Financial Forecasting

BASIC CORPORATE FINANCE

THREE PARTS

Financial forecasting
o short-run forecasting
o General dynamics; sustainable growth
Capital structure
o MM
o Static trade-off: Tax shield vs. judge distress costs
o Pecking aim
o An integrative approach
Valuation
o FCF (Free cash in Flow)
o APV (Adjusted Present Value)
o WACC (weighted average cost of capital)
o Valuing companies

CONCLUSIONS

The bulk of the protect is created on the LHS by making severe investment decisions
You can destroy a lot of value by mis-managing your RHS
Financial policy should be supporting your wrinkle strategy
You cannot make sound financial decisions with bring out knowing the implications for the phone line
Finance is excessively serious to leave it to finance people
Making sound business decisions requires valuing them
This involves knowing the business (to make appropriate cash proceed forecasts and scenario analysis, etc.)
Valuation exercises can indicate key value levers

pecuniary FORECASTING

Four Steps

1. Forecast summations
a. Assumptions
2. Forecast Liabilities and Net worthy, leaving out the liabilities you want to remain free (e.g. Bank Debt)
a. Assumptions
3.



Use the end as the Plug for the funding need (e.g. Bank Debt) and estimate the implied Net Income
4. Use the implied Net Income to compute the implied Net Worth and plug back into Step 2 until you converge.

General dynamics and Sustainable Growth

The sustainable growth rate is g* = (1-d) x ROE
o D = dividend
o ROE = Return on Equity
The sustainable growth rate g* = (1-d) x (NI/Sales) x (Sales/Assets) x (Assets/NW)
Sustainable growth rate increases as
o Dividends return (more reinvestment in the firm)
o Profit margins increase (NI/Sales)
o Asset turnover increases (Sales/Assets)
o Leverage increases (Assets/NW)
If a company grows swift than g* without...If you want to get a full essay, order it on our website: Orderessay



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