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ACCA F9 financial management partF partE
ACCA F9 financial management partF partE super detailed arrangement!
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ACCA F9 financial management partF partE
- bacteria
This is a mind map about bacteria, and its main contents include: overview, morphology, types, structure, reproduction, distribution, application, and expansion. The summary is comprehensive and meticulous, suitable as review materials.
- Plant asexual reproduction
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- Reproductive development of animals
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- Outline
business valuation
1. market efficiency
1.1. efficient market
1. allocative efficient(direct fund)
2. operational efficient (minimal transaction cost)
3. information processing efficiency (relevant and avilable information)
1.2. inefficient market
1.2.1. not always an accurate reflection of valuation
1.2.1.1. 1.weak form (only reflects past information)
1. future cannot be predicted by past
2. technical analysis is not working
3. the price is not always the intrinsic value of share, the fundamental analysis can be used to make abnormal gain by trading mispriced shares.
1.2.1.2. 2.semi form (both past and public information are reflected)
1.2.1.2.1. cannot use public information
1.2.1.2.2. Internal information (unpublished information is accessible to make gain)
1.2.1.3. 3. strong form efficiency (reflects all information including internal information, any information is correct and cannot be falsified, only the company's profitability can affect the stock price)
1. cannot use any information
2. insede dealing will be fined
3. by luck
4. The reason for the emergence of strong market: lack of internal regulation (lack of regulation)
2. Business valuation
2.1. Asset based
2.1.1. book value
2.1.1.1. Based on historical data (unlikely to be reliable)
2.1.2. NRV (lowest price accepted by seller)
2.1.2.1. ignore goodwill
2.1.3. replacement cost=Asset-liability (the buyer accepts the highest price)
2.1.3.1. ignore goodwill
2.1.3.2. going concern basis
2.1.4. limitations
2.1.4.1. do not value what is been purchased,investors buy the company not for the asset but for the cash flow can generate
2.1.4.2. ignore the intangible asset
2.2. income based (suitable for majority shareholder)
2.2.1. P/E
2.2.1.1. P/E*EPS*share amount
2.2.1.2. Suitable for unlisted companies and major shareholders because it can decide the devised and retention
2.2.2. limitation:
2.2.2.1. assume market is inefficient, use the industry average P/E ratio
2.2.2.2. historical data don't take account of the future growth and impact
2.2.2.3. relatively simple
2.2.3. Earning yield
2.2.3.1. If the growth rate is taken into account, it is: D0(1 g)/r-g
2.3. cash flow based(can be used for minor shareholder)
2.3.1. MV=D0/r (r is the required return)
2.3.2. D0(1 g)/r-g
2.3.3. Mixed (complex dividends, if there is fixed income first and then stable growth, dividend valuation can be used, but not vice versa)
2.3.4. suitable
2.3.4.1. minority shareholder
2.3.4.2. company is in maturity stage with stable cash flow
2.3.4.3. used for existing management
2.3.5. limitation of dividend valuation model
2.3.5.1. require return will change
2.3.5.2. some companies not pay the dividend
2.3.5.3. assume investors are rational
2.3.5.4. Ke is less than g, there will be negative
2.4. discounted cash flow basis (maximum value is equal to the PV of future cash flow)
2.4.1. suitable
2.4.1.1. Theoretically is the best valuation method, because PV is considered
2.4.1.2. Can be used to value part of a company
2.4.1.3. appropriate for valuing the cahs flow for the new ownership
2.4.2. limitation
2.4.2.1. hard to get the transformation
2.4.2.2. the discount rate, inflation may not be realistic
2.4.2.3. difficult in valuing company's worth beyond the period
2.4.2.4. difficult in choosing a time horizon
3. debt
3.1. irredeemable debt
3.1.1. MV=intrest/Kd
3.2. redeemable debt
3.2.1. MV= Intrest redemption value/Kd
3.2.1.1. It is equal to the discount of interest and the discount of principal (if there is premium, premium must be added. When calculating interest, it is the annuity coefficient, and the principal is the PV coefficient)
3.3. convertible debt
3.3.1. Now calculate the value of each bond that can be converted into stocks based on the growth rate of the stock (how many stocks can be exchanged for 100 * the market value of each stock after growth)
3.3.1.1. Comparing size, the calculation method is the same as redeemable, only the final principal recovered is different.
3.4. preference (as a perpetuity)
3.4.1. MV=dividend/k
Pay attention to whether it is cum (to be paid) or ex (has been paid). If it contains rights, the interest in the zeroth year must be added.
Part E Business finance
Source of finance
equity
AD
no obligation to pay dividends
don't be repaid
DIS
high cost
dilute the control
dividends are not tax deductible
preference share (between stocks and bonds)
When calculating gearing: debt/equity, it is calculated as liability but not equity.
AD
dividend is only optional
don't dilute the control
can be an alternative if there are limits to safe level of borrowing
method
right issue
AD:
simple and relatively cheap
do not require prior consent of shareholders(no need for shareholders’ consent)
Reduce gearing, increase equity, and decrease liability.
maintain the existing percentage ownership
shareholder has the flexibility to buy or not
Dis
sometimes indicate the problems of the company(always indicating a lack of money)
dilute control
TERP
=Total market capitalization/Total number of shares (old new)
value of a right=TERP-issue price
value of a right per existing share=TERP-Issue price/how many old shares are exchanged for how many new shares one for four is/4
share option
When shareholders increase their holdings of stocks, their wealth does not change
When shareholders sell, they gain value of a right and their wealth remains unchanged.
If shareholders do not increase their holdings, their wealth will decline
placing(private placement)
AD
cost lower because lower publicity
quicker
DIS
the regulator insists a restriction on selling(there is a closed period and you cannot sell)
dilution
the spread of shareholders may be more limited
public offering
It requires an investment underwriter (underwriter-investment bank), so it is more costly
stock exchange listing
private companies can be listed through IPO
AD
increase marketability of the company(increase the company's liquidity)
make it easier to make more equity finance from a large number of investors
Dis
becoming listed is expensive and time consuming
face a higher level of regulation
treat of takeover(hostile takeover)
VC (venture capital)
Unquoted company (unlisted company) but high potential, VC provides funds for 5-10 years expecting high returns
Islamic finance
riba
is forbidden, moeny can't make profit
murababa (trade credit)
purchase goods immediately but deferred payment(purchase goods immediately but deferred payment)
bank gain the mark up (the bank earns the price difference)
musharaka(VC)financing
Each party invests technology and capital, and distributes profits and losses based on the capital investment.
mudaraba (equity finance) da-big-equity, da-beat the rich, the rich are at a disadvantage
One person contributes capital (cannot participate in the operation), and the other person provides technology
Profits are distributed according to the contract, and losses are incurred only by the investor.
Suitable for private equity investment
Ijara (lease finance)
lessor is responsible for the major maintenance and insurance
lessee is responsible for the day to day
sukuk (debt finance)
Will give the equity (ownership) of the debt subject matter
Shorter than regular bonds
Islamic financeVS conventional finance
Islamic
requires risk and reward, economic benefit shared between the finance provider and user (shared risk and reward)
Riba is forbidden
finance instrument must have direct link with underlying tangible asset(must be linked to the subject matter)
must comply with the Shariah law
conventional
do not require sharing of risk and reward
intrest is the main form of return
financial instrument can be asset backed or aseet based
Finance for small and medium-sized entities(SMES)
difficulties
funding gap
maturity gap
Lack of medium-term funding
solving
business angles (angel investors)
Government grants
making share marketable (small and medium-sized sectors)
tax incentives
VCT (venture capital trust)
suupply chian finance
Cost of debts
cost of capital is company's view, required return is investor's view
WACC
Equity market value ratio * cost Debt market value ratio * cost
=(Ve/Ve Vd)*Ke (Vd/Ve Vd)*Kdat
bank loan
Kdat=bank intrest*(1-T)
irreedemable debt
kdat=intrest*(1-T)/mv
redeemable bonds
(Note P31)kdat=IRR
convertible
The same as redeemable, but the difference is that the value of each bond converted into stocks is judged, and the redemption amount is chosen to be higher.
preference share
kp=dividend/MV
cost of equity
Dividend valuation model P0=D0*(1 g)/re-g
Kd=(D0*（1 g）/p0) g
assumptions
investors only cash flow is dividend
dividend is paid perpetuity
growing at fixed rate
not suitable for zero dividend company
g = (how many years has it grown) -1 after the root sign of last dividend/first dividend (use this when given the year)
g=b*re (use this to give percentage)
re=return on equity, b=1-DPS/EPS(1-dividend payout ratio)
capital asset pricing model(CAPM)
risk
systematic risk: the risk that all the company in the same way
unsystematic risk:the risk that specific to individual companies
risk free of return:government debt
equity risk premium: the higher the risk, the higher the return
portfolio theory: reduce the risk by diversifying the investments
Systematic risk cannot be eliminated. CAPM assumes that everyone has a perfect portfolio, so only systemic risk is considered.
beta: a measure of systemic risk
ke=Risk-free rate of return The risk premium corresponding to systemic risk rate of return=risk free beta*(the rate of return of the entire market-risk free)
AD
consider only systematic risk
relationship between the required return and systematic risk in a quantitative way (quantitative way to study the relationship)
Better than DVM because systemic risks are taken into account
DIS
perfect market assumptions
well-diversified portfolio assumptions
beta is not always constant
project specified discount rate
business risk and financial risk
all equity no financial risk
asset beta/ungeared beta Equity beta/ geared beta
Ba=Ve/Ve Vd*（1-T）*Be
1. Deleveraging (asking for Ba) uses the company’s 2. Leveraging (asking for Be) uses the new project’s 3.CAPM
Industry changes, use Ve and Vd of the new industry to find the new Ba
all equity：Ba=Be
There is no need to deleverage the amount of money that has been given to the new Ba, and there is no need to increase the leverage of the amount of Be that has been given to the new project.
marginal cost and WACC
MCCis additional cost, the return must be compared with the marginal cost of capital and not the average cost. when the expected return higher than required can be accepted
capital structure
operation gearing=contribution/PBIT financial gearing=Debt/Equity
high gearing: the firm not only failing to make a return to shareholders, but also failing to meet the intreset cost obligation
Generally calculated using MV, preference is counted as reliability.
MV=quantity*unit price book value=share capital reserves
intrest cover ratio=PBIT/intrest payment
capital structure theory
MV=cash flow/WACC
Traditional structure believes that there is an optimal structure: test one by one
assumptions: business risk is constant, no taxes, no transaction costs
Non-linear Not linear WACC rises after offline, the company's market value rises first, and when the bond reaches its peak, the market value drops
MM without tax (linear relationship between cost of equity and financial risk)
Regardless of debt level, the company's MV will not change, WACC and Kd are two straight lines
assumption: perfect capital market, no cost of financial distress and liquidation
MM with tax
Kdat can be tax deductible, WACC decreases linearly, Kd remains unchanged, and the company’s market value increases linearly.
The more debt the better
Pecking order theory (financing prioritization theory): internal first, external first, debt first, equity first
minimize issue cost 2. information asymmetrical 3. minimize time and expense
Factors influence the choice of finance
1.cash flow 2. risk 3.availability and maturity 4 ease of issue
dividend policy
dividends and retained earnings
use retained earnings as the source of finance, shareholders will get fewer dividends
dividend theory
residual theory: dividend will only be paid when the project has a positive NPV
if there are positive NPV, paying dividends will reduce the potential shareholder wealth.
irrelevancy theory: MM believes that dividend is irrelevancy, and only profit affects corporate value (the MM theory is not mentioned in the big question)
dividend relevancy:dividend declared can be interpreted a signal from directors to shareholders about the future propects of the film
due to information asymmetry
a cut of dividend may be treated by investors as signaling that the future propects of the company is weak
Factos influence dividend policy
legal and other restrictions
in accordance with the statuory requirement
liquidity
profitability
the company needs to have enough retained earnings to finance
the need for finance
the level of financial risk
signaling effect
depend on the dividend expectations of the market
clientele effect
different investors have different needs relating to income or capital growth
liquidity preference
dividend policy
zero dividend
stable growth
well-running company and high growth rate
constant dividend
constant payout ratio
other approaches
bonus issue (scrip issue) bonus issue, no funds received
indicate confidence in future earning increases
As the number of shares increases, EPS will decrease
scrip dividends
You can choose cash or more shares
share repurchase
unsure the sustainability of a possible increase in the normal cash dividend
Use once in a while
The stock price will rise, and so will the gearing
prevent takeover (anti-hostile takeover)
Shareholders can only vote to reduce dividends but not to increase them
long-term
risk of default, might force the company liquidation
restrictive convenants
fixed charge or floating charge as collateral
intrest is tax deductible
cheaper than equity finance
don't dilute the control
fixed charge or floating charge as collateral(fixed floating charge)
short-term
overdraft
flexibility
cheapness
risk of reduction in overdraft limit
short-term loan
certainty(loan agreement)
cheapness (lower than overdraft)
Restrictive convenants
installment might be required
risk of repayment at very short notice