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5 Corporate Finance - Coggle Diagram

- - - - NPV
        
        Net present value净现金流。0时投入100，I时回121，能投吗？121折现到0时，-100+121/(1+r), r=10% => NPV $10 净赚10，可投。只要NPV>0。
      - IRR
        
        internal rate of return 内部收益率，0时投入100，I时回120，能投吗？设NPV=0，-100+120/(1+IRR)=0, IRR=20%。要求项目资金回报率R=10%，成本10%，回报20%，可投
      - 企业手上项目，少这个项目要不要投。多投哪一个项目？综合看，把钱投在哪个项目上，对企业所产生的价值最高，=资本运算。
    - - capital budgeting 项目运算
        
        process 四步想法，收集数据，分析，投后管理
        
        ⭐️种类替代项目，扩张项目。NPV<0项目只可能是强制项目mandatory 老板自己喜欢项目
        
        ⭐️⭐️五大原则要考虑机会成本 + 外部性好的外部性互补，坏的侵蚀已有项目。不要考虑沉没成本 + 融资成本。考虑税后现金流 + CF timing
        
        独立 NPV>0皆可投，mutually互斥项目，sequence 项目顺序先地再房。无限/有限资金
        
        ⭐️⭐️五大资本运算方法，NPV IRR PI 会考计算，优缺点。
        
        ⭐️PBP DPBP回收期，优缺点，没有考虑盈利能力，没考虑时间价值回收期最短的也会NPV<0
        
        ⭐️NPV profile
        
        ⭐️⭐️NPV/IRR conflict 原因3点
        
        ⭐️stock price impact
  - - - Financial manager
        Financial market
        Firm's operations
      - 1 Cash raised from investors
        2 Cash invested in firm
        3 Cash generated by operations
        4a Cash reinvested
        4b Cash returned to investors
      - CFO钱从哪里来,去资本市场上，帮助公司融资
        
        钱来了，到公司里面，怎么花/经营。长期资本运算，短期流动市场的管理。
        
        赚钱了怎么分，4a 作为留存收益留下来。4b作为分红，分出去。
    - - CB is the process of determining and selecting the most profitable long-term projects
        
        Generating ideas
        
        The most primary steps in the process
        
        Generally gather the related information from whole company or outside company
        
        Analyzing individual proposals
        
        Gathering the information -> Forecasting cash flow for each projects -> Evaluating project's profitability
        
        Planning the capital budget
        
        Fit the company's overall strategies
        
        Consider the project's timing
        
        Consider the financial and real resource issues as well
        
        Monitoring and post-auditing
        
        The difference resulted from the variation of actual return and predicted return should be explained
      - 资本运算的重要，如果项目投地好，可能公司接下来几年的重要收入，可能都会来自于这些项目。
        CB资本运算的一个流程，一般来说，公司想去做一个项目。它的具体流程大概分成4步。
        上市公司的真实案例，在创业板叫华谊兄弟，它是做娱乐起家，电视剧/电影发行人。资本运算就是对外投资，看看投什么项目。
        
        第一步，有想法。华谊兄弟与明星打交道的比较多。想找到新的增长点，能不能做游戏？然后在市场上看到一家公司，银汉科技做手机游戏，时空猎人。流水可以。市场上收集信息，具体项目
        
        第二步，市场上还有很多其他公司，还是收集信息。预测各种投资项目的现金流，然后去评估项目整体的盈利能力。分析。时空猎人每年能给银汉产生5千万的流水。银汉公司旗下，还在开发多款游戏。对华谊兄弟来说，有主营的现金流入，还有正在储备研发的游戏 = 现金流，盈利能力不错。
        
        第三步，在整体去做资本运算。公司的这个投资，是否与公司整体战略匹配？资本市场认为比较匹配。华谊兄弟的公告是，打通娱乐的全产业链。娱乐+手机行业打通。比如说华谊兄弟有部电影非常卖座，那么有手机游戏公司可做成IP游戏。反过来，如果有一款游戏卖地特别好，可以把游戏翻拍，做成一部电影。=收购一家手机游戏公司，对大娱乐板块overall strategies很有帮助。华谊兄弟一出这个公告，华谊连拉3个涨停板，资本市场很买单。电影微微一笑很倾城电视剧，从游戏上改编过来的。2 还要看现金流的具体时间预测，第一年，还是第二年进来的现金流。3 公司有没有具体去投资的资源。收购手机游戏公司，人家做地挺好的，那就要有钱。当时华谊兄弟手头上并没有多少钱。当时华谊雄体就做了private placement定向增发 = 有钱了，可做投资。
        
        第四步，投后管理，帮助它去成长，要对项目进行管理。资本运算的闭环流程。
  - - - Independent projects
        
        Cash flows are independent of each other
        
        Evaluated based on the projects' own profitability
        
        Mutually exclusive projects
        
        Cash flows compete directly with each other
        
        Only one of the project will be chosen
        
        Rank all alternatives and select the best one
        
        Project sequencing
        
        Projects are sequenced through time, so that investing in a project creates the option to invest in future projects
        
        Unlimited funs
        
        Company can raise the funds it wants for all profitable projects by paying the required rate of return
        
        Capital rationing
        
        Company has a limited amount of funds to invest
      - 独立项目，不影响投其他项目。 NPV>0 OR IRR >R 资金融资成本，就可以投。多个项目，都投。
        
        互斥项目，投了这个项目，就不能投其他项目。在众多项目中，求一个最好的。
        
        项目顺序，房地产，需要先买地，二盖楼卖楼，三楼旁边建超市周边。
        
        假设无限资金。100个独立项目，NPV>0 可都投
        
        有限资金，只有2个亿，100个项目，选组合+在一起NPV最高的。
  - - - NPV = CF0 + CF1/(1+k)^1 + CF2/(1+k)^2 +... +CFn/(1+k)^n
        
        definition
        
        PV of the future after tax cash flows minus the investment outlay
        
        NPV = total PV of future CFs - intial cash outlay
        
        Decision rule
        
        For independent projects
        
        If NPV >0, increase wealth, accept
        
        if NPV <0, decrease wealth, reject
        
        for mutually exclusive projects
        
        Choose the one with highest NPV
      - example
        Assume that the firm's cost of capital is 10% (use your calculator)
        Year (t) | 0 | 1 | 2 | 3 | 4
        Net cash flow | -4000 | 2000 | 1600 | 1200 | 400
        Discounted NCF | -4000 | 1818| 1322 | 902 | 273
        Correct Answer:
        NPV = -4000 + 2000/(1+10%)^1 + 1600/(1+10%)^2 + 1200/(1+10%)^3 + 400/(1+10%)^4
        = -4000 + 1818 + 1322 + 902 + 273 = 315
      - Advantage
        
        Shows the amount of gains as currency amount
        
        Positive NPV of project adds value to the firm (or to shareholders) rather than creditors (creditors only gain the interest whatever project bring benefits or losses)
        
        Realistic discount rate - opportunity cost of funds is included (the expected return of stockholders)
        
        Disadvantage
        
        Size of projects is ignored
    - - IRR, when NPV = 0
        CF0 + CF1/(1+IRR)^1 + CF2/(1+IRR)^2 +... +CFn/(1+IRR)^n
        
        Definition
        
        The discount rate that makes the present value of the future after tax cash flows equal investment outlay
        
        Decision rules
        
        For independent projects
        Invest if IRR ≥ the required rate of return
        reject if IRR ≤ the required rate of return
        
        for mutually exclusive projects
        choose the highest IRR
        
        Conflicting ranking results of mutually exclusive projects with NPV
      - Example
        A project's cash flow has been given below, calculate the IRR of the project
        Year (t) | 0 | 1 | 2 | 3 | 4
        Net cash flow | -4000 | 2000 | 1600 | 1200 | 400
        Correct Answer:
        By using financial calculator, the IRR of the project is 14.49%
      - Advantage
        
        Reflect the profitability (not reflect absolute amount of profit gain)
        
        comparable for projects with different size
        
        Disadvantage
        
        Assume the reinvestment rate is IRR
        
        No IRR & multiple IRR
        
        Conflicting ranking results of mutually exclusive projects with NPV
      - No IRR & multiple IRR
        
        Example
        Year(t) 0 1 2; Net cash flow 100 300 250
        
        No IRR, but a good investment. NPB is positive for all discount rates
        Year 0 1 2; Net cash flow -1k 5k -6k
        
        IRR=100% and IRR=200%. The NPV is negative for discount rate below 100%, positive between 100% and 200%, and then negative above 200%. The NPV reaches its highest value when the discount rate is 140%
    - - Project evaluation methods - PBP
        
        Payback period
        
        PBP = full years until until recovery + unrecovered cost at the beginning of last year / cash flow during the last year
        
        Definition
        
        the number of years required to recover the orignial cost of a project
        
        Example
        Year(t) 0 1 2 3 4
        Net cash flow -4k | 2k | 1.6k | 1.4k | 0.4k
        Cumulative NCF -4k | -2k | -0.4k | 800 | 1.2k
        Payback period = 2 + 400/1200 = 2.33 years
      - Decision rules
        
        Mutually exclusive
        Invest the one with shorter PBP
        互斥项目，挑回收期短的投。
        
        Independent project
        If project PBP < benchmark PBP, accept
        独立项目，求类似项目对比，更短于标准的投
      - Advantages
        
        Simple
        
        An indication of a project's risk and liquidity
        回收期越短，风险越低，流动性越高
        
        Disadvantages
        
        Ignores the time value of money
        名义金额计算，没考虑时间价值，不够精确
        
        Ignores cash flows after the payback period
        忽略了回收期以后的现金流
        
        Ignores the profitability or the project
        忽略了最终赚多少钱
      - 老头骑自行车，自行车坏了，修一修200块=投资项目成本。每年节约车费120 = 投资了这个项目的现金流入。2年不到，回收成本=划算。
        第一年负4k，123年回收4k，2k+1.6k+第三年只需要400。400/1200当年现金流=0.33. =2.33年回收成本
    - - Profitable index (PI)
        PI = PV of future cash flow / |CF0| = 1+NPV / |CF0|
        
        Definition
        
        the PV of a project's future cash flows divided by the initial investment
        
        Decision rule
        
        For independent projects
        If PI>1, accept
        If PI<1, reject
        
        For mutually exclusive projects
        Choose the one with highest PI
      - Advantage
        
        Measure profitability of the project
        
        Disadvantage
        
        Not reflect the absolute amount of profit gain of the project
      - Given the following cash flows for a capital project, calculate the NPV and IRR. The required rate of return is 8%
        Year 0 1 2 3 4 5
        Cash flow -50k | 15k | 15k | 20k | 10k | 5k
        NPV IRR A 1905 10.9%, B 1905 26.0% C 3379 10.9%
        Correct Answer: C
        
        NPV = -50k + 15k/1.08 + 15k/1.08^2 + 20k/1.08^3 + 10k/1.8^4 + 5k/1.08^5 = -50k + 13,888.89 + 12,860.08 + 15,876.64 + 7,350.30 + 3,402.92
        = -50k + 53,378.83 = 3,378.83
        
        The IRR, found with a financial calculator, is 10.88 percent
      - 未来所有现金流现值之和，除零时间点的CF0，如果PI>1 说明大于成本，有利可图。PI<1不投。
        
        PI = PVCF / CFF0 = (PVCF - CF0)+CF0 / CF0
        
        = NPV+CF0 / CF0 = NPV/CF0 +1
        
        PI >1 -> NPV >0 ;; PI<1 -> NPV<0
        NPV没有考虑初始投资规模，PI数值基于CF0=考虑了初始投资
    - - DPBP Definition +考虑折现现金流
        The number of years it takes for the cumulative discounted cash flows from a project to equal the original investment
        
        Decision rules
        
        For mutually exclusive projects
        Invest the one with shorter DPBP
        
        For independent project projects
        If project DPBP < benchmark DPBP, accept
      - Advantages
        
        An indication of a project's risk and liquidity
        
        Considers time value of money 考虑时间价值
        
        Disadvantages
        
        Ignores cash flows after the payback period. Also the drawback of PBP
      - Example
        Assume that the firm's cost of capital is 10% and the firm's maximum discounted payback period is 4 years
        Year(t) 0 1 2 3 4
        Net cash flow -4k | 2000 | 1600 | 1200 | 400
        Discounted NCF -4k | 1818 | 1322 | 902 | 273
        Cumulative NCF -4k | -2182 | -860 | 42 | 315
        Discounted payback = 2 + 860/902 = 2.95 years
    - - NPV is superior to IRR
        
        Advantages of NPV & IRR
        
        Based on Cash flows
        
        Considering Time value of money -- Opportunity cost
        
        Take into account the cash flows generated over the whole project life
        
        Disadvantages of IRR
        
        Conventioanl cash flows pattern VS Unconventional cash flow pattern
        
        Multiple IRRs or no IRR under unconventional CF
        
        Unrealistic reinvestment assumption
        
        Disadvantage of NPV
        
        Size of project ignored
        
        Key advantage of NPV: consistent with the goal of shareholders wealth maximization
      - NPV profiles
        
        The NPV profile shows a project's NPV graphed as a function of various discount rates
        Crossover Rate: NPV of each project are equal on this discount rate
        When NPV and IRR conflict: NPV dominates
        
        当我们在改变资金成本的时候，项目要求回报率在改变的时候，看NPV的变化情况。
        
        x横轴cost of capital 资金要求回报率，y纵轴NPV. 一般来说，成本上升的时候，NPV一定是下降的。
        
        NPV=0 横轴项目要求回报率=IRR
        
        两个项目相交 crossover rate NPVa=NPVb 会考计算。
        
        IRRa > IRRb, crossover 左边 NPVa<NPVb, 右边 a>b
        IRR conflict时，以NPV为主
        
        为什么b降地快，a降地慢。从绝对现金流来看(资金成本为0)，B800 > A600。大额CF的timing不同 (现金流5原则4，大额现金流越早越好/盈利能力越高。
        
        假设现金流 A 600 0 0 , B 0 0 800，产生速率的原因r^3>r
        r上=> NPVb = 800/(1+r)^3 降快数小 < r NPVa=600(/1+r) 数大
        
        哪些情况可能会导致NPV和IRR相conflict?
        
        crossover 两边，左NPVa大，右IRRa大，原因是IRRb降速大，大额现金流出现的时间。
        
        不同的PI假设，再投资假设。 NPV: cost of capital, IRR: IRR
        
        initial investment size 初始投资规模，投资成本。NPV会忽略，IRR会涉及。
    - - Location
        
        European countries use the payback period method as much as or more than NPV and IRR methods 美国搞出来，欧洲看不上，用回收期法。
        
        Size of the company
        
        Larger companies tended to prefer the NPV and IRR over the payback period 小公司回收期法
        
        Public and private
        
        Private companies used the payback period more often than did public ones 非上市，回收期
        
        Management education
        
        The higher the level of education (ie MBA), the more likely the company was to use discounted cash flow methods such as the NPV and IRR 高等教育用NPV IRR
  - - - example
        
        Example: Freitag Corporation is investing €600 million in distribution facilities. The present value of the future after the future after-tax cash flows is estimated to be €850 million. Freitag has 200 million outstanding shares with a current market price of €32 per share. This investment is new information, and it is independent of other expectations about the company. What should be the effect of the project on the value of the company and the stock price?
        Correct Answer:
        
        NPV = 850-600 = €250million
        
        New value = 32+250;/200 = €33.25
        
        CF五大原则，看税后现金流。投资600m物流，未来现金流PVCF850m, 850-600=250 = NPV 。现在公司在外发行200m股票数，现在的股票价格32一股，投资了这个公司后，股票价格是多少？赚了的250mCF，分散到每个股票 200m个股票，加上原来的每股股价250/200 + 32 = 33.25 每股变成33.25股价。
      - The relationship between NPV rule and the stock price
        
        In theory
        
        When the NPV is positive, Pstock is increased, vice versa
        
        ^price per share = NPV / outstanding common shares
        如果说NPV是正的，股票价格应该上升。上升幅度，看总的NPV是多少，再除以在外发行的股票数，看出对每股股票价格的影响。
    - - The impact of the projects' NPV on stock price is much complicated than it is illustrated previously
        
        The value of a firm = the value of its existing investments + NPV of its future investments
        
        The impact of the investments on stock price depends on whether the NPV of the project is higher or lower than initial expectation, but not the project's NPV
        
        For example, if a project has NPV of $3.5, it might be a positive signal for investor as the company may have other profitable investment opportunities. Thus the increase of the stock price may increase more than $3.5
        在真实世界当中，我投了一个项目，它对我股价的影响不好说，可能高，可能低。reality不考
      - 要考虑投资者的市场预期expectation，可能是500m NPV。这个时候会发生情况，虽然NPV是正的，但没有达到投资者预期，股票价格仍然可能会下跌
- - - - Receivable turnover 应收账款周转率
        
        The ratio of sales on credit to the average balance in accounts receivable
        
        A measure of how many times, on average, accounts receivable are created by credit sales and collected on during the fiscal period
        
        Receivables turnover = credit sales / average receivable
        公司里CFO知道赊账销售的比例，现销现金交易
        
        财务里 A/R turnover = Sales / A/R , 2=回收钱两次
        外部分析师不知道公司里的记账，只能知道利润表里的sales数字。有些公司不披露，只能拿sales作近似代替
      - Inventory turnover 存货周转率
        
        The ratio of the cost of goods sold to the balance in inventory
        
        A measure of how many times, on average, inventory is created or acquired and sold during the fiscal period
        
        Inventory turnover = COGS / average inventory
      - Payables turnover 应付周转率
        
        Provides a measure of how long it takes the company to pay its own suppliers
        
        Payable turnover = purchase / average trade payable
        
        purchases = inventory1 - inventory0 + COGS
      - Period = 365 / turnover
    - - If lack liquidity -> Financial distress -> Extreme: insolvency or bankruptcy
      - 经营周期Operating cycle: Inventory + A/R account receivable
        现金周期cash cycle：Inventory + A/R - A/P
        存货周转天数 + 应收账款周转天数 - 应付账款周转天数
    - - Inventory, Accounts Receivable, Accounts Payable, Cash
        current assets - current liabilities = net working capital
      - Working capital management is a concern regarding firm liquidity
        
        Drags on liquidity 收钱慢
        When receipts lag, drags on liquidity create pressure from the decreased available funds，应收账款收不回来 A/R uncollected
        
        Pull on liquidity 付钱快
        Disbursements are paid too quickly or trade credit availability is limited, requiring companies to expand fund before the sales fund comes to cover the liability 早给供应商
        运营资金的管理 = 管理企业短期的流动性
    - - Measure a company's ability to meet short-term obligations to creditors as they mature or come due
        
        The greater the current ratio or the quick ratios the greater the potential ability for the firm to cover current liabilities, and the higher a company's liquidity
        
        Current ratio = current asset / current liabilities
        
        Quick ratio = (cash + short-term marketable securities + receivables) / current liabilities 差了inventory
        
        Cash ratio = (cash + short-term marketable securities) / current liabilities 差了receivables
    - - Operating cycle
        A measure of the time needed to convert raw material into cash from a sale
        
        Operating cycle = days of inventory + days of receivables
      - Cash conversion cycle
        A measure of the time from paying suppliers for materials to collect cash from the subsequent sale of goods produced from these supplies
        
        Cash conversion cycle = days of inventory days of receivables days of payables
  - - - Cash短期收益率
        
        The money market yield is
        Rmm = (F-P / P)(360/t) = HPRx(360/t)
        
        The bond equivalent yield is
        BEY = (F-P /P)(365/t) = HPR x (365/t)
        
        The discount-basis yield (bank discount yield or BDY) is
        discount basis yield = (FV-P / FV)(360/T)
        = %discount x (360/t) 折扣率的年化RDB
        
        The percentage discount from face value is
        %discount = (FV-P / FV) , Quantitative method
        
        折扣率和持有期holding，区别是。折扣率分母是face value FV, 持有期hold Price当时购买的价格。
        Rmm holding period的年化360/t。BEY 365
      - Reasons to keep cash in hand
        
        Protection from unexpected cash needs
        
        Providing flexibility to take advantage of attractive opportunity
      - The size of cash at hand is influenced by
        
        The variation level of cash inflows and outflows
        
        The ability to access other liquidity sources
        
        The ability to borrow within a little lead time
    - - Calculating Average days of A/R based on Receivable aging schedule
        
        Making comparison with Historical trends & Other firms
      - Receivables Aging
        Days outstanding | March $ 000's | Weighed | Average collection days | Days x weight<31 days | 200 | 40% | 22 | 8.8
        31-60 days | 150 | 30% 44 | 13.2
        61-90 days | 100 | 20% | 74 | 14.8
        90 days | 50 | 10% | 135 | 13.5
        Weighted average collection period | 50.3 days
      - A/R有帐龄不考。不同账龄的大概权重算出来，根据企业平均的回收时间，根据企业历史数据，大致算出回款时间。太长可能真的收不回来了，太短对客户客户可能不买帐，不买货了。
    - - The inventory management needs a trade off: having sufficient inventory in hand for daily running, but not too much
        
        Calculating average days of inventory and inventory turnover ratios
        
        Make comparison
        
        Within the same industry and business strategies
        
        Example: grocery business -> high inventory turnover
        an auto parts firm -> low inventory turnover
        
        To ensure overall financial management operates effectively, the inventory management is essential in any business
    - - Trade credit: a delay of payment, with a discount for early payment
      - Typical terms on trade credit
        
        A discount is allowed if payment is received within a specified date
        
        Otherwise the full amount is due by a specified date
        
        For example: the term "2/10, net 30" means
        
        2% discount is available if the account is paid within 10 days
        
        Or the full amount is due in 30 days
        Cost of trade credit = (1+ discount/ 1-discount)^365/t -1
        
        Cost of trade create if paid on day 30:
        = (1+ 2%/1-2%)^365(30-10) -1
      - 供货商会给销售激励，早点还钱有折扣率。10折扣率2%0.98，60天内还钱时没有折扣付1。算10天-60天，有效年利率
        
        0.98->1 是50天变化，转化到一年EAR=年利率，
        0.98x(1+EAR)^50/365=1 , EAR = cost of trade credit
        
        2/10 net 45 时间点
        cost: 0.98(1+EAR)^35/365=1
      - Example: 2/20 net 60
        20 days $98 ->EAR-> 60 days $100
        Correct Answer:
        (1+ 2%/1-2%)^365/40 -1=EAR
        or 0.98x(1+EAR)^40/365 =1
        EAR = 20.24%
  - - - risk
        
        Credit risk
        The risk that a borrower will default on any types of debt by failing to make payments which it is obligated to do
        
        Market risk
        The risk that the value of a portfolio, either an investment portfolio or a trading portfolio, will decrease due to the change in value of the market risk factors
        
        Liquidity risk
        The risk that a given security or asset cannot be traded quickly enough in the market to prevent a loss (or make the required profit)
        
        Foreign exchange risk
        A financial risk posed by an exposure to unanticipated changes in the exchange rate between two currencies
    - - Short term deficit in cash balance can be managed by the following ways:
        
        from bank
        
        Sources of short-term funding from banks最主要的融资
        
        Lines of credit: for large corporations with limited reliability
        大公司更可能授信
        
        Uncommitted line of credit: bank reserves the right to refuse to honour any request for use of the line
        非承诺的银行授信，银行先给了2千万授信，真借钱时会再次评估，满足要求。
        
        Committed line of credit: bank charges a fee for making a commitment for short term lending, more reliable
        承诺的银行授信，除非发生了非常恶劣的财务恶化情况。基本上都会借钱。承诺不免费，一般需要付费
        
        A revolving line of credit: a commitment for longer term lending Han committed term lending
        循环授信，最可靠。借2千万，借1千万，还2千万，授信额度4千万，信用卡还了钱能继续使用，自动批额度。
        
        Pledge assets as collateral for bank borrowings抵押贷款，中小企业最常见方法。没有好信用，需要抵押/房产
        
        Banker's acceptances: mainly used by firms that export goods, who get guarantee from the buyer's bank银行承诺汇票
        
        Factoring: sale A/R to bank 保理业务，60时天到期的应收账款卖给银行，马上拿到90万
        
        non-bank sources
        
        Non-bank finance company: small weak borrowers with weak credits
        
        Commercial paper: large corporations and the ratio for short-term fund is the lowest 商业票据，信用融资工具，大公司发现的才会有人来买。
- - - - Definition
        
        Leverage is the use of fixed costs, operating or financial, in a company's structure. It increases the risk and potential return of a firm's earning and cash flows
        
        Operating leverage results from fixed operating cost
        
        Financial leverage results from the use of debt financing and its associated fixed costs
        
        使巧劲，四两拨千斤。用地好，高收益。
        财务的角度，杠杆=fixed costs, 发生了固定成本。
        
        经营杠杆，买了资产不生产，还有折旧费用。DOL
        
        地摊和店面买卖，店面赚更多也亏更多，经营固定成本房租/员工。放大收益/损失。
        
        sales% -> EBIT%改变，1%->2% 2倍杠杆
        
        Depreciation & Amortization 固定成本太高，需运营盈利，赚地多，不运营亏地多。
        
        财务杠杆，借钱还利息 DFL degree of FL
        
        一5千自由资金买卖，二借钱投资买卖，利息本金
        
        EBIT%->EPS%改变
        
        NI/F 股份数=EPS. EBIT固定成本=I利息。financial fixed cost DFL
        
        DTL degree of total liability = DOL x DFL
        
        复习表
        
        Revenue
        -COGS
        -SG&A
        -D&A
        EBIT
        -I
        EBT
        -Tax
        NI
      - Operating leverage
        
        Definition
        
        The degree of operating leverage can be regarded as the operating income elasticity, which is the percentage change in EBIT that results from a given percentage change in sales
        
        A quantitative measure of operating risk
        
        Degree of Operating Leverage DOL: Sales -> EBIT%
        Sales销量Q的改变，引起EBIT的改变。假设价格P不变，那么销量的变化影响E。
        
        定义式考点，EBIT引起sales变动，反了。DOL一定是Sales->E
        Sales改变引起EPS改变，是DTL total Leverage概念
        
        Equation
        
        DOL = percentage change in EBIT / percentage change in sales = (∆EBIT/EBIT) / (∆Q/Q) , elasticity
        
        DOL = Q(P-VC) / Q(P-VC)-FC
        = S-TVC / S-TVC-FC
        
        Sales - Total Variable Cost (- Fixed Cost)
        sales = PxQ，经营性杠杆，分母-经营性固定成本
        
        如果公司没有经营性成本，=没有折旧费用，DOL=1 =没有经营杠杆。x变动1 y变动1 线性无杠杆。
        
        DOL最小1，没有运营成本。<1是错误答案。
        
        Sales% X -> EBIT% y, slope= y/x
        EBIT/Sales -> ∆EBIT/EBIT / ∆Q/Q ->
        EBIT = PxQ - QxVC - FC (no Int Tax)
        ∆EBIT= Px∆Q - ∆QxVC (no FC, FC一直在，不被∆影响)
        ∆EBIT= ∆Q(P-VC), 除以∆Q/Q, ∆Q约掉，剩/1/Q=乘以Q => Q(P-VC)
        ∆EBIT/EBIT / ∆Q/Q = Q(P-VC) / Q(P-VC)-FC
        = S-TVC / S-TVC-FC
      - Financial leverage
        
        Definition
        
        degree of FL
        
        The sensitivity of the cash flows available to owners when operating income(EBIT) changes
        
        A quantitative measurement of financial risks
        
        Equation
        
        DFL = percentage change in EPS / percentage change in EBIT
        = (∆EPS/EPS) / (∆EBIT/EBIT)
        
        DFL = EBIT / EBIT-interest
        When interest is zero, DFL=1. There is no financial levearage
      - Total leverage
        
        Definition
        
        Degree of TL
        
        A measure of the sensitivity of net income to changes in the number of units produced and sold
        
        The ratio gives a combined effect on both operating leverage and financial leverage
        
        Equation
        
        DTL = DOL x DFL
        
        DTL = %∆EBIT/%∆sales x %∆EPS/%∆EBIT x %∆EPS/%∆sales
        
        DTL = Q(P-VC) / Q(P-VC)-FC-I
        = S-TVC / S-TVC-FC-I
    - - Business Risk
        
        Business risk is the risk associated with operating earnings (EBIT) and results from a combination of sales risk and operating risk
        
        Sales risk: the uncertainty with respect to the price and quantity of goods and services
        
        Operating risk: risk attributed to the operating cost structure, the greater the fixed costs relative to variable costs, the greater the operating risk
      - Financial Risk
        
        Financial risk is reflected in the greater variability of EPS compared to the variability of operating earnings (EBIT), as a result of using debt in the firm's capital structure
    - - The use of debt in a company's capital structure
        
        Reduces net income due to the added interest expense
        
        Increase the rate of change (risk) for ROE
      - Whether to use leverage depends on
        
        Profitability 借钱收益
        
        Cost of the funds >借钱成本时，且风险可控
  - - - Suppose the cost structure of company Impulse Robotics is shown in the table below
        Number of units sold | 100,000
        Sales price per unit | $10
        Variable cost per unit | $2
        Fixed operating costs | $500,000
        Fixed financing costs | $100,000
      - 销售额达到保成本的数量 Correct Answer:
        QBE = 500,000+100,000 / 10-2 = 75,000 units
        QOBE = 500,000 / 10-2 = 62,500 units
- - - - Corporate governance systems adopted are either shareholder theory or stakeholder theory
        
        Shareholder theory takes the view that most important responsibility of a company's managers is to maximize shareholder returns股东利益最大化，公司就是股东的
        
        Stakeholder theory broadens a company's focus beyond the interests of only its shareholders to its customers, suppliers, employees, and others who have an interest in the company利益相关者
      - Notwithstanding the system of corporate governance used, nearly all companies depend on contribution from a number of stakeholders for their long-term success
      - example
        
        Which statement regarding corporate governance is most accurate?
        A. Most countries have similar corporate governance regulations
        B. A single definition of corporate governance is widely accepted in practice
        C. Both shareholder theory and stakeholder theory consider the needs of a company's shareholders
        
        Correct answer: C
        
        Both shareholder and stakeholder theories consider the needs of shareholders, with the latter extending to a broader group of stakeholders
        
        A is incorrect because corporate governance regulations differ across countries, although there is a trend toward convergence
        
        B is incorrect because a universally accepted definition of corporate governance remain elusive
      - Corporate governance is the internal system including checking, balancing and inventing various parties, which could minimize and manage the conflicting interests between insiders and shareholders
    - - Shareholders
        
        Owner: residual interest
        
        Growth in corporate profitability to maximize a company's value
      - Creditors
        
        Providers of debt financing, entitled to predetermined interest and principal
        
        Stability of company's operation and performance
        
        Potential conflict with shareholders: shareholders prefer higher risk and return
      - Managers and employees
        
        Receive compensation, job promotion and working environment
        
        Interest in company's viability
        
        Potential conflict with shareholders (EG takeover offer)
      - Borad of directors
        
        Protect shareholder's interest, strategic direction, monitor performance
        
        Experienced individuals that fulfill responsibility toward shareholders and company
        
        Maintain good reputation
      - Suppliers
        
        Delivery goods to company on credit
        
        Wish to have long-term relationship with company
        
        Company's ability to generate cash flow to meet its financial obligations
      - Customers
        
        Ongoing support, with long-term relationship with the company
        
        Satisfy their needs with a given price and safety standards
        
        Company's stability
      - Governments / regulartors
        
        Protect the interest of general public, and ensure well-being of their nation's economies
        
        Comply with applicable laws (tax)
      - example
        
        Which stakeholders would likely realize the greatest benefit from a significant increase in the market value of the company?
        A. Creditors B. Customers C. Shareholders
        Correct Answer: C
        
        Shareholders are the owners of the company and have a residual claim on the assets of the company. Their wealth is directly related to the value of the company
        
        A is incorrect because creditors are usually not entitled to any additional cash flows if the company's value in crease
        
        B is incorrect because customers may have an interest in the company's stability and long-term viability, but they do not benefit directly from an increase in a company's value
    - - A principal hires an agent to perform on behalf of the principal
        
        Objectives
        
        Agent is expected to act in the best interest of the principal 代理人成本，股权/期权激励可降低。不能只发固定成本。
        
        Duty of manager
        
        Act in the best interests of shareholders by maximizing equity value
        
        Conflict
        
        Managers may seek to maximize their personal benefits to the detriment of shareholders' interests
      - Reasons for conflict interests between shareholder, manager and board
        
        Different risk tolerance for shareholders and managers
        
        Shareholder with diversified investment portfolios may have a relatively high risk tolerance
        
        Managers and directors are more risk averse to protect their employment status
        
        Managers can make strategic decision in favour of themselves due to "information asymmetry"
        
        Board is influenced by insiders
        
        Directors favor certain influential shareholders over other shareholders
      - Controlling and minority shareholder relationships
        
        Straight voting leaves minority shareholders less representation on the board
        
        Controlling shareholders' decision might have impact on minority shareholder's wealth
        
        EG Takeover transactions might give favour deal to controlling shareholders
        
        EG Related-party transactions provide controlling shareholders interest ahead of minority shareholders' interests, not for the company's best interests
        
        The multiple-class structure enables controlling shareholders to mitigate dilution of their voting power when new shares are issued
        保护中小股东是好的公司治理架构。可以从投票系统的角度。
        
        statutory 法定(多少股，投多少票) 2. cumulative 累计保中小(除了多少股，还看多少候选人)
      - Shareholder and creditor relationships
        Difference risk tolerance
        
        Shareholders would likely prefer riskier projects with a strong likelihood of higher return potential
        
        Creditors would likely prefer stable performance and lower risk activities
        股东希望风险大来获得更大利益。债权人想低风险稳定回报。
      - Other stakeholder conflicts
        
        Conflict between customers and shareholders
        
        EG A company decides to charge a high price for its products or reduces product safety features to reduce costs
        
        Conflict between customers and suppliers
        
        A company offers overly lenient credit terms to its customers, whereby the company's ability to repay suppliers on time may be affected
        
        Conflict between shareholders and governments or regulators
        
        EG Accounting policy to reduce tax burden
        
        EG Bank's shareholders prefer a lower equity capital base while regulators prefer a higher capital position
      - Example
        
        A controlling shareholder of XYZ Company owns 55% of XYZ's shares and the remaining shares are spread among a large group of shareholders. In this situation, conflicts of interest are most likely to arise between:
        A. shareholders and regulators
        B. the controlling shareholder and managers
        C. the controlling shareholder and minority shareholders
        
        Correct answer: C
        
        In this ownership structure, the controlling shareholder's power is likely more influential than that of minority shareholders. Thus, the controlling shareholder may be able to exploit the remaining shareholders
        
        Choices A and B are incorrect because the ownership structure in and off itself is unlikely to create material conflicts between shareholders and regulators or shareholders and managers
    - - Stakeholder management involves identifying, prioritizing, and understanding the interests of stakeholder groups, and on that basis managing relationship with it.
        In general
        
        Communication and active engagement
        
        Balacen their interest and limit the impact of conflicts
      - Corporate governance and stakeholder management frameworks
        
        Legal infrastructure defines rights established by laws
        
        The contractual infrastructure is shaped by the contractual arrangements entered
        
        The organizational infrastructure referent to internal systems, governance procedures, and practices adopted and controlled by the company in managing its stakeholder relationships
        
        Lastly, the governmental infrastructure refers to regulation imposed on companies
      - Mechanisms of shareholder management
        
        General Meeting
        
        AGM simple majority 每年年底股东大会Annual General Meeting
        
        Extraordinary general meeting - supermajority vote 特别股东大会 EGM 等不到年底了。3种
        
        amendment to company bylaws 修改公司章程
        
        M&A Merger&Acquisitions 面临兼并收购，立刻考虑收购方案
        
        Liquidating Asset 清算资产，重要资产，大资产
        
        Board of Director Mechanisms
        
        The Audit Function
        
        Reporting and Transparancy
        
        Policies on Related-Party Transactions
        
        Remuneration Policies
        
        Say on Pay (让股东决定薪酬)
        
        Employee Laws and Contracts
        
        Contractual Agreements with Customers and Suppliers
        
        Laws and Regulations
      - Example
        
        1 Which of the statements about extraordinary general meeting (EGMs) of shareholders is true?
        A. The appointment of external auditors occurs during the EGM
        B. A corporation provides an overview of corporate performance at the EGM
        C. An amendment to a corporation's bylaws typically occurs during the EGM
        
        1 Correct Answer: C
        
        An amendment to corporate bylaws would normally take place during an EGM which covers significant changes to a company, such as bylaw amendments
        
        A and B are incorrect because the appointment of external auditors and a corporate performance overview would typically take place during the AGM
        
        2 Which of the following is not typically used to protect creditors's rights?
        A. Proxy voting B. Collateral to secure debt obligations
        C. The imposition of a covenant to limit a company debt level
        
        2 Correct Answer: A
        
        Proxy voting is a practice adopted by shareholders, not creditors
        
        B and C are incorrect because both collateral and covenants are used by creditors to help mitigate the default risk of a company
        
        3 The component of stakeholder management in which a corporation has the most control is:
        A. legal infrastructure B. contractual infrasturcture
        C. governmental infrastructure
        
        Correct Answer: B
        
        A corporation's contractual infrastructure refers to the contractual arrangements between the corporation and stakeholders. As such, the corporation has control over these arrangements
        
        A is incorrect because the legal infrastructure is established by law, which is outside the corporation's own control
        
        C is incorrect because a corporate's governmental structure is largely imposed by regulators
    - - Composition of the board of directors
        
        Factors: company size, structure, and complexity of operations
        
        Corporate governance codes require: board include a diverse mix of expertise, background, and competencies qualifications
        
        One tier: comprises a mix of executive and non-executive directors
        
        Two tier: the supervisory and management boards are independent from each other (EX: separation of CEO and chairman)
        
        Staggered boards 分层董事会？
        
        Directors are typically divided into three classes that are elected separately in consecutive years- one class every year
        
        Purpose: limits their ability to affect a major change of control at the company
      - Functions and responsibilities of the board
        
        Directors' responsibilities are the duty of care and the duty of loyalty
        
        Board directors are elected by shareholders guide strategic direction and oversee management's performance
        
        Board ensures leadership continuity though succession planning for the CEO and other key executives
        
        Board delegates actives to managemet implement strategies
        
        Board evaluates performance align executive directors with long-term interests of the company
        
        Board ensures the effectiveness of the company's aduit and control systems
        
        Board adopts and implements proper corporate governance principles and complies with all applicable internal and external laws and regulations, including ethical standards
        
        Board ensures company has an appropriate enterprise risk management system in place, whereby risks are identified, mitigated, assessed, and managed appropriately
      - Board 好
        
        independent 独立，董事会监管管理层
        
        chairman&CEO 同个人？ X 董事会主席&管理层老大，监督职能缺失。前CEO？当过管理层关系好，难独立性。
        
        independent 独立董事，和管理层没关系，外部找的董事。大学教授，退休政府干部，其他公司高管。 Executive 执行董事，即是董事会成员，又是管理层高管。高级副总裁，执行管理层职位+董员。
        
        unrelated parity 最好没关系。上市公司会计师审计合伙人
        
        Experience / Skills 公司十年以下。太久和管理层太熟，影响独立性。。
        
        Professional 专业知识。某地董事会成员里必须要有一位财务背景。作决策时，很多要从财务角度出发。
  - - - 专业委员会，都必须是独董
        
        Audit committee 审计委员会
        
        Committee member independence
        
        Committee member qualification
        
        Independent auditor (internal & external)内外部审计
        
        Remuneration / compensation committee 薪酬委员会
        
        Committee member independece
        
        Appropriate executive compensation packages 给高管制定薪酬
        
        Reasonable option schemes
        
        Nominations committee 提名委员会
        
        Committee member independence
        
        Creating nomination procedures and polices
        
        Recruiting qualified board members
        
        Regularly reviewing performance, independence skills, and experience of existing board members
      - Governance committee
        
        Develop and oversee the implementation of the corporate governance code, the charters of the board and its committees, and the company's code of ethics and conflict of interest policy
        
        Reviews regularly, monitoring the implementation
        
        Recommends remedial actions
        
        Risk committeee
        
        Determines the risk policy, profile, and appetite of the company
        
        Establishes ERM and monitors
        
        Supervises the risk management functions in the company, receives regular reports, and reports on its findings and recommendations to the board
        
        Investment committee
        
        Reviews material investment opportunities proposed by management and considers their viability for the company
        
        Estabilishing and revising the investment strategy and policies of the company
      - Example
        
        A primary responsibility of a board's audit committee does not include the:
        A. proper application of account policies
        B. adoption of proper corporate governance
        C. recommendation of remuneration for the external auditors
        
        Correct Answer: B
        
        The adoption of proper corporate governance is the responsibility of a corporation's governance committee
        
        Both A and C are incorrect because proper application of accounting policies and the remuneration of external auditors fall under the domain the audit committee
    - - Market factors
        
        Shareholder engament involves a company's interactions with its shareholders
        
        Shareholder activism describes the efforts by shareholders to create a change within a corporation or modify a corporation's behavior
        
        Competitive dynamics can help align managerial interest with those of its stakeholders
      - Non-market factors
        
        Legal environment
        
        Common law system
        
        Civil law system
        
        The media
        
        The corporate governance industry
      - Market factors
        
        Shareholder engagement involves annual shareholder meeting and analyst calls, the scope of which was limited to financial and strategic matters
        
        In order to build support against short-term activity investors, count negative recommendations from proxy advisory firms, and receive greater support for management's position
        
        Shareholder activism describes strategies used by shareholders to attempt to compel a company to act in a desired manner 积极的股东主义
        买了大量股份，成大股东，要去修改战略方向，朝向对自己有利的方向。索罗斯对冲基金策略，量子基金，战役做空，狙击港币/泰铢/卢布。
        华尔街之狼原型，Carl Icahn管理基金规模大，去收购有问题公司大量股份。可以要求董事会提名权，然后在任何事情表决决策时有控制权，最后，一般来说股东不应该干涉日常经营管理战略方向。对公司转移到对自己有利。拆分航空公司变卖了，公司没了，自己赚了很多钱。
        
        Aim: Maximize shareholder value
        
        Manner
        
        Tactics as initiating proxy battles(fights), proposing shareholder resolutions
        
        Publicly raising awareness on issues of contention
        
        Shareholder derivative lawsuits (shareholders are against board or management, thinking that behaviours of them are not for benefits of the company and shareholders) eg hedge funds
        
        Competitive dynamics can help align managerial interests with those of its stakeholders
        
        Preservation of employment status vs against take-over. Eg staggered board, poison pill
      - Example
        
        Which of the following is true of shareholder activism?
        A. Shareholder activists rarely include hedge funds X在对冲基金里不少见。
        B. Regulators play a prominent role in shareholder activism 监管少存在
        C. A primary goal of shareholder activism is to increase shareholder value
        Correct Answer C
        
        Although the subject of shareholder .. may involve social and political issues, activist shareholders' primary motivation is to increase shareholder value
        
        A is incorrect because hedge funds commonly serve as shareholder activists
        
        B is incorrect because regulators play a prominent role in standard setting, not shareholder activism
      - Non-market factors
        
        Legal environment
        The key difference between two systems lies in the ability of a judge to create laws
        
        Civil law system, the role of judges is generally limited to rigidly applying the statues and codes to the specific case brought before the court
        
        Common law systems, laws are created both from statutes enacted by the legislative and by judges through judicial opinions
        
        The media
        
        Social media has become a powerful tool that stakeholders have increasingly used to protect their interests or enhance their influence on corporate matters
        
        The corporate governance industry
        
        External corporate governance services, outside experts to assist with corporate governance monitoring and proxy voting (proxies would be voted in the best interests of their clients)
    - - Risks of poor governance and stake holder management
        
        Weak control system 内控制度比较差
        
        In a company with weak control systems or inefficient monitoring tools, such as poor audit procedures or insufficient scrutiny by the board, one stakeholder group may benefit at the expense of the company to other stakeholders
        
        Ineffective decision making 决策不有效
        
        In the absence of sufficient monitoring tools, managers have an opportunity to make decisions that benefit themselves relative to the company or shareholders
      - Legal, regulatory, and reputational 法律法规有问题
        
        Compliance weaknesses in the implementation of regulatory requirements or lack of proper reporting practices may expose the company to legal, regulatory, or repetitional risks
        
        Default and bankruptcy risks 可能会破产/违约
        
        Poor corporate governance, including weak management of creditors' interests can affect the company's financial position and may hinder its ability to honour its debt obligations
    - - Operational efficiency 高经营效率
        
        When balanced with adequate internal control mechanisms, the governance structure can ensure that corporate decision and activities are properly monitored and controlled to mitigate risk and help improve the operational efficiency of the company
        
        Improved control 内部控制更好
        
        By adopting procedures for monitoring compliance with internal policies and external regulations and for reporting any violations the company can better mitigate regulatory or legal risks and their associated costs
        
        Additionally, the adoption of formal procedures with regard to conflicts of interests and related party transactions allows the company to ensure fitness in its relationships with those parties
      - Better operating and financial performance 财务表现好
        
        Good governance and stakeholder management can help a company improve its operating performance and reduce the costs
        
        Enhanced corporate governance could also allow the company to improve its decision-making process and respond faster to market factors
        
        Proper remuneration policies are another governance tool that can motivate managers to make decisions with the objective of creating corporate value
        
        Lower default risk and cost of debt 低违约概率，融资成本也低了
        
        Proper functioning of audit systems, improved transparency (eg reporting of earning), and the control of information asymmetries between the company and its capital providers can mitigate default risk
      - Example
        
        Which of the following is not a benefit of an effective corporate governance structure?
        A. Operating performance can be improved
        B. A corporation's cost of debt can be reduced
        C. Corporate decisions and activities require less control
        Correct Answer: C
        
        A benefit of an effective corporate governance system is to enable adequate scrutiny and control over operations
        
        B is incorrect because an effective governance structure can reduce investors' perceived credit risk of a corporation, thus potentially lowering the corporation's cost of debt
        
        A is incorrect because operating efficiency may indeed be a benefit of an effective corporate governance structure
    - - Analyst considerations in corporate governance and stakeholder management
        Economic ownership and voting control
        
        Duel-calls structures: voting power is decoupled from ownership. Common shares may be divided into two classes, one of which has superior voting rights to the other
        
        A common arrangement is when a share class carries one vote per share and is publicly traded whereas another share class carries several votes per share and is held exclusive by company insiders or family members (eg Facebook)
        
        Another mechanism used to separate voting control form economic ownership is when one class of stock (held by insiders) elects a majority of the board (eg Alibaba)
        双重股权，AB股，很多互联网公司。AB带来的利益一样，投票权不一样。少量B股能实现对公司的绝对控制。谷歌
        阿里巴巴，双股权，创始合伙人有权对董事会的成员有任命权。=就算持有再多股份，不能绝对控制和影响。雅虎上市前董事会没人，上市后才入2人。马云7%股能绝对控制。
      - Economic ownership and voting control
        
        Proponents and critics about dual-class structures
        
        Proponents of dual share systems argue that the systems promote company stability and enable management to make long-term strategic investments, insulated from the short-term pressures of outside investors优势，创始人对公司的稳定性，能以长期战略为目的。
        
        Critics of these structures believe that they create conflicts of interest between the providers of capital and the management of the business 利益冲突，外买的股份没投票权
      - Board of directors representation
        
        Analysts can assess the available information determine whether the experience and skill set on the board match the current and future needs of the company
        
        Remuneration and company performance
        
        Analysts can assess the elements of the remuneration program to determine whether they support or have conflicts with the key drivers of performance for the company
        
        Investors in the company
        
        The behaviour of investors can result in both limitations and catalysts with regard to changes in the corporation
        
        Analysts should not that market context is important in assessing the potential effects of affiliated stockholders
      - Strength of shareholders' rights
        
        If an analyst's viewpoint includes the possibility that a company will merge in the future, he or she may want to understand whether there are significant obstacles to transactions that are embedded in the company's charter or bylaws
        
        Similarly, if the thesis involves an outside catalyst, such as an activist shareholder who will introduce change at the company and improve performance, the analyst must take a position on whether shareholders are sufficiently empowered to advance such a change
        
        If it is impossible for shareholders to remove directors from the board or to convene special stockholder meetings, it will be difficult for external initiatives to be successful
      - Managing long-term risks
        
        Analysts may uncover useful insights regarding how a company various issues, such as long-term evnironmental risks, management of human capital transparency and treatment of investors and other stakeholders
        
        One way to approach management quality issues is to assess whether the company demonstrates a persistent pattern of fines accidents, regulatory penalties, investigations, and the like
      - Example
        
        Which of the following best describes dual-class share structures?
        A. Duel-class share structures can be easily changed over time
        B. Company insiders can maintain significant power over the organization双重股权的目的，绝对控制权
        C. Conflicts of interest between management and stakeholder groups are less likely than with single share structures
        Correct Answer: B
        
        Under dual-class share systems, company founders or insiders may control board elections, strategic decions, and other significant voting matters
        
        A is incorrect because dual share systems are virtually impossible to dismantle once adopted
        
        C is incorrect because contracts of interest between management and stake holders are more likely than with single share structures because of the potential control element under dual systems
        
        An investment analyst would likely be most concerned with an executive remuneration plan that: 最担心
        A. varies each year
        B. is consistent with a company's competitors
        C. is cash-based only, without an equity component 只有现金，分股权降低代理人成本
        Correct Answer: C
        
        If an executive remuneration plan offers cash only, the incentives between management and onvestors and other stakeholders may be misaligned
        
        A is incorrect because a plan that varies over time would typically be of less concern to an analyst compare with one that did not change
        
        B is incorrect because an analyst would likely be concerned if a company's executives were excessively compensated relative to competitors
        
        Which of the following best describes activist shareholders? Activist shareholders:
        A. help stabilize a company's strategic direction
        B. have little impact on the company's long-term investors
        C. can alter the composition of a company's shareholder base
        Correct Answer: C
        
        The presence of activist shareholders can create substantial turnover in the company's shareholder composition
        
        A is incorrect because the presence of activist shareholders can materially change a company's strategic direction
        
        B is incorrect because long-term investors in a company need to consider how activist shareholders affect the company
    - - ESG defintion
        
        The practice of considering environmental, social and governance factors in the investment process is known ESG integration (sometimes is referred to as ESG investing)
        
        ESG integration can be implemented across all asset classes, including equities, fixed income, and alternative investments. The consideration of relevant and material ESG facts can lead to a more comprehensive understanding of a company's risks
        不能只看公司的财务指标分析。还要分析是否E环保，S社会友好(富士康跳楼，舆论压力，员工动荡)，G公司治理结构
      - Organizations to monitor and advance the mission of sustainable investing
        
        The Global Reporting Initiative (GRI)
        
        Principles of Responsible Investment (PRI)
        
        Sustainability Accounting Standards Board (SASB)
        
        Global Sustainable Investment Alliance (GSIA)
      - ESG factors in investment analysis
        
        Environment facotr
        A primary concern among investors is the existence of " stranded assets" or carbon assets at risk of no longer being economically viable because of changes in regulation or investor sentiment
        
        Social factor
        Considered in ESG integration generally pertain to human rights and welfare concerns in the workplace, product development, and in some cases, community impact
      - ESG implementation methods
        
        Negative screening referes to the practice of excluding certain sectors, such as companies engaged in fossil fuel extraction or production, or excluding companies that violate accepted standards in such areas as human rights or environmental concerns负面清单，只要在清单上出现的行业，肯定是不投的。认为ESG做地最差。传统的能源行业，挖坑挖石油不环保。
        
        Positive screening aims to identify companies that embrace solid ESG related principles in their operations and strategies, such as companies with policies that promote human dignity though employee rights, workplace well-being, and concern for the safety of customers 正面清单，注重人权，加班富士康不是。
      - ESG implementation methods
        
        The best-in-class approach seeks to identify the best ESG-scoring companies in each industry. Best-in-class approaches do not exclude any industries but instead focus on finding the best representation within each 每个行业都投，最好的那个，能源里也有环保的。
        
        Thematic investing strategies typically consider a single factor, such as energy efficiency or climate change主题投资，单因子投资，能源环境气候友好
        
        Impact investing, is evolving with the increased realization that the goals of positive social and environmental impact can be consistent with economic profit generation影响力投资
      - Example
        
        The ESG implementation method that is most associated with avoiding certain sectors or companies is:
        A. best-in-class B. thematic investing C. negative screening
        Correct Answer: C
        
        Negative screening entails excluding certain sectors or companies, such as fossil fuel extraction, from a profolio
        
        B is incorrect because thematic investing focuses on a particular factor, such as water, as opposed to merely excluding investments from a portfolio
        
        A is incorrect because best-in-class focuses on companies that score most favourably with regard to ESG factors
- - - - Fran McClure of Alba Advisers is estimating the cost of capital of Frontier Corporation as part of her valuation analysis of Frontier. McClure will use this estimate, along with projected cash flows from Frontier's new projects, to estimate the effect of these new projects on the value of Frontier. McClure has gathered the following information on Frontier Corporation
      - Current Year | Forecasted for Next Year
        Book value of debt $50 | $50
        Market value of debt $62 | $63
        Book value of equity $55 | $58
        Market value of equity $210 | $220
        Correct Answer:
        The weights that McClure should apply in estimating Frontier's cost of capital for debt and equity are
        Wd = 0.223, We =0.777, respectively
      - 优先选择 MV > BV, Forecast > Current，确定$63 $220
        ധd= 63 / 220+63 = 22%, ധe= 220/ 63+220 = 78%
    - - The weights in the calculation of WACC should be based on the firm's target capital structure
      - rd=? cost of debt
        债权人要求回报率
        债务的融资成本
        
        Yield to maturity approach
        
        Debt-rating approach
        
        债权人债卷持有期到期收益率 I/Y = IRR 公司融资成本
        1025= 100/1+YTM +100/(1+YTM)^2 +100/(1+YTM)^3
        100/1+YTM +100/(1+YTM)^2 +100/(1+YTM)^3 -1025 = 0
        IRR (corporate finance) = YTM (fixed income)
        
        After-tax cost of debt
        rd(1-t) = interest rate - tax saving
        
        Use the market interest rate on new debt, not the coupon rate
        
        Yield to maturity approach (annual return) YTM
        
        N=3, PV=-1025, PMT=100, FV=1000 CPT I/Y
        
        CF CF0=-1025. C01=100, F01=2, C02=1100, F02=1, IRR CPT
        
        Debt-rating approach
        在PV不可知，债卷流动性差，现价PV不可知的情况下, YTM算不了。债卷评级法，看市场上同类型假设AA级，风险角度来看，跟其他公司差不多。融资成本会差不多。
        
        example
        
        YTM approach
        
        Correct Answer:
        2nd CLR TVM -> 1030 +/- PV -> 50 PMT -> 1000 FV -> 10 N -> CPT I/Y -> x2=
        
        So: I/Y=4.62, and then, 4.62x2 =9.24
        
        The after-tax cost of debt is: rd(1-t) = 9.24% x (1-30%) =6.47%
        
        After-tax cost of debt
        Smith Inc's bond with remaining 5 years is sold at $1030, par value is $1000 and coupon rate 10% and coupon is paid semiannually. The marginal tax rate of Smite Inc is 30%, calculate the after-tax component cost of debt of Smith Inc?
        
        发行5年债卷，价格1030，面值1000，coupon 10%，半年付息一次，税率30%，算债务税后成本
        
        N=5x2半年一息，PV -1030, PMT 50(面值1000x 10%coupon rate = 一年付100，半年付50), FV 1000
        
        =I/Y 4.62%半年，一年利率9.24% =税前成本
        
        税后成本 rd(1-t) = 9.24% x (1-30%) = 6.47%
        
        debt rating approach
        
        After-tax cost of debt
        If the Smith Inc's capital structure includes the debt with an average maturity of 5 years and the firm's marginal tax rate is 30%. If the Smith Inc's rating is AA and the yield on a debt with the same rating and 5 year's maturity is 10%
        Correct Answer:
        10% x (1-30%) = 7%
      - rps=? cost of preferred stock
        
        rps = Dps/P
        D: preferred dividends
        P: market price of preferred stock
        
        example
        
        Morgan Insurance Ltd issued a fixed-rate perpetual preferred stock three years ago and placed it privately with institutional investors. The stock was issued at $25 per share with a 1.75 dividend. If the company were to issue preferred stock today, the yield would be 6.5 percent. Calculate the stock's current value
        
        Correct Answer:
        The company can issue preferred stock at 6.5%
        P = $1.75/0.065 = $26.92
        
        优先股股东回报率，股利事先预定，比如说每年6%，没有到期期限，像数量里学到的永续年金。其求和公式是股利/回报率 Price = Div / r. 现在求rps = Div / Price (market price)
        市场价格算出现在的成本
      - re=? cost of equity
        
        CAPM approach
        
        re = rf + β(rm - rf)
        上市公司
        
        Dividend growth model
        
        re = (D1 / P0) +g
        
        g = (1-payout rate) (ROE)
        非上市公司，Pure-Play method
        
        Bond yield plus risk premium approach
        
        re = bond yield + risk premium
        CRP 国家风险溢价
        
        CAPM approach
        
        Estimate risk free rate
        
        risk free asset is defined as an asset that has no default risk
        
        A common proxy for the risk-free rate is the yield on a default-free government debt instrument
        
        Estimate market risk premium
        
        The premium that investors demand for investing in a market portfolio relative to the risk-free rate
        
        Estimate beta
        
        β = Cov(I, m) / σn^2
        
        example
        
        An analyst gathered the following information about a company and the market
        Current market price per share | $28
        Most recent dividend per share paid (D0) | $2
        Expected dividend payout rate | 40%
        Expected return on equity (ROE) | 15%
        Beta for the common stock | 1.3
        Expected rate of return on the market portfolio | 13%
        Risk-free rate of return | 4%
        Using the Capital Asset Pricing Model (CAPM) approach, the cost of retained earning for the company is closest to:
        A 13.6% B 15.7% C 16.1%
        Correct Answer: B
        rs = rf + β(rm - rf)= 4% + 1.3(13%-4%)
        
        pure-play method
        算β
        
        How to estimate beta of a non-public company?
        A two-step process is used (pure-play method)
        
        Step 1: convert the observed equality beta of the comparable public company into an asset beta, or pure project beta, βv Removing the effects of financial leverages:
        
        βasset= βequity 1/ [1+(1-t)D/E]
        
        Step 2: calculate the new equity beta of this non-public company for the proposed capital structure of the new line of business
        
        β*equity = β*asset [1+(1-t`)D`/E`]
        
        公式推导
        
        Pure-play method derivation
        
        Company's risk is shared by both share holders and creditors
        βasset= βdebtധdebt + βequityധequity
        
        The burden of debt financing is actually less due to interest deductibility
        
        ധdebt = (1-t)D / (1-t)D+E
        
        ധequity = E / E+(1-t)D
        
        Returns on debt do not vary with returns on market
        
        βdebt= 0
        Pay predetermined INT and PRN without regard to market
        
        Then we have
        
        βasset = βequity ( 1/ 1+(1-t)D/E )
        
        β是线性回归，满足线性可加，总资产的β=债务+股权组成，βasset = ധdxβdebt + ധexβequity
        
        β是指这个资产受到大盘影响的程度，βdebt债券的价格可能会有影响，几乎可忽略不计，在债卷到期的时候，债卷的价格回回归面值，不管折价/溢价/平价。本质上跟股票，跟上证综指没有关系。-> βdebt = 0
        
        ധe是股票的权重=E/(E+D)，债务有税前列支的作用，D=D(1-t)
        
        βasset = E / [E+D(1-t)] x βequity
        
        = 1 / [1 + D/E(1-t)] x βequity
        去上市公司的杠杆，加回非上市公司的杠杆
        
        非上市公司，没有上市股价，不可做回归β，可否拿同类型上市公司。万科vs房地产经营业务可以一样，布局全国。经营风险类似，β不可一样，因还有财务风险不一样。一个公司举债比例，比例越大借债越大 = 财务风险越大。指标 D/E ratio 债务/股东权益杠杆不同。D/E越高=财务风险越大=β越大，β收到大盘影响=系统性风险越大。把杠杆差异去掉，就能用上市β，但还只是估值pure play
        
        去杠杆=去债务，去上市公司万科，Debt去掉，没有包含债务，股东全投资的βasset，这β小因为没债务。
        
        再加杠杆，非上市公司的杠杆。有债务，受大盘影响大, β大, βequity
        
        country risk premium
        +国家风险溢价
        
        Country equity risk premium in developing market
        
        rce = Rf + β[E(Rmkt) -Rf + CRP]
        CRP: country risk premium
        CRP = sovereign yield spread x σequity index / σsovereign bond market of developed market currency
        求Ke，考虑的是股票市场，所以equity在分子上
        
        Sovereign yield spread
        The difference between the government bond yield in that country, denominated in the currency of a developed country, and the treasury bond yield on a similar maturity bond in the developed country
        
        example
        
        Miles is an analyst with G Company, and he is estimating a country risk premium to include in this estimate of the cost of equity capital for G's investment in Argentina
        
        Argentinean government's 10-year bond = 9%
        
        10-year US treasury bond yield = 4%
        
        Annualized standard deviation of Argentinean stock index = 30%
        
        Annualized standard deviation of Argentinean US dollar denominated 10-year government bond = 20%
        
        Project beta = 1.5
        
        Expected market return = 12.5%
        
        Risk-free rate =4.5%
        
        Correct Answer: Country risk premium
        CRP = (9%-4%) x (0.3/0.2) = 0.05x1.5 =7.5%
        cost of equity: rce = Rf + β[E(Rmkt) -Rf + CRP]
        = 0.045 + 1.5(0.125 -0.045 +0.075)
        = 0.045 +1.5 x0.155
        = 0.2775 or 27.75%
        CRP = (SYS=9%-4%) x (σstock/σbond = 30%/20%)
        
        想要投中国的互联网公司，求股东要求回报率re。同时美国类似互联网行业re，早期都看美国有什么互联网公司做的好，抄他的模式，CAPM re = rf + β(rm - rf) ≈ 3% + 1.2(5% -3%)=5.4%, rm上证指数
        美国 re = 3% +1.2(10%-3%) =11.4% rm标普500
        
        一样的公司，投资中国的要求回报率更高，因为承担的风险越大，中国的资本监管，老鼠仓/内幕交易/内幕信息横行，在新兴市场投资可以，一定所要求的回报率会更高，因为承担的风险更大。
        
        新兴市场，在CAPM的基础上，还要加上一个CRP国家风险溢价，因为风险大，要求补偿。
        
        sovereign yield spread 两个国家的国债bond利差，高低反应了国家风险的大小。违约率越低=国债收益率越低，补偿越小。德国🇩🇪就算低也会有人买，反应了稳定。
        
        Bond -> stock，σ波动率，x σ股票/σ债卷，国家风险的大小转换成了股票的概念。
        
        2理解角度 SYS/σBond x σstock 每承担一个单位债卷风险，所获得溢价，再x股票每单位风险。
        
        rf risk free 拿国债, Rm market, β beta
        
        国债：T-bill 短期一年内国债, T-bound 十年国债(股票长期投资用bound)
        
        Rm 市场组合收益所有可投资收益，拿股票指数代替，中国上政综指，美国标普SP500。
        
        Rm-rf = MRP market risk premium 市场组合的风险溢价
        
        β 股收到大盘股票影响系数。回归方法
        万科受到上政综指的影响程度，万科的收益，跟上证综指做回归。P1 P2 P3 Pn 每天价格，收益r= P2-P1 /P1。上证R, 3年=150周收益数据点，万科rY，上证RX，找到一个直线。这150点到这直线的距离的平方和最小=最好的拟合直线，y=a+bx+c，b β是影响系数，如果β=1 上证上涨1%=我也上涨1%，如果β=2 上证上涨2%=我上涨2%。高科技公司收影响比较大，β>3，亚马逊上市初期2010之前 β2~3。医药食品β<1 防御性公司。
        
        DDM / GGM
        
        dividend discount model
        
        P0 = D1 / (rce -g)
        Assumption rce>g
        
        example
        
        Current market price per share | $30
        Most recent dividend per share paid (D0) | $2.5
        Expected dividend payout rate | 50%
        Expected return on equity (ROE) | 15%
        Using the dividend discount model approach, the cost of retained earnings for the company is closest to:
        A 16.1%, B 16.5%, C 16.8%
        
        Correct Answer: B
        
        The expected return is the sum of the expected dividend yield plus expected growth. The expected growth is (1-0.5)15% = 7.5%
        
        The expected dividend yield is $2.5 x (1+0.075)/$30 = 8.95%
        
        The sum is 16.5%
        
        The optimal capital budget
        
        GGM
        
        rce = D1 / (P0+g)
        
        D1/P0 dividend yield
        
        g = (retention rate) ROE = (1-PR) ROE
        
        PR = payout ratio = Div/NI = DPS/EPS
        
        P0 = D1 / r-g
        
        P0 = D0(1+g) / r-g
        
        re = D0x(1+g) /P0 +g
        
        Bond yield + risk premium
        
        Bond yield + risk premium
        Based on fundamental tenet in financial theory that the cost of capital of riskier cash flows is higher than that of less risky cash flows
        
        rce = bond yield + risk premium
        
        Bond yield = market yield on the firm's ;long term bond
        
        Risk premium = historical spreads between bond yield and stock yield
        
        Risk premium estimation
        
        Ideally the risk premium is forward looking
        
        However, the estimate of this premium is based on the historical spreads
        
        Emerging market, risk premium should be 3-5%
        
        The optimal capital budget
        最优资本预算点
        
        The WACC is the appropriate discount rate for projects that have approximately the same level of risk as the firm's existing projects 风险差不多，才用WACC比较
        
        If a project's risk > firm's risk, use a discount rate greater than WACC -> NPV will be overestimated if using WACC 项目风险>公司风险，风险大r大。r折现率被低估越小，NPV越被高估
        
        If a project's risk < firm's risk, use a discount rate lower than WACC -> NPV will be underestimated if using WACC 反之
        
        Marginal cost of capital
        
        example
        
        The target capital structure for ABC Ltd is 25% debt and 75% equity. The schedule of financing costs for ABC Ltd is shown in the table below: (in million)
        Amount of New Debt债 | After tax Cost of Debt | About of New Equity股票 | Cost of Equity
        $0 to $49 | 4% | $0 to $99 | 5.5%
        $50 to $99 | 4.4% | $100 to $199 | 6.8%
        $100 to $199 | 5% | $200 to $399 | 8.6%
        Calculate the break points for ABC Ltd, and graph the marginal cost of capital schedule
        
        Correct Answer:
        Break point = amount of capital at which the component's cost of capital changes / weight of the component in the capital structure
        ABC Ltd will have a break point each time a component cost of capital changes, for a total of four break points
        
        Debt>$50million = $50/0.25 = $200 million
        
        Debt>$100million = $100/0.25 = $400 million
        
        Equity>$100million = $100/0.75 = $133 million
        
        Equity>$200million = $200/0.75 = $267 million
        债结构25%，股结构75%
        股票总融资规模达到133时(突破点breakpoint)，股票融资规模是100.
        
        财务成本的突破点，breakpoint. 公司的总融资金额100万以下，融资成本平均低于5%。随着融资金额规模越来越大，融资成本也越来越大。突破点一定在公司总融资额层面，如超百万 8%上升到10%，这数字可称breakpoint。
        
        Optimal capital Budget到这个点，就不该再花钱了。
        
        Investment Opportunity schedule一个公司有钱了，百个项目投最赚钱的，最好的项目投完，越投到后面项目IRR越来越低
        
        Marginal Cost of Capital 边际成本，每多借一块钱，成本越高。人家不愿意借更多，认为风险很高
        
        Project IRR cost of Capital Y vs New Capital Investment Raised X, 借钱所产生的收入，借一块收益多于成本，应该继续去借
        
        Cost of CS & PS
        股票的发行成本
        
        Flotation cost: the costs associated with the inssurance of new securities
        
        Charged by investment bank, while basing on the size and type of offering
        
        Preferred stock & debt: do not usually incorporate flotation costs in the estimated cost of capital because this cost is quite small (<1%)
        
        Common stock: should be considered (about 5%)
        
        Method 1
        re = D1 / (P0-F) + g
        or re = [D1 / P0(1-f)] + g
        FC作为发行价格的递减，CFA认为不好。计算考，联系GGM
        
        Method 2
        In fact, flotation costs are a cash flow at the initiation of the project (considered as CF0)
        FC作为期初的一次性现金流出，CFA认为好不考复杂
        
        example
        
        Consider a project that requires a €90,000 initial cash outlay and is expected to produce cash flows of €15,000 each year for 10 years. Suppose the company's marginal tax rate is 35% and that the before-tax cost of debt is 6%. Furthermore, suppose that the company's dividend next period is €1.5, the current price of the stock is €25 and the expected growth rate is 4%. Assume the company will finance the project with 40% debt and 60% equity, and the flotation costs are 5% of the new equity capital
        
        Correct Answer: by using method 1
        
        After-tax cost of debt = 6%(1-0.35) = 3.9%
        Cost of equity = $1.5 / $25(1-0.05) + 0.04 = 10.32%
        
        WACC = 0.4(0.039) + 0.6(0.1032) = 7.752%
        NPV = -90000 + 15000(1+7.752%) + 15000(1+7.752%)^2 + ... + 15000(1+7.752%)^10
        
        NPV of the project = 11,787
        
        Correct Answer: by using method 2
        
        After-tax cost of debt = 6%(1-0.35) = 3.9%
        
        Cost of equity = ($1.5/$25) + 0.04 = 0.1 or 10%
        
        WACC = 0.4(0.039) + 0.6(0.1) = 7.56%
        
        Since the project is financed with 60% equity, the amount of equity capital raised is 0.6x$90,000 x5% = $2700
        NPV = -90000 + 15000(1+7.752%) + 15000(1+7.752%)^2 + ... + 15000(1+7.752%)^10
        
        Based on the outcome of financial calculator, NPV of the project is $12,680
        
        If flotation cost is tax deductible, NPV after considering flotation cost is = 12,680 - 2,700 x (1-0.35) = 10,925
        
        If flotation cost is not tax deductible, NPV after considering flotation cost is = 12,680 - 2,700 = 9,980
        
        FC作为发行价格的递减
        比如说，发行100股，$50每股 =$5000融资到了
        假设成本FC$200，就认为发行价为$48，融资到$4800
        考虑到融资成本，=发行价递减的方法。
        GGM: P0= D1 / r-g -> re=D1/P0 +g
        FC: re= D1 / P0-FC +g
        or re = D1 / P0x(1+f) +g ; f是发钱成本比率如2% $2
        
        公司债卷回报率+风险溢价
        债卷 rd 1YTM 2Debt-rating
        rce万科的股东要求回报率, =YTMbond + RP
    - - 一个公司的融资成本，用WACC来衡量，加权平均资本成本。
        公司的融资来源，1发债 2发股票 3发优先股
        
        加权平均= 债务比率先x债务的融资成本 + 股票的融资比例x成本
        
        利息费用有10%，利息是税前列支，有效的利息费用(1-t)税盾的效果。
        
        WACC可作为公司最低的要求回报率 =运营公司的成本。
        
        比如说成本10%，收益率要是8%，那么经营这个公司反而是亏钱的。
        
        WACC可折现公司自由现金流, 折现FCFF -> 企业价值
        
        FCFE 股东自由现金流，股东的要求回报率进行折现
        
        折现率越低，折回来的现值越高，=公司越有价值。
      - 求WACC
        WACC = (ധd)[rd(1-t)]+(ധps)(rps)+(ധce)(rs)
        
        rd债券的回报率 re股东的回报率 rps优先股的回报率
        
        权重ധd ധe ധps
        ധd = D / D+E, ധe = E / D+E
        
        Book Value, Market Value, 优先用MV, 特别是股票。股票账面价值BV=股票刚发行时的钱，账面股本往往是1块钱。
        
        Current ധd40%, ധe60% 统称capital structure 公司资本结构。
        Target Capital structure 目标资本结构，二级在当前TCS上，我可以实现我的WACC最优结构=最小，成本越低越好。
        根据M理论，ധd60%, ധe40% 最优资本结构 WACC最小。
        
        题目当中算WACC的时候，优先用TCS，因为WACC是用来折现公司未来FCFF。0 FCFF1 FCFF2 ..FCFFn，把每年公司产生的自由现金流，统统折现到零时点，得到零时企业价值。目标资本结构是未来的目标，FCFF是未来现金流，对应的都是未来。
        
        定位价值，优先顺序：1 target 2 Forecast/Trend预测趋势(比如债务比率越来越小，股权比例越来越大) 3 current 4 comparable 可比较公司(一般不会到这一步，误差很大)