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Finance, Jorge Romero 3-724-749 Finanzas, Jorge Romero 3-724-749 -…
Finance
Financial Environment, Fundamental Principles and Concepts
Profitability ratio – risk
To determine the correct shape, or optimal level of current assets, management should take into account the interaction between profitability and risk.
Efficient Financial Markets
They are markets in which the securities of all assets and securities, at any time, fully reflect all available information.
Value of money over time
It serves as a means of exchange and in turn represents liquidity so it adapts to any process of change is any time
Money Features:
scarcity, transfer, durability, portability, divisibility, easy recognition, homogeneity, utility, stability in its value, beauty, malleability and incorruptibility.
Some species used as money were:
salt, tobacco and cocoa used by our Aborigines and livestock that was used by the Romans.
The Principle of Diversification
It indicates that companies must build sufficiently diversified portfolios of resources and knowledge capabilities, and developments on financial options.
Finance Basics
Financial management takes care of:
Maximizing the company's current value
Contribution to the development of the country's socio-economic environment,
Politics
Balance between profitability and risk.
Purpose of financial engineering
Set up the company's financial structure
Identify risks, opportunities, strengths and weaknesses
Select the sources of the company's financing
It allows to develop the integral planning of the company
Plan the company's financial situation
Define financial strategy
Aims to optimize the use of financial resources
Prevents and solves critical financial problems
It is the part of the economy that is responsible for studying the money and capital markets, the institutions and participants involved in them, the policies of resource capitalization and distribution of results
Economic and competitive environment: Value and efficiency.
Competitive environment
To survive, a company must meet the needs and desires of consumers better than competition does.
Value
Degree of utility or aptitude of things, to meet the needs or provide welfare or delight.
Economic environment
Factors affecting purchasing power and consumer spending patterns
Efficiency
Relationship between the current product and the potential product.
Financial direction and value creation
Agency theory
It analyzes the form of formal and informal contracts whereby one or more persons called "the principal" entrust another person called "the agent", the defense of their interests by delegating a certain decision-making power.
Agent-to-primary relationship
Who is the Agent?
It is that person or company that has as its activity the promotion of acts of commerce, that is, it offers the products or services of a principal entrepreneur and on 20 the latter.
Financial Objective and Agency Relationships
The main reasons for doing so are:
Although managers may have their own goals for the company, they must favor shareholders by maximizing the share price and consequently shareholder wealth.
If the stock market pays more for a stock from Company A than for a stock from Company B, company A is almost certainly better than company B.
Shareholders own the company and choose the management team that works for them.
Separation between property and control
The ownership of the company influences the competitiveness of the company, since it directly affects how the most important decisions are made.
For Galve y Salas (1992), the analysis of the ownership structure of the company can be carried out through the study of three main variables:
the institutional group that exercises that control.
the degree of concentration of the shareholding; And
the type of control over the company, which allows a certain composition of the shareholding;
Conflicts of interest in the company
They are mainly caused by the problems that arise in the wake of the economic crises in which we live and because of the lack of education, respect for our laws in labor matters.
Includes de facto disputes and rights contests:
Between employers and employees;
Employees to each other;
Between trade unions or inter-unions;
Between employers and employee unions;
Between the trade union entity and its affiliates;
Between employers, unions and employees with the state or administrative and judicial officials, in charge of the application of labor law.
Between employers, unions and employees with third-party employees.
Caracteristic
It overwhelms the purely particular interest, has social impact, it is really about conflicts between capital and work; essential elements of production.
Conflicts originate for several reasons such as:
Existence of different or complementary interests, and limited possibilities for your satisfaction.
Taking extreme positions.
Misinterpretations.
Considering only one point of view or one way of perceiving conflict.
Inability to acknowledge the fact that he's not right.
Inability to put yourself in the place of others.
Conflictos Económicos o de Intereses
when it pursues or aims at creating new working conditions or modifying existing ones.
Maximizing net present value
they have a clear objective, "maximizing wealth" through profits, this fact under current conditions, must refocus on a criterion of "maximizing wealth" and creating "business value".
Profitability and risk in the company
It is said that the higher the risk, the higher the profitability; this is based on the administration of the Working Capital at the point that the profitability is calculated by profit after expenditure against the given risk.
Two are therefore the functions performed by the Net Working Capital: one, economic; another, financial.
Key points to reflect on
Nature of the company
Asset capacity
Financing costs
Discount rate
It is used to calculate the present value of future cash flows; i.e. the expected return after the investment has been made.
The basic financial objective
Financial management objective
Get the funds and financial resources
Proper management of funds and financial resources
Targeting and applying them correctly to the productive sectors
Manage working capital, manage investments, manage results, present and interpret financial information.
Make wise decisions
Maximize profits
Preparing to get more funds and use them when needed
Basic financial decisions
Indebtedness decision
Logically it is better to invest at a higher rate, opportunity interest rate, than at a lower rate that would result from investing by paying off the debt that is contracted at a rate
Financial Leverage Theory
Again in theory, borrowing could become one hundred percent if the premise of positive marginality is met, which is to produce money more than it costs.
Analysis of investment decision
The ultimate goal of Technical Analysis is to make the investment decision at the most appropriate time, and for this the basic tool used is the "chart" or chart.
Capital Cost
It is the weighted average cost of the company's funding sources.
The basic components of the cost of capital are:
expected inflation, and
risk. The first two form the temporary value of money.
Interest rate
Net present value and capital budget
Net present value method:
Present value of future returns discounted at the appropriate capital cost, minus the cost of the investment.
Net present value method:
A dollar that is received immediately is preferable to a dollar received at a future date.
Optimal Financial Structure Theory
Optimal Financial Structure (EFO), i.e. a certain relationship between own and foreign resources that maximizes the value of the company to its shareholders, or equivalent, that minimizes the weighted average cost of capital.
Important decisions
Capital structure decisions (optimal debt/capitalization level)
Decisions regarding the valuation and selection of sources of financing (determination of the financial-fiscal cost of the company.)
Determination of the company's capital cost.
Definición de la política de retribución a los propietarios de la misma.
Net present value as a basic principle of finance
Net Present Value: The depreciated value of a future rental flow, taking into account the value of the money over time.
Decision to distribute profits
Procedimiento según el cual una empresa paga a todos sus trabajadores además de las tasas salariales convenientes de uso regular, sumas especiales de percepción en un tiempo determinado.
The investment decision
Investment-associated fund flows
Amount and time of investments, amount and time of return
Investment risk
Return rate required for investments
Foundation for investment decision
Maximizing profits vs. maximizing investment.
Administrator vs. shareholder
Analysis of the company and its trend
Analysis of financial condition and profitability.
Risk analysis in the company's business.
Financing policies
Financing decisions.
Dividend policy in practice
Profitable companies distribute dividends and most management teams see the decision to share dividends as very important.
Macroeconomic Fundamentals of Finance
The concept of net present value
The depreciated value of a future rental flow, taking into account the value of money over time.
The concept of risk
To talk about this situation in a financial context, it should be noted that each individual has an idea of what is the distribution of chances of return that he is facing.
Basic economic decisions
New Items
Recognition of the problem.
Definition of goals or objectives.
Recopilación de información.
Identification of feasible alternatives.
Choosing the criterion to judge the alternatives.
Construction of the interrelationship model.
Prediction of the results for each alternative.
Choosing the best alternative to achieve the goal.
Post-audit the results.
The concept of interest rates (real and nominal interest rates)
Tasa de interés nominal
It is the rate used by banks and that is traded in financial markets.
Expected real interest rate
It's what people expect to pay for their loans, or earn for their savings, after deducting expected inflation.
The functioning of financial markets.
Financial asset
is an intangible asset that we own and that has some exchange value.
Characteristics of Financial Assets
Liquidity
Cost effectiveness
Risk
Pricing processes.
This is an important economic process that sets the prices of capital goods at the capitalized or discounted value.
Financial system
is the institutional framework where bidders and fund claimants meet to carry out a transaction.
Fundamental analysis and technical analysis
Fundamental Analysis
In short, any information that may serve to try to predict the future behavior of the company is studied
Technical Analysis
Consider that the market provides the best possible information about the behavior of the stock.
Financial Markets Feature
The Financial Market is the place, mechanism or system in which any financial asset is purchased and sold.
Ranking financial markets
Financial market
Capital Market
Financial Markets Feature
Depth
Freedom
Amplitude
Flexibility
Transparency
Efficient markets hypothesis
Responding to any information that seems useful, they try to buy at low prices and sell at higher prices.
Company valuation
Métodos de valoración
Accounting methods
value in books, net asset adjustment value, replenishment value, and settlement value.
Profitability methods
The best known are the stock market value, multiples of similar firms and the discounted cash flow.
The role of company valuation
Make decisions about:
Acquisitions or sales of companies
Mergers
Establishment of sales agreements
Capitalization of a company
Valuation of intangible assets (trade fund)
Obtaining funding lines
Wealth valuations
Tax valuations
Stock trading
Heritage
Valuation methods based on stock exchange indices
With multiples, calculate the value from the market value of similar firms and with a common variable. For example, sales volume, utilities, or units.
Generalities about company valuation
Valuation is a process by which we try to assign value to things, that is, we try to determine the degree of usefulness that it will bring to its users or owners.
Jorge Romero 3-724-749 Finanzas
Jorge Romero 3-724-749