open to the firm.

Projecting the future consequences of current decisions.

Deciding which alternatives to undertake.

Measuring subsequent performance against the goals set forth in the financial plan.

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Financial Planning Models

Inputs Planning Model Outputs

Inputs - Current financial statements. Forecasts of key variables (such as sales or interest rates).

Planning Model - Equations specifying key relationships.

Outputs - Projected financial statements (pro forma). Financial ratios. Sources and uses of funds.

Page 5: 1 Financiering Jeroen E. Ligterink jeroenl@fee.uva.nl

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Financial Planning Models

Pro Formas - Projected or forecasted financial statements.

Percentage of Sales Model - Planning model in which sales forecasts are the driving variable and most other variables are proportional to sales.

Balancing Item - Variable that adjusts to maintain the consistency of a financial plan. Also called plug.

Page 6: 1 Financiering Jeroen E. Ligterink jeroenl@fee.uva.nl

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Executive Cheese

Current Income Statement and Balance Sheet

Sales $1,200

Costs 1,000

Net Income 200

Assets $2,000 Debt $ 800

Equity 1,200

Total $2,000 Total $2,000

Income Statement

Balance Sheet (YTD)

Page 7: 1 Financiering Jeroen E. Ligterink jeroenl@fee.uva.nl

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Executive Cheese

Pro forma Income Statement and Balance Sheet

Sales $1,320

Costs 1,100

Net Income 220

Assets $2,200 Debt $ 800

Equity 1,320

Total $2,200 Total $2,200

Income Statement

Balance Sheet

Page 8: 1 Financiering Jeroen E. Ligterink jeroenl@fee.uva.nl

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Executive Cheese

• Pro forma Balance Sheet with dividends fixed at $180 and debt used as the balance item.

Balance Sheet

Assets $2,200 Debt $ 960

Equity 1,240

Total $2,200 Total $2,200

Page 9: 1 Financiering Jeroen E. Ligterink jeroenl@fee.uva.nl

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Executive FruitIncome Statement

Revenue 2,000$

COGS 1,800 90% of sales

EBIT 200 Difference = 10% of sales

Interest 40 10% of debt at start of year

Earnings before taxes 160 EBIT-interest

State and federal tax 64 40% of (EBIT-interest)

Net income 96 EBIT-interest-taxes

Dividends 64 Payout ratio=2/3

Retained earnings 32 Net income - dividends

Balance Sheet

Assets

Net working capital 200 10% of sales

Fixed assets 800 40% of sales

Total assets 1,000 50% of sales

Liabilities and shareholders' equity

Long term debt 400

Shareholders' equity 600

Total Liab + Equity 1,000 Equals total assets

1999 Financial Statements

Page 10: 1 Financiering Jeroen E. Ligterink jeroenl@fee.uva.nl

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Executive Fruit2000 Pro Forma Statements

Income StatementRevenue 2,200$ 10% higherCOGS 1,980 10% higherEBIT 220 10% higherInterest 40 unchangedEarnings before taxes 180 EBIT-interestState and federal tax 72 40% of (EBIT-interest)Net income 108 EBIT-interest-taxesDividends 72 Payout ratio=2/3Retained earnings 36 Net income - dividends

Balance SheetAssets

Net working capital 220 10% higherFixed assets 880 10% higherTotal assets 1,100 10% higher

Liabilities and shareholders' equityLong term debt 400 Temp held fixedShareholders' equity 636 Increased by RETotal Liab + Equity 1,036 Sum of debt plus equity Required external financing 64

Page 11: 1 Financiering Jeroen E. Ligterink jeroenl@fee.uva.nl

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Planners Beware

• Percent of sales methods are not realistic because fixed costs exist.

• Most models generate accounting numbers not financial cash flows

• Adjustments must be made to consider these and other factors.

Page 12: 1 Financiering Jeroen E. Ligterink jeroenl@fee.uva.nl

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External Financing & Growth

$64,000

36,000-200,000)(.50=

earnings retained-cales in Increaseassets) (sales/net=financing external Required

Internal growth rate =retained earnings

assets

=retained earnings

net incomex

net income

equityx

equity

assets

Sustainable growth rate = plowback ratio x retrun on equity

Page 13: 1 Financiering Jeroen E. Ligterink jeroenl@fee.uva.nl

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BMM 19: Working capital management and short term planning• Working Capital

• Links Between Long-Term and Short-Term Financing

• Tracing Changes in Cash and Working Capital

• Cash Budgeting

• A Short-Term Financing Plan

• Sources of Short-Term Financing

• The Cost of Bank Loans

Page 14: 1 Financiering Jeroen E. Ligterink jeroenl@fee.uva.nl

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Cash Conversion Cycle

Period between firm’s payment for materials and collection on its sales.

Cash

Finished goodsinventory

ReceivablesRaw materials

inventory

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Cash conversion cycle

Inventory period =average inventory

annual COGS / 365

Receivables period =average accounts receivable

annual sales / 365

Payable period =average accounts payable

annual COGS / 365

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Example - Cash Conversion Cycle

Given the aggregate balance sheet and income statement for US Manufacturing firms, calculate the cash conversion cycle.

303304A/P

481471A/R3,518COGS

468470Inventory3,968Sales

'99qtr 1st of End'98qtr 1st End

SheetBalanceStatementIncome

Page 17: 1 Financiering Jeroen E. Ligterink jeroenl@fee.uva.nl

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Example - Cash Conversion Cycle Inventory period

days 8.48

3,518/365

468)/2+(470=

COGS/365 annual

inventory average=periodInventory

Page 18: 1 Financiering Jeroen E. Ligterink jeroenl@fee.uva.nl

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Example - Cash Conversion CycleReceivables period

days 35.6=

3,968/365

481)/2+(471=

sales/365 annual

receivable accounts average=period sReceivable

Page 19: 1 Financiering Jeroen E. Ligterink jeroenl@fee.uva.nl

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Example - Cash Conversion Cycle: Payable period

days 31.5=

365/518,3

303)/2+(304=

COGS/365 annual

payable accounts average=period Payable

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Cash Budgeting

Steps to preparing a cash budget

Step 1 - Forecast the sources of cash.

Step 2 - Forecast uses of cash.

Step 3 - Calculate whether the firm is facing a cash shortage or surplus.

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Sources of Short Term Financing

• Bank loans

• Commercial paper

• Secured loans

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Cost of Bank Loans

Simple Interest

Effective annual rate

Amount of loan X annual interest rate

number of periods in the year

)(1 + quoted annual interest raten

n- 1

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Cost of Bank Loans

Discount Interest

)(Face value of loan X 1 - quoted annual interest ratenumber of periods in the year

Page 24: 1 Financiering Jeroen E. Ligterink jeroenl@fee.uva.nl

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Minicase chapter 19

• Autodealer Capstan heeft in 2005 regeling uitgestelde betaling (koop nu betaal over een half jaar) ingevoerd. Het is nu einde eerste kwartaal 2006

• Wat zijn de consequenties van de kortingsaktie? Investering in netto werkkapitaal

• Hoe is het gefinancierd? Bancaire financiering

• Bank wil niet verder financieren, is dit juist bezien vanuit haar perspectief?