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MindMap Gallery Chapter 9 Corporate Investment and Financing Decisions and MA and Reorganization (Intermediate Economist's Notes on Professional Knowledge and Practice of Business Administration)
Chapter 9 Corporate Investment and Financing Decisions and MA and Reorganization (Intermediate Economist's Notes on Professional Knowledge and Practice of Business Administration)
The content comes from the official textbook for intermediate economists "Professional Knowledge and Practice of Business Administration" (2024). I spent almost a month organizing the notes and straightening out the logical relationships (mainly referring to Teacher Zheng Wei from Yun Private School and Teacher Sun Jing from Global). I spent two days reviewing before the exam. I didn't study the set questions because I didn't have enough time. I just studied based on my own study habits. It took me two and a half months to read the two official textbooks: Economic Fundamentals and Business Administration. Business Administration came last. When I finished reading, there were only 7 days left before the exam. I spent two days writing down my notes before the exam. Go through it again (about 20 hours, you must be at full strength), and all the questions you will encounter in the exam will be included in your notes! ! But there were several questions that I didn’t remember well, which was so uncomfortable! Give me two more days to review my notes, and I am confident that I can reach 130! It is recommended that students preparing for the exam can directly use this template as a basis and make appropriate adjustments based on next year's new textbook content. This can greatly save time (I have been typing on the computer almost every day for more than two months, and my eyes are almost blind. (very affected the learning status), this year’s teaching materials mainly changed in the company legal person part, and it is expected that there will not be much change next year. If conditions permit, it is recommended to cut the notes into several parts in A4 size and print them on one side so that they can be easily read. At the same time, make casual notes on the unprinted area on the other side. By the Way, all the notes did not draw coordinate diagrams. I am not very good at using a computer to draw curve diagrams. I printed them out and then drew them manually.
Edited at 2024-11-28 16:52:11
- cognitive behavioral therapy
CBT cognitive behavioral therapy, cognitive therapy, psychological counseling, CBT basic concept: ideas determine emotions, experience determines ideas, experience requires comparison to be meaningful, and there are individual differences in experience.
- perception
Psychological perception, perception is generated on the basis of sensation. It is the response of the human brain to the objective things and overall attributes that directly act on the sensory organs. The introduction is detailed, students in need can save it.
- 知覺
心理學知覺，知覺在感覺的基礎上產生它是人腦對直接作用於感覺器官的客觀事物，整體屬性的反應。介紹詳細，有需要的同學，可以收藏喲。
Chapter 9 Corporate Investment and Financing Decisions and MA and Reorganization (Intermediate Economist's Notes on Professional Knowledge and Practice of Business Administration)
- cognitive behavioral therapy
CBT cognitive behavioral therapy, cognitive therapy, psychological counseling, CBT basic concept: ideas determine emotions, experience determines ideas, experience requires comparison to be meaningful, and there are individual differences in experience.
- perception
Psychological perception, perception is generated on the basis of sensation. It is the response of the human brain to the objective things and overall attributes that directly act on the sensory organs. The introduction is detailed, students in need can save it.
- 知覺
心理學知覺，知覺在感覺的基礎上產生它是人腦對直接作用於感覺器官的客觀事物，整體屬性的反應。介紹詳細，有需要的同學，可以收藏喲。
- Recommended to you
- Outline
Chapter 10 E-commerce (Notes of Intermediate Economist Professional Knowledge and Practice of Business Administration)
Chapter 6 Logistics Management (Intermediate Economist's Business Management Professional Knowledge and Practice Notes)
Chapter 9 Corporate investment and financing decisions and mergers and acquisitions
Examination
The key chapters are also difficult. The score is 15 points or above. Case analysis is tested every year. You can choose 1 multiple choice and 5 single choices. You must do real questions.
Basic values of financial management
【Supplementary knowledge】
Compound interest: refers to the problem of calculating the regeneration interest of the previous period's interest, that is, the interest of the previous period is included in the principal of the next period, and the interest is calculated repeatedly, that is, "profit making" and "interest compounding"
Intermediate economist textbooks only cover compound interest calculations, not simple interest calculations!
time value of money concept
1. Time value of money: Also known as the time value of money, it refers to the value increased by investment and reinvestment of money over a certain period of time.
2. The principle of time value of money reveals the conversion relationship between funds at different points in time and is the basis for financial decision-making.
3. Expression form
①Relative number
That is: time value rate
It is the average capital profit rate or average rate of return after deducting risk rewards and inflation factors [Ventilation]
②Absolute number
That is: time value
It is the product of a certain amount of money and the time value rate
Generally speaking, interest rates and interests are used to represent the time value of money.
4. Calculation of time value of money
Usually calculated based on compound interest
Compound interest future value and present value of one-time payment
One-time payment: refers to a one-time payment (or collection) at a certain point in time, and a corresponding one-time collection (or payment) after a period of time.
Terminal value: also known as future value, refers to the value of a certain amount of cash now at a certain point in the future, also known as the sum of principal and interest.
Final value calculation
①Formula method: F=P×(1 r)ⁿ
②Coefficient method: F=P×final value coefficient of compound interest
Tip: Compound interest terminal value coefficient = (1 r)ⁿ
Present value: refers to the current value of a specific fund that will occur at a certain point in time in the future based on compound interest.
Present value calculation
①Formula method: P=F÷（1 r）ⁿ
②Coefficient method: P=F÷Compound interest present value coefficient
Future value and present value of annuity
Annuity: refers to a series of payments of the same amount received or paid at a certain equal time. It is a method of fund collection and payment [for example: a company leases a piece of equipment with an agreed lease term of 3 years and a rent of 20,000 yuan per year, then The three payments of 20,000 yuan in the past three years are the annuity]
[Example] Regular payment of social security fees, depreciation of fixed assets extracted using the straight-line method, equal payment of loans
[Judgment Criteria] Equal time and equal amounts, occurring in each period
postpay annuity
Also known as ordinary annuity, it is an annuity that occurs at the end of each period.
Future value of postpaid annuity: the sum of principal and interest in the last period, that is, the sum of compound interest future value of payments received and paid in each period
[Take 3 years as an example] After F = A (1 r)² A (1 r)¹ A (1 r)º]
Final value calculation
Tip: Sum of geometric series
①Formula method: after F=A×[(1 r)ⁿ-1]/r
② Coefficient method: after F = A × annuity future value coefficient
The present value of a postpaid annuity: refers to the sum of the compound interest present values of a series of equal payments at the end of each period.
[Take 3 years as an example] After P=A/(1 r)¹ A/(1 r)² A/(1 r)³
Present value calculation
Tip: It is also the sum of geometric series.
①Formula method: after P=A×[1-1/(1 r)ⁿ]/r
② Coefficient method: P = A × annuity present value coefficient
Pay annuity first
Also known as an immediate annuity, it refers to a series of equal payments received at the beginning of each period starting from the first period.
Future value of cash annuity: refers to the sum of compound interest future value of down payment in each period
[Take 3 years as an example] F first = A (1 r)³ A (1 r)² A (1 r)¹]
Compare postpaid annuity: F first = F last × (1 r)
That is: the future value of an annuity paid first is one more period of interest than the future value of an annuity paid later.
Final value calculation
①F first = F then × (1 r) [must master]
②On the basis of F, add 1 to the period and subtract 1 from the coefficient value [no need to master]
Present value of a cash annuity: refers to the sum of the compound interest present values of a series of equal payments at the beginning of each period
[Take 3 years as an example] P = A/(1 r)º A/(1 r)¹ A/(1 r)²
Compare post-pay annuity: P first = P last × (1 r)
That is: the present value of an annuity paid first is less than the first value of an annuity paid later, discounted by one period of interest.
Present value calculation
①P first = P then × (1 r) [must master]
② On the basis of P, the number of periods is reduced by 1 and the coefficient value is increased by 1 [no need to master]
deferred annuity
It refers to an annuity form in which there are no payments in the first few periods and equal payments in subsequent periods.
[Example] A person takes a loan and does not need to repay it for the first two years. Starting from the end of the third year, he must repay 1,000 yuan every year and pay it off in the seventh year. → The deferral period is 2 years and the occurrence period is 5 years
perpetuity
Refers to a postpaid annuity with an infinite term
Common perpetuities: ① Interest on indefinite bonds; ② Dividends on preferred stocks
Present value of a perpetuity
P perpetuity=A/r
Tip: Deferred annuities and perpetuities are both special forms of postpaid annuities.
risk values
1. Value at Risk: Also known as risk return and risk reward, it refers to the additional income that investors receive from investing at risk, which exceeds the time value of funds.
2. Value at risk Expression method
①Risk reward amount
②Risk reward rate
The greater the risk, the higher the risk-reward ratio
【expand】
Required rate of return on investment = Risk-free rate of return Risk rate of return
Risk-free rate of return, that is: time value of money
Generally speaking, the yield on government bonds can be regarded as the risk-free rate of return
3. Risk measurement of individual assets
Related to probability, that is, related to expected value, standard deviation, standard deviation rate, etc.
For example
① Determine the probability distribution
Questions are generally given
② Calculate expected rate of return
Find expected value (weighted average)
Expected rate of return of product A=0.3×60% 0.5×50% 0.2×20%=47%
Expected rate of return of product B=......=47%
③Calculate standard deviation
absolute value
A=√[(60%-47%)²×0.3 (50%-47%)²×0.5 (20%-47%)²×0.2]≈14.18%
B=......≈31.32%
④Calculate standard deviation rate
Relative value
V = standard deviation ÷ expected value
Tip
Expected values are the same → compare standard deviations
The larger the standard deviation, the greater the risk
Expected values are not the same → compare standard deviation rates
The larger the standard deviation rate, the greater the risk
4. Risk reward estimation
The standard deviation rate is not the risk reward rate!
On the basis of the standard deviation rate, a risk coefficient b needs to be introduced to calculate the risk return rate
Risk reward rate = risk reward coefficient × standard deviation rate
5. Summary
Required rate of return on investment = Risk-free rate of return (time value of money) Risk rate of return =Risk-free rate of return (time value of money) Risk-return coefficient × standard deviation rate
financing decisions
capital cost
1. Capital cost: refers to the price paid by an enterprise to raise funds and use capital. Capital here refers to the long-term capital raised by the enterprise.
long term capital
equity capital
long term bonds
long term borrowing
long term bonds
2. Capital cost is also the necessary remuneration or minimum remuneration required by investors
[If the bank loan interest rate is 10%, then the required rate of return is 10%]
3. Capital cost composition
capital costs
Recurring, such as interest or dividends
financing costs
One-time, such as: various handling fees
4. Capital cost types
individual cost of capital
comprehensive cost of capital
Usually expressed in relative numbers, that is, individual capital cost rate, comprehensive capital cost rate
individual capital cost rate
Individual capital cost rate = capital expense amount ÷ net financing amount
Long-term borrowing capital cost rate
Long-term borrowing capital cost rate = annual interest amount on borrowing × (1-corporate income tax rate)/ Amount of borrowed funds × (1-financing expense rate) [Popular understanding] = Annual interest on borrowing × (1-tax rate)/ Loan principal×(1-processing rate)
① It can be seen from the formula that long-term borrowing has a tax deduction effect, and the real capital expenditure is the income tax deducted!
② When financing costs are small, long-term borrowing capital cost rate = borrowing interest rate × (1-income tax rate)
long-term bond capital cost rate
Long-term bond capital cost rate = annual bond interest amount × (1-corporate income tax rate)/ Amount of bond financing × (1-financing expense rate) [Popular understanding] = annual interest × (1-tax rate)/ Issue price × (1-processing rate)
①Bonds have par price and issuance price (including: premium issuance, par price issuance, and discount issuance)
①Interest of bond = face price × annual coupon rate
Use face value!
②Net financing amount of bonds = issuance price × (1-processing rate)
Use the issue price!
③ Bond financing fees, that is, issuance fees, including application fees, registration fees, printing fees, listing fees, promotion fees, etc., cannot be ignored
④ Long-term bonds also have tax deduction effect!
equity capital cost rate
①Common shares
dividend discount model
Net financing amount of common stock = Σ[present value of dividends/(1 required rate of return on investment)]
That is, convert the dividends of each year to the present and find the sum of the present value
Fixed dividend (ie: preferred stock): Capital cost rate = fixed dividend/net financing amount
Fixed growth dividend: Capital cost rate = (first year dividend/net financing amount) fixed growth rate
capital assets Pricing model
The capital cost rate of common stock is the necessary rate of return on common stock investment
[Required test] Required rate of return for common stock investment = Risk-free rate of return Risk rate of return =Risk-free rate of return Risk coefficient × (market average rate of return-Risk-free rate of return)
②Preferred shares
Preferred stock dividends can be treated as perpetuities
Preferred stock capital cost rate = fixed dividend/net financing amount of preferred stock
Net financing amount of preferred shares = issuance price – issuance expenses
③Retained profits
The company's retained profits are formed from the company's after-tax profits (ie: net profits) and belong to equity capital
The capital cost of retained profits (i.e., retained earnings) is an opportunity cost (because this part of the money should have been distributed to shareholders, but was used for corporate development). The calculation method is basically the same as that of ordinary shares, except that financing costs are not considered.
Comprehensive capital cost rate
Namely: multiple financing methods [mostly 3 types in the exam]
Refers to the cost rate of all long-term capital of an enterprise. It is usually calculated as a weighted average of individual capital cost rates using the proportions of various long-term capitals as weights.
1. Determinants of cost rate
①Individual capital cost rate; ②Various capital structures (ie: proportion)
2. Calculation formula
Cost rate = A capital cost rate × A proportion B capital cost rate × B proportion C capital cost rate × C proportion
Tip: The question gives various individual capital cost rates
3. Capital cost rate is the basis for selecting financing methods, selecting capital structure and selecting additional financing plans. It is the economic standard for evaluating investment projects, comparing investment plans and making investment decisions. It can be used as the benchmark for the entire business performance of an enterprise.
【Common sense of life】
Capital cost rate: K long-term borrowings < K long-term bonds < K stocks
Leverage Theory
1. Leverage phenomenon: Due to the existence of specific expenses (such as fixed costs or fixed financial expenses), when a certain financial variable changes in a smaller range, another related financial variable changes in a larger range.
2. The degree of leverage can be described by the leverage coefficient. The greater the coefficient, the greater the change.
3. Operating leverage
Also known as operating leverage or operating leverage
Due to the existence of fixed costs, when sales (turnover) increase or decrease, earnings before interest and taxes (ie: gross profit) will increase or decrease more significantly [ie: change in sales → change in earnings before interest and taxes]
Earnings before interest and taxes = Total net profit - Interest amount - Income tax
[Review] Fixed costs → plant, equipment, machinery
①Leverage coefficient
Operating leverage coefficient = change rate of earnings before interest and taxes/change rate of sales
[Note] It is the rate of change, similar to the elastic coefficient!
②The larger the operating leverage coefficient, the greater the impact of the company's earnings before interest and taxes on changes in sales volume, and the greater the operating risk [positive]
4. Financial leverage
Also known as financing leverage
Due to the existence of fixed financing costs such as debt interest, the change in earnings per share (EPS) of ordinary shares is greater than the change in earnings before interest and taxes [i.e.: change in earnings before interest and taxes → change in earnings per share of ordinary shares]
①Leverage coefficient
Financial leverage coefficient = Change rate of earnings per share of common stock/Change rate of earnings before interest and taxes
②Variation formula
Financial leverage coefficient = Earnings before interest and tax / (Earnings before interest and tax - Annual interest on debt)
The annual interest amount on debt refers to 1 year’s interest
③The greater the financial leverage coefficient, the greater the financial financing income and the greater the financial risk [positive]
5.Total leverage
Refers to the joint effect of operating leverage and financial leverage, also known as joint leverage
①Leverage coefficient
Total leverage factor = operating leverage factor × financial leverage factor
②Meaning
The change rate of earnings per share of ordinary shares is equivalent to the multiple of the change rate of sales (turnover)
capital structure theory
Case analysis text questions
Capital structure: refers to the composition and proportional relationship of various sources of funds for an enterprise, the most important of which is the debt ratio
early capital structure theory
net income view
Since the debt capital cost rate is generally lower than the equity capital cost rate, the more debt capital a company has, the higher the debt capital ratio, the lower the comprehensive capital cost rate, and the greater the company's value.
[Disadvantages] Ignore financial risks. If the debt-to-capital ratio is high, the financial risks will be high. If the comprehensive capital cost rate is high, the company's value will decline.
net operating income point of view
The amount and proportion of debt capital have nothing to do with the value of the company. The real factor that determines the value of the company is the company's net operating income.
[Disadvantages] The company's comprehensive capital cost rate is not constant, and the company's net operating income will affect the company's value, but the company's value does not only depend on the net operating income. For example: many companies have negative net profits, but this does not affect their stock market value.
traditional view
Increasing debt capital will help increase the company's value, but the scale of debt capital must be appropriate. If a company is over-indebted, the combined cost of capital will rise and the company's value will decline.
MM capital theory
Proposition 1
Regardless of whether the company has debt capital, its value (the sum of the market values of common stock capital and long-term debt capital) is equal to the expected return amount (profit before interest and taxes) of all the company's assets based on the necessary rate of return (comprehensive capital) suitable for the company's risk level. cost rate) is discounted
That is: the value of the company will not be affected by the capital structure
Proposition 2
In the absence of corporate and personal income taxes, the value of a business with the same risks is not affected by liabilities and their extent.
Modified MM theory
The optimal capital structure of a company should be a balance between tax savings and the cost of financial crisis or bankruptcy caused by an increase in the proportion of debt to capital.
[Summary] Company value is not affected by capital structure (debt)
modern capital structure theory
①Agency cost theory
[Understand] When the company's equity, operating rights, and management rights are completely separated, an agency will appear, and the company will be completely operated by the manager. Since the default risk of corporate debt increases with the increase of financial leverage coefficient, the supervision cost of banks also increases, so the loan interest rate will be high, and this agency cost is ultimately borne by shareholders. Therefore, a high proportion of bonds in a company's capital structure will lead to reduced shareholder value.
[Conclusion] A moderate capital structure of debt capital will increase shareholder value
This theory is limited to the agency costs of debt
②Peck order theory
Financing sequence: internal financing > bond financing > equity financing
This theory holds that there is no obvious target capital structure
③Dynamic trade-off theory
[Theoretical premise] The company has an optimal capital structure and a suboptimal capital structure
[Content] Whether the sub-optimal capital structure should be adjusted to the optimal capital structure mainly depends on which one is less, the loss caused by the cost adjustment or the sub-optimal capital structure. [Two powers harm each other, whichever is less]
④Market Timing Theory
When a company's stock price is overvalued, a rational decision-maker should choose to issue additional shares; When a company's stock price is excessively undervalued, rational decision makers should buy back the stock.
【Tip】High stocks fall back
capital structure decisions
1. Capital structure decision: determine the optimal capital structure
2. Optimal capital structure: refers to the capital structure that enables an enterprise to minimize its expected comprehensive capital cost rate and maximize its value under moderate financial risks.
3.Method
capital cost comparison method
Calculate the comprehensive capital cost rates of different capital structures or financing portfolio options available, and use this as a standard to compare with each other to determine the best capital structure [whoever is the lowest, choose the one]
profit per share analysis method
Refers to the method of using the indifference point of profit per share to make capital structure decisions.
Profit per share indifference point: refers to the earnings before interest and tax point when the profit per share of ordinary shares is equal under two or more financing plans.
[Popular explanation] There is a special profit before interest and tax point in a company. No matter which financing plan is used, the profit represented by one stock is the same.
decision making rule
① Solve the indifference point X [(X - Annual interest on A long-term debt) × (1 - Income tax rate) - Preferred stock dividends]/Number of A common shares =[(X-B annual interest on long-term debt)×(1-income tax rate)-preferred stock dividend]/B number of common shares
② Actual profit before interest and tax > no difference point, choose fixed-remuneration financing method [Such as: bank loans, issuance of bonds or preferred shares]
③ Actual profit before interest and tax < indifference point, choose non-fixed financing method [For example: issuing common shares]
Tip: Big solid and small non-standard
The actual EBIT is greater than the indifference point, indicating that the company is making more money than expected. At this time, it is most appropriate to use loans to raise funds, and the excess profits can be used to issue more dividends. On the contrary, issue more stocks to avoid getting into trouble when you need to pay large debts
investment decision
fixed assets investment decision
[Understanding] When making fixed asset investment decisions, companies need to use specific indicators, including discount indicators and non-discount indicators, to analyze and evaluate the feasibility of the investment plan based on accurate estimates of cash flow.
1. Cash flow estimation
Cash flow in investment: refers to the collective term for various cash inflows, cash outflows and net cash flows caused by investments within a certain period of time
initial cash flow
Total is the cash outflow, expressed as a negative or parenthesized number
① Fixed asset investment amount
Factory buildings, machinery and equipment
②Amount of investment in current assets
Raw materials, work in progress, finished goods and cash
③Other investment expenses
Employee training fees, negotiation fees, registration fees, etc. related to long-term investment
④Income from price changes of original fixed assets
Tip: Three out and one in
operating cash flow
Net cash flow generated from production and operating activities [inflow-outflow]
process method
Net cash flow = operating cash inflow - operating cash outflow = annual operating income - cash costs - income tax
The cash cost does not include depreciation of fixed assets
Consequence approach
Net cash flow = net profit depreciation of fixed assets
Replenish
Straight-line depreciation of fixed assets = (original price - residual value) ÷ useful life
Net profit = (operating income - depreciation - cash cost) × (1 - income tax rate)
Income tax = (operating income - depreciation - cash cost) × income tax rate
Tip: Operating income - depreciation - cash cost = gross profit!
end cash flow
Refers to the cash flow that occurs when an investment project is completed
①Residual value income or price change income of fixed assets
② Recovery of funds originally advanced on various current assets
③ Income from price changes of land that has been discontinued
Tip
① Liquid assets appear in the initial stage and the final stage. How much is invested in the initial stage will be recovered at the end.
②Income tax only appears during the business stage
2. Financial feasibility evaluation indicators
non-discounted cash flow index
Refers to an indicator that does not consider the time value of money
①Investment payback period (static)
Refers to the time required to recover the initial investment, usually in years.
(1) The annual operating net cash flow (NCF) is equal
Payback period = original investment/annual NCF
(2) The annual operating net cash flow (NCF) is not equal
The investment payback period is determined based on the amount of investment that has not yet been recovered at the end of each year.
②Average rate of return
Refers to the average annual return on investment during the life cycle of the investment project
Average rate of return = average annual cash flow/initial investment × 100%
rule
Only options higher than the necessary rate of return are available
Choose the one with the highest average return among multiple mutually exclusive plans
discounted cash traffic indicators
Refers to an indicator that considers the time value of money [ie: 100,000 this year and 100,000 next year are not equal]
①Net present value
Refers to the annual net cash flow after the investment project is put into use, converted into the present value according to the capital cost rate or the rate of return required by the enterprise, and the balance after adding up and subtracting the initial investment
Net present value = total present value of future returns - initial investment
rule
The net present value is regular and adopted
Choose the option with the largest net present value among multiple mutually exclusive choice decisions
②Internal rate of return
Refers to the discount rate at which the net present value of an investment project equals zero.
Internal rate of return reflects the true rate of return of an investment project
rule
Internal rate of return ≥ enterprise capital cost rate or necessary rate of return, If so, the plan is accepted; otherwise, the plan is rejected.
③Profit Index
also known as profit index
Profitability index = total present value of future returns/present value of initial investment
Since the profit index is a relative number, it is helpful to compare investment plans with different initial investment amounts [for example, if you invest 1 yuan, some earn 1.2 yuan, and some earn 1.8 yuan, of course choose the 1.8 yuan plan]
rule
When there is only one alternative and the profit index ≥ 1, it should be adopted
Among the mutually exclusive choices of multiple plans, choose the one with the largest profit index
General rules
①Investment decisions are mainly based on discount indicators
② When there are multiple mutually exclusive plans and the conclusions drawn by the three discount indicators are inconsistent, in the absence of capital limits, the net present value will be used as the selection criterion.
3. Measurement and treatment methods of project risks
①Adjusted cash flow method
Adjust the uncertain cash flows to certain cash flows, and then use the risk-free rate of return as the discount rate to calculate the net present value
Calculation must be multiplied by a certain equivalent coefficient
Certainty equivalent coefficient: refers to the amount coefficient that an uncertain 1 yuan cash flow is equivalent to that definitely satisfies investors. The value is between 0 and 1. The farther the forward-term cash flow, the smaller the certain equivalent coefficient.
②Adjust discount rate method
Use higher discount rates for high-risk projects
long term equity investment decision
It refers to investing assets in the invested unit in the name of shareholders, obtaining corresponding shares, enjoying the rights and interests of the invested unit in proportion to the shares held, and bearing corresponding risks [Tencent loves long-term equity investment]
Long-term equity investment is an exchange behavior. It is another asset obtained by the company transferring assets to the invested unit. It is the assets (equity) obtained by the company that are accompanied by voting rights or even control rights.
risk
①Investment decision-making risks
Should I vote?
②Investment, operation and management risks
How to hold?
③Investment liquidation risk
When to quit?
Mergers and Acquisitions
Motives for mergers, acquisitions and restructuring
Enterprise restructuring: refers to the enterprise aiming to maintain and increase the value of capital, using asset restructuring, liability restructuring and property rights restructuring methods to optimize the enterprise's asset structure, liability structure and property rights structure, so as to make full use of existing resources and achieve optimal resource allocation.
motivation
objective cause
Refers to the motivations considered from the perspective of enterprise development itself
subjective motivation
Refers to business owners and managers considering their own interests
M&A and reorganization methods and effects
Acquisitions and Mergers
M&A = Acquisition Merger
acquisition
The purpose is to gain control of another business
The acquired business still exists!
merger
The merged enterprise will lose its legal person status
type
merger
A B=A
new merger
A B=C
M&A type
According to the nature of the business of both parties
vertical merger
Enterprises at different stages of production and sales of similar products (i.e. industrial chain integration)
horizontal merger
same industry
Mixed M&A
Irrelevant industries
Negotiate amicably
Goodwill M&A
Friendly consultation
hostile takeover
Forced mergers and acquisitions
By payment method
Debt-based mergers and acquisitions
Company A acquired 51% of the equity of Company B and at the same time helped Company B bear a debt of 10 million yuan
cash purchase merger
Cash to buy equity
Will not dilute the majority shareholder equity of the acquired company
Equity Transactions & Acquisitions
Exchange equity for equity or assets
Will dilute the majority shareholder equity of the acquired company
Payment depends on whether the assets of the acquired enterprise are used or not
leveraged buyout
Use the operating income from the assets of the acquired enterprise to pay the acquisition price or serve as a guarantee for such payment [For example: Mengniu acquired Red Star Dairy. Because it didn’t have enough money, it helped Red Star Dairy sell milk, and then used the operating income to acquire Red Star Dairy]
non-leveraged mergers and acquisitions
No need for the acquired company’s own funds or operating income
According to implementation
Merger and Acquisition Agreement
series of negotiations
Tender offer
Post a public offer
Secondary market mergers and acquisitions
Mergers and acquisitions through the secondary stock market
merger effect
①Achieve synergy effect
②Achieve strategic reorganization
③ Obtain special assets and channels
④Reduce agency costs
Contract costs, supervision costs, residual losses
Spin-offs and carve-outs
separate
Survival and separation
A=A B
Spun-off company A is a shareholder of spun-off company B
New establishment and division
A=B C
The spun-off company A was canceled according to law
spin off
Proportionally distribute the shares of the subsidiary to the shareholders of the parent company
[For example] Zhang San and Li Si own 60% and 40% of the shares of the parent company B respectively, and the parent company holds 100% of the shares of subsidiary A. The spin-off is to separate company A for independent operation, in which Zhang San and Li Si respectively hold A. 60% and 40% shares of the company
After the split, the shareholding structures of the two companies are the same (it is no longer a subsidiary-parent company relationship at this time)
distinguish
Spin-off listing: refers to a newly established spin-off company that publicly issues new shares and goes public, which is called a spin-off listing.
Spin-off of a listed company: refers to a listed company’s initial public offering and listing of shares on the securities market in the form of subsidiaries directly or indirectly controlled by a listed company or its reorganization and listing of part of its business or assets [for example: New Oriental spins off Oriental Selection and then Listed in Hong Kong]
Listed company spin-off
Spin-off conditions
①It has been listed in China for more than 3 years
② Profitable in the last 3 fiscal years
③ In the past three fiscal years, after deducting the net profits of the subsidiaries that are to be spun off based on equity interests, the cumulative net profits of shareholders shall not be less than RMB 600 million.
④ The net profit of the company to be spun-off in the consolidated statement of the most recent fiscal year shall not exceed 50% of the net profit attributable to the listed company, and the net assets of the company to be spun-off shall not exceed 30% of the net assets attributable to the listed company.
Listed companies shall not be split up if the following circumstances exist:
① The listed company itself has problems, such as funds and assets being seriously damaged
② The company or its shareholders or actual controllers have been subject to administrative penalties by the China Securities Regulatory Commission within the last 36 months.
③The company or its shareholders and actual controllers have been publicly condemned by the China Securities Regulatory Commission within the last 12 months
④ The company’s financial accounting report for the most recent year or period has been issued by a certified public accountant with a qualified opinion, negative opinion or disclaimer of opinion audit report [Financial statements are suspected to have problems]
⑤Directors and senior executives directly hold 10% of the equity of the company to be spun off
A subsidiary (company to be spun off) shall not be spun off if the following circumstances exist:
① The main business or assets are the stocks issued by the listed company and the investment of the raised funds in the last three fiscal years, except for the intended subsidiary that uses no more than 10% of the net assets of the raised funds in the last three fiscal years [raised funds within the past three years]
②The main business or assets were purchased by the listed company through major asset reorganization within the last three fiscal years [Purchased through reorganization within three years]
③The main business or assets are the main business or assets of the listed company when it first issued shares and went public [too close to the parent company’s business]
④Mainly engaged in financial business
⑤The directors and senior managers of the subsidiary directly hold more than 30% of the shares of the subsidiary to be spun off
Motives for spin-offs and spin-offs
Common sense~
Asset injection and asset replacement
Asset injection: refers to one party injecting assets on the company's books, which can be one or more items of current assets, fixed assets, intangible assets, and equity, into the other company at the appraised price or negotiated price.
If the other party pays cash
It means the realization of the assets of the asset injector
If the other party transfers the equity
Think that the asset injecting party will use assets to invest or make mergers and acquisitions
Asset swap: refers to a transaction in which assets are exchanged with each other within a certain period at an agreed price.
Debt-for-equity swap and debt-for-equity swap
Debt-for-equity swap: Refers to the act of creditors converting their legal claims against the company into capital contributions (subscription for shares) to increase the company's registered capital [creditors become shareholders]
[Example] Company A owes Zhang San 10 million, and Zhang San converts the 10 million debt into a capital contribution to Company A. Then Company A does not have to repay Zhang San’s debt, and at the same time, Company A’s registered capital increases by 10 million.
benefit
① It can enable the invested company to reduce its debt burden
② Give creditors the opportunity to recover all their investments through the listing of debt companies, equity transactions or stock buybacks
Debt-for-equity: refers to the debtor’s behavior of using the equity held by the debtor to pay off the debt it owes.
Two kinds Condition
①A will compensate the shares held by B to C, which means that the equity of company B changes hands.
②A compensates the shares held by B to B, which means that Company B repurchases the equity, and the shares repurchased by Company B should be canceled in accordance with the law [Total assets = liabilities owner's equity]
benefit
① Effectively improve the asset quality of creditor companies [accounts receivable decreased]
② Increase the level of earnings per share and return on net assets [because the repurchased stocks are cancelled, the number of shares and owner's equity are reduced, the denominator becomes smaller, and the fractional value becomes larger]
Business valuation
Value assessment: refers to the value judgment made by buyers and sellers on the target (business or equity or assets) [How much is company A worth? 】
Assessment method
income approach
Refers to the valuation method that capitalizes or discounts expected income to determine the value of the valuation object.
①Dividend discount method
For companies that issue stocks
Discount expected dividends to determine the value of the appraisal object
[Applicable] Valuation of partial equity value of shareholders lacking control rights
②Discounted cash flow method
free cash flow discount model
Equity free cash flow discount model
pure memory
In short, it is calculated by converting future cash flows to the present.
This method has the most rigorous model framework, but is more complex.
P/E ratio method
Price-to-earnings ratio: refers to the ratio of the price per share (or market capitalization) of a certain stock to earnings per share (or total net profit)
The value of the target company = total net profit of the company × standard price-earnings ratio
[Not applicable] Industries with strong cyclicality, such as pig farming
【Advantages】Simple and widely applicable
【shortcoming】 ①The standard price-to-earnings ratio is prone to divergence; ②Easily affected by accounting information; ③When the net profit is negative or other corporate and macro factors change significantly, the accuracy of the valuation will be affected; ④ Failure to consider important factors such as risk, growth, dividend payment, etc. Therefore, this method is a reference method
price to book ratio method
Price-to-book ratio: The ratio of market price per share to net assets per share
The value of the target company = total net assets of the company × standard price-to-book ratio
Price to Earnings Ratio to Earnings Growth Ratio Method PEG
Refers to dividing the company's price-to-earnings ratio by the company's compound earnings per share growth rate over the next three or five years.
PEG equals 1
Indicates that the valuation assigned to this stock by the market can fully reflect the growth potential of its future performance.
PEG greater than 1
Stocks are overvalued
PEG less than 1
Stocks are undervalued
price-to-sales ratio
Also known as price-to-revenue ratio
Price-to-sales ratio: refers to the ratio of stock market value to sales revenue (operating income)
The value of the target company = sales revenue (operating income) × standard price-to-sales ratio
[Advantages] It is also applicable when the net profit is negative and complements the price-earnings ratio method.
Tip: Questions such as standard price-earnings ratio, standard price-to-book ratio, and standard price-to-sales ratio are generally given, just multiply them.