Presentation on theme: "Manajemen Keuangan Program Magister Manajemen Universitas Gunadarma"— Presentation transcript:
1 Manajemen Keuangan Program Magister Manajemen Universitas Gunadarma Budi HermanaRefferences:Principles of Managerial Finance, Lawrence J. Gitman, Harper Collins Publishers
2 The Role of Finance and The Financial Manager Chapter 1The Role of Finance and TheFinancial Manager
3 The Role of Finance and The Financial Manager The art and Science of managing moneyConcerned with the process, institution, markets, and instrument involved in the transfer of money among and between individuals, businesses, and governmentsFinancial ServicesAreas&Opportunities?The area of finance concerned with the design and delivery of advice and financial product to individual, business, and governmentsManagerial Financeconcerned with the duties of the financial manager in the business firm.BudgetingActively manage the financial affairs of many tipes of business- financial and non-financial, private and public, large and small, profit-seeking and not-for-profitFinancial forecastingCash managementTask?Credit administrationInvestment AnalysisFunds procurement
4 A Business owned by one person and operated for his or her own profit Basic Forms Of Business OrganizationA Business owned by one person and operated for his or her own profitSole ProprietorshipSmall firm, unlimited liabilityA Business owned by two or more persons and operated for profitPartnershipsWritten contract (article of partnership), unlimited liability,Limited partershipAn Intangible business entity created by law (often called a “legal entity”)CorporationsStockholders, board of directors, Chief executive officer (CEO)
5 Basic Forms Of Business Organization Legal FormSole PropriatorshipPartenrshipCorporationStrengthOwner receives all profits (as well as losses)Low organizationak costsIncome taxed as personnel income of proprietorSecrecyEase of dissolutionCan raise more more funds than sole proprietorshipsBorrowing power enhanced by more ownersMore available brain power and managerial skillCan retain good employeesIncome taxed as personnel income of partnersOwners have limited liability which guarantees they cannot lose more than investedCan achieve large size due to marketability of stock (ownership)Ownership is readily transferableLong-life of firm- not dissolved by detah of ownersCan hire professional managersCan expand more easily due to access to capital marketsReceives certain tax advantagesWeaknessesOwner has unlimited liability-total wealth can be taken to satisfy debtsLimited fund-raising power tends to inhibit growthPropietor must be jack-of-all-tradesDifficult to give employees long run career opportunityLacks continuity when propitor diesOwners have unlimited liability and may have to covers debts of other less financially sound partnersWhen a aparter dies, partership is dissolvedDifficul to liquidate or transfer partershipDifficult to achieve large-scale operationsTaxes generally higher since corporate income is taxed and dividends paid to owners ara again taxedMore expensive to organize than other business formsSubject to greater government regualationEmployees often lack personnel interest in firmLack secrecy since stockholders must receive financial reports
6 ? The Managerial Finance Function Since most business decisions are measured in financial terms, the financial manager plays a key role in the operation of the firmManagerial Finance is closely related to, but quite different from, Economics and Accounting?Organizational ViewThe size and importance of the managerial finance depend on the size of the firmIn small firm the finance function generally performed by the accounting departmentIn medium-to-large-size firmFinancial ManagerSeparate department, vice-president of finance (CFO),Treasurer, ControllerThe officer responsible for the firm’s financial activities: financial planning and fund raising, managing cash, making capital expenditure decision, managing credit activities and managing the investment portfolioThe officer responsible for the firm accounting activities: tax management, data processing, and cost and financial accounting
7 Supply-demand analysis Profit-Maximazing strategies The Managerial Finance FunctionRelationship to EconomicsThe Financial Manager must understand the economic framework, and be alert to the consequences of varying levels of economic activity and changes in economic policy?Must be able to use economic theories as guidelines for efficient busineness operationSupply-demand analysisProfit-Maximazing strategiesPrice TheoryMarginal AnalysisEconomic principle which states that financial decisions should be made and actions taken only when the added benefit exceed the added costsExampleBenefits with new computer $Less: Benefits with old computer(1) Marginal (Added) benefits $65.000Cost of new computer $80.000Less: Proceeds from sale of old com(2) Marginal (added) costs $52.000Net Benefit [(1) – (2)] $13.000
8 Relationship to Accounting The Managerial Finance FunctionRelationship to AccountingThe finance and accounting function are closely related and generally overlap; indeed, managerial finance and accounting are not often easily distinguishable. In smal firm the controller often carries out of the finance function, and in large firms many accountants are intimately involved in various finance activities?Two Basic DifferencesEmphasis of cash flowsDecision MakingAccrual Method vs Cash MethodThe accountant devotes the majority of attention to the collection and presentation of financial dataThe financial manager evaluates the accountant’s statements, develops additional data, and makes decisions based on subsequent analysesThis does not mean that accountant never make decision, or that financial manager never gather dataRecognizes revenue at the point of sale and recognized expenses when incurredRecognized revenues and expenses only with respect to actual inflow and outflows of cashAccounting ViewFinancial ViewIncome statementABC CorporationFor the year xxxxSales Revenue $Less: CostsNet Profit $Income statementABC CorporationFor the year xxxxCash inflow $Less: Cash OutflowNet Profit ($80.000)
9 The Managerial Finance Function Key Activities of The Financial ManagerPrimary ActivitiesPerforming Financial Analysis and PlanningBalance SheetCurrentAssetsFixedLiabilitiesLong-TermFundsPerformingFinancial Analysisand PlanningMaking InvestmentDecisionMaking FinancingTransforming financial data into a form that can be used to monitor the firm’s financial conditionEvaluating the need for increased (or reduced) productive capacityDetermining what additional (or reduced) financing is requiredMaking Investment DecisionsDetermine both the mix and the type of assets found on the firm’s balance sheetThe left-hand side of the balance sheetMaking Financing DecisionDeals with The right-hand side of the balance sheet and involves two major area:Most appropriate mix of short-term and long-term financing must be establishedWhich individual short-term or long-term sources of financing are the best at given point in time
10 Goal of The Financial Manager Stockholder are risk-averse ? The Managerial Finance FunctionGoal of The Financial ManagerMaximize Profit?Some pepople believe that the owner’s objective is always to maximize profitsThe Financial Manager are expected to make a major contribution to the firm’s overall profitFor Corporation, profit are commonly measured in terms of Earnings per Share (EPS)EPS:The amount earned during the period on each outstanding share of common stockperiod’s total earnings avaliable for the firm’s common stock holdersThe number of shares of common stock outstandingInvestment year 1 year 2 year 3 totalX $1.40 $1.00 $0.40 $2.80YEarning per share (EPS)The chance that actual outcomes may differs from those expectedBasic primises in managerial finance is that trade-off exist between return (cash flow) and riskReturn and risk are in fact the key determinant of share price– which represents the wealth of the owners in the firm√Profit maximization fails for reason:Timing of returnCashflow avaliable to stockholderRiskStockholder are risk-averse ?
11 Goal of The Financial Manager Maximizing Shareholder Wealth The Managerial Finance FunctionGoal of The Financial ManagerMaximizing Shareholder WealthThe goal of the financial manager is to maximize the wealth of the owners for whom the firm is being managedTiming of return (cash flow)Measured by the shareprice of the stockmagnitudeRiskFinancial decisions and share priceFinancialManagerFinancial DecisionAlternative or actionReturn?Risk?IncreaseSharePrice ?YesRejectAcept
12 Goal of The Financial Manager The Managerial Finance FunctionGoal of The Financial ManagerThe Agency IssueManagement can be viewed as agents of the owners who have hired them and given them decision-making authority to manage the firm for the owners’ benefitThe goal of the financial manager should be to maximize the wealth of the owners of the firmIn theoryIn practiseMost financial managers would agree with the goal of owner wealth maximizationHowever, managers also concern with their personnel wealth, job security, lifestyle, and privilegeAgency problemTo prevent or minimize problemThe likelihood that managers may place personnel goals ahead of corporate goalsAgency CostAudit&controlMonitoring expenditureFidelity bondBonding expenditureManagerial compensation:stock option, performance share, cash bonusesStructuring expenditureOpportunity cost
13 Goal of The Financial Manager The Managerial Finance FunctionGoal of The Financial ManagerThe Role of EthicsEthics – Standard of conduct or moral judgementexampleCorporate Ethics Guidelines and PoliciesResponsibilityEthics and share priceFairnessTransparencyIssues UpdateAccountabilityGood Corporate GovernanceCorporate Social ResponsibilityCertified Financial Analyst
14 The Operating Environment of The Firm Chapter 2The Operating Environment ofThe Firm
15 Corporate Tax Rate Schedule Business TaxationOrdinary IncomeIncome earned through the sale of a firm’s goods and servicesCorporate Tax Rate ScheduleRange of taxable income Base Tax (rate x amount over base bracket)$ to $ $ (15% x Amount over $ )to (25 x Amount over )to (34 x Amount over )to (39 x Amount over )over $ (34 x Amount over )Tax CalculationExamplePT X has before-tax earnings of $Total Tax due = $ [0.39 x ($ )]= $ (0.39 x $ )= $ $ = $80.750Indonesia ?
16 Business Taxation A Firm’s taxes divided by its taxable income Ordinary IncomeAverage Tax RatesA Firm’s taxes divided by its taxable incomePretax Tax Average Tax rateIncome Liability [(2) : (1)](1) (2) (3)$ $ %%%%%%%%Average tax rate ranges from 15 to 34%, reaching 34% when taxable income ≥ $Average tax rate for PT X= $ / $ = 32.3%Marginal Tax IncomeThe rate at which additional income is taxedIf PT X’s earnings go up to % , the marginal tax rate on the additional $ of income will be 39%. The company will therefore have to pay additional taxes of $ (0.39 x $50.000)Total Taxes on the $ = $ $19.500= $Using Taxe rate schedule:Total Taxes = $ [0.39x($ $ )]= $ $ =$
17 Interest and Dividend Income Business TaxationOrdinary IncomeInterest and Dividend IncomeInterest received by the corporation is included as ordinary incomeDevidend received on common and preferred stock held in other corporation, and representing less than 20% ownership in them, on the other hand, are subject to a 70% exclusion for tax puposesOnly 30% of these intercorporate dividends are included as ordinary incomeAvoid tripletaxationExampleCharnes Industries received $ interest on bonds it held and $ in dividends on common stock it owned in other corporation. The firm is subject to a 40% marginal-tax rate and is eligible for 70% exclusion on its intercorporate dividend receiptsInterestIncomeDividendBefore-tax amountLess: Applicable ExclusionTaxable amount(2) Tax (40%)After-tax amount (1)-(2)$40.000$70.000$12.000$(0,70x$ ) =Indonesia ?
18 Tax-Deductible Expenses tax-deductible expense Business TaxationOrdinary IncomeTax-Deductible ExpensesCorporation are allowed to deducti operating expenses. The tax-deductible expenses reduces their after-tax cost.Advertising expensesInsurance?Sales commisionCSR?Bad debtInterest expensesExampleCompany X and Y each expect in the coming year to have earnings before interest and taxes of $ Company X during the year will have to pay $ in interest; Company Y has no debt and therefore will have no interest expenses. Calculate the earnings after taxes for these two firm, which pay 40% tax on ordinary incomeInterestIncomeDividendEarning before interest&taxLess: Interest expensesEarnings before taxLess: Taxes (40%)Earnings after taxes$30.000$68.000$80.000$Difference in earning after taxes $18.000Dividends are nottax-deductible expense
19 Business TaxationCapital GainsAmount by which the price at which an asset was sold exceeds the asset’s initial purchase priceFor corporation, capital gain are added to ordinary corporate income and taxed at the regular corporate ratesExampleThe Ross Company has operating earnings of $ and hast just sold for $ a capital asset initially purchased two years ago for $Since the asset was sold for more than its initial purchased, there is capital gain of $4000($ sale price - $ initial purchase price)The corporation’s taxable income will total $($ ordinary income plus $4.000 capital gain)Since this total is above$ , the capital gain will be taxed at the 34%, resulting in tax of $1.360(0,34 x $4000)
20 ? Financial Institutions and Markets: An Overview Financial institutions and markets are important elements in a firm’s operating environment?Firms that require funds from external sources can obtain them in three waysFinancial InstitutionThat accept savings and transfers them to those needing fundsFinancial MarketOrganized forum where the suppliers and demanders of various type of funds can make transactionPrivate placement
21 Financial Institution Financial Institutions and Markets: An OverviewFinancial InstitutionAn intermediary that channels the savings of individuals, businesses, and governments into loans or investmentMajor Financial InstitutionsUSAIndonesiaCommercial BankAccepts both demand (checking) and time (savings) deposits. Makes loans directly to borrowers or through the financial marketBank UmumSavings BankBPRNot hold demand (checking) deposits. Generally lends or invest funds through financial marketsAsuransiSavings and LoanSimilar to a saving bank. Also raise capital through the sale of securities. Lends funds for real estate mortgage loans and some funds are channeled into financial marketDana PensiunReksa danaCredit UnionDeals primarily in transfer of funds between consumers. Accept members’ deposit and lends to other membersModal VenturaLife Insurance CompanyReceive premium payments that are placed in invesments to accumulate funds to cover future benefit paymentAnjak-PiutangPension FundSewa guna usahaMoney is sometimes transferred directly to borrowers, but the majority is lent or invested via the financial marketsMutual FundPools funds of savers and makes them available to business and government demanders. Creates a portfolio of securities to achieve a specified investment objective
22 Financial Institutions and Markets: An Overview Financial MarketsProvide a forum in which suppliers of funds and demanders of loans and investments can transact business directlyMoney MarketTransactions in short-term debt instruments, or marketable securities, take place in the money marketCapital MarketLong-term securities (bonds and stocks) are traded in the capital marketPrimary marketFinancial market in which securities are initially issued; the only market in which the issuer is directly involved in the transactionSecondary MarketFinancial market in which preowned securities (those that are not new issues) are traded
23 Flow of funds for financial institutions and market Financial Institutions and Markets: An OverviewFinancial MarketsFlow of funds for financial institutions and marketFundsFundsFinancialInstitutionsDeposits/SharesLoansFundsSecuritiesSuppliers ofFundsDemanders ofFundsFundsPrivatePlacementSecuritiesFinancialMarketsFundsFundsSecuritiesSecurities
24 Financial Institutions and Markets: An Overview The Money MarketA financial relationship created between suppliers and demanders of short-term funds, which have maturities of one year or lessCertain individuals, businesses, governments, and financial institution have temporary idle funds that they wish to place in some type of liquid asset or short-term, interest earning instrumentMoneyMarketexistsOther individuals, businesses, gevernments, and financial institution find themselves in need of seasonal or temporary financingMost money market transactions are made in marketable securitiesShort-term debt instruments, such as US Treasury Bill, Commercial Papers, and Negotiables Certificate of Deposits issued by government, business, and financial institutionIndonesia?
25 Financial Institutions and Markets: An Overview The Capital MarketA financial relationship created by institutions and arrangements that allows suppliers and demanders of long-term funds- funds with maturiry of more than one year- to make transactions.BondLong-term debt instrument used by business and governments to raise large sums of moneyThe backbone of the capital market is formed by the various securities exchange that provide a forum for debt and and equity transactionCommon stockUnits of ownership interest, or equity. In a corporationKey SecuritiesCommon stockholders expect to earn a return by receiving DividendPeriodic distribution of earnings to the owners of stock in a firmPreferred stockA special form of ownership having a fixed periodic dividend that must be paid prior to payment of any common stock dividends
26 Major Securities Exchange Financial Institutions and Markets: An OverviewThe Capital MarketMajor Securities ExchangeProvide the marketplace in which firms can raise funds through the sale of new securities and in which purchasers can resell securities1. Organized Securities ExchangesTangible organozations on whose premises outstanding securities are resoldNew York Stock Exchange (NYSE)To make transaction on the “floor”, individual or firm must own a “seat” on the exchangeFor “listing”, a firm must file an application and meet a number requirementsHave at least 2000 stockholders with 100 ≤ sharesMin 1,1 million share of publicly held stockEarning power of $2,5 million before taxesNet tangible asset of $16 millionA total of $18 million in market value of publicly traded shares, etcPersyaratan“listing”?Jakarta Stock Exchange (JSX)
27 Major Securities Exchange Jakarta Automated Trading System Financial Institutions and Markets: An OverviewThe Capital MarketMajor Securities Exchange2. The-Over-the-Counter Exchange (OTC)Not an organization, but an intangible market for the purchase and sale of securities not listed by the organized exchangeThe market price of OTC securities results from a matching of the forces of supply and demand for securities by traders known as dealerNational Association of Securities Dealers Automated Quotation (NASDAQ)Sophisticated telecommunications system that provide current bid and ask prices on thousands of actively tradedThe bid price is the highest price offered by dealer to purchase a given securityAutomatedmatchedThe ask price is the lowest price at which the dealer is willing to sell the securityJakarta Automated Trading System(JATS) ?
28 ? ? ? ? ? Interest Rates and Required Return Interest rates and required returns represent the costs of obtaining various forms of financing?The level of funds flow between suppliers and demanders can significantly affect economic growth?Growth results from the interaction of variety of economic factors, such as the money supply, trade balance, and economic policy, that affect the cost of money – the interest rate or required return?The level of interest rate acts as regulating device that controls the flow of funds?The lower the interest rate, the greater the funds flow and therefore the greater the economic growth, and vice versa?
29 Interest Rate Fundamentals Interest Rates and Required ReturnRate that creates an equilibrium between the supply of savings and the demand for investments funds in perfect world, without inflation, where funds suppliers and demanders have no liquidity preferences, and all outcomes are certainInterest Rate FundamentalsInterest rateThe compensation paid by the borrower of funds to the lender; from the borrower’s point of view, the cost of borrowing fundsIgnoring risk factors, the nominal or actual interest rate (cost of funds) results from the real rate of interest adjusted for inflationary expectation and liquidity preferencesRequired ReturnThe level of return expected on equity investmentGeneral preferences of investors for shorter-term securitiesDSoS1The actual rate of interest chargeb by the supplier of funds and paid by demanderko*k1*Real Rate of InterestThe required return on a risk-free asset, tipically a three-month US Treasury Bill (Obligasi Pemerintah)Sok1= k* + IE + IC1S1k1= RF + IC1DSo=DS1=DRisk-freerateRiskPremiumFunds supplied/demanded
30 Term Structure of Interest Rates Interest Rates and Required ReturnTerm Structure of Interest RatesThe relationship between the interest rate or rate of return and the time to maturityInverted Yield CurveA Downward-sloping yield curve that indicates generally cheaper long-term borrowing costs than short-term borrowing costsYield to maturityAnnual rate of interest earned on a security purchased on a given day and held to maturity789101314151617Yield CurveMay 22, 1981A Graph that depicts the relationship between the yield to maturity (y-axis) and the time to maturity (x-axis)October 30, 1987September 29, 1989It reflects similar borrowing costs for both short- and longer-term loans51015202530Normal Yield CurveAn upward-sloping yield curve that indicates generally cheaper short-term borrowing costs than long-term- borrowing costs
31 Term Structure of Interest Rates Theory of Term Structure Interest Rates and Required ReturnTerm Structure of Interest RatesTheory of Term Structure1. Expectation HypothesisExampleTheory suggesting that the yield curve reflects investor expectations about future interest rates; an increasing inflation expectation results in upward-sloping yield curve, and vice versaNominalinterestRate, RFtRealinterestRate, k*InflationExpectation,IEtMaturity, t(1)(2)[(1) - (2)]2. Liquidity Preference Theory3 Months5,17%6,518,389,052,00%2,003,17%4,516,387,05Theory suggesting that for any given issuer, long-term interest rates tend to be higher than sort-term rates due to the lower liquidity and higher responsiveness to general interest rate movements of longer term securities; causes the yield curve to be upward-sloping1 years5 years30 years3. Market Segmentation TheoryTheory suggesting that the market for loans is segmented based on maturity and that the sources of supply and demand for loans, within each segment, determine its prevailing interest rate; the slope of yield curve is determines by the geberal relationship between the prevailing rates in each segment
32 Term Structure of Interest Rates Risk-Return Trade-off Interest Rates and Required ReturnTerm Structure of Interest RatesRisk and ReturnRisk-Return Trade-offThe expectation that for accepting greater risk, investors must be compensated with greater returnsSpeculative Common StocksQualtiy Common StocksPreferred StocksMedium-Grade BondsInvestment-Grade BondsInvestment-Grade NotesAnnual Return (cost to issuer)Prime-Grade Commercial PaperUS Treasury BillsRisk
34 ? ? The Stockholders’ Report A Stockholder’s report summarizes and documents a publicly held corporation’s financial activities over the year. Who receives theses reports? What types of informastion do you think they typically include? Why are they important??Regulator or GovermentsCreditor (lenders)OwnersManagement?The letter to stockholdersEvents, management philosophy, strategy, and actionFinancial statements(a) the income statemnet, (b) the balance sheet, (c) the statement of retained earnings, and (d) the statements of cash flowsOther featureFirm activities, new product, R&D, etcAn important vehicle for influencing owners’ perceptions of the company and its future outlook.The stockholders’ report may effect expected risk, return, stock price, and the viability of the firm
35 Basic Financial Statements Income StatementProvide a financial summary of the operating results during a specified periodABC Corporation Income Statement ($000) for the year EndedDecember 31, 2000Sales revenueLess: Cost of goods soldGross profitsLess: Operating expensesSelling expenseGeneral and administrative expenseDepreciation expenseTotal operating expenseOperating profitsLess: Interest expenseNet profits before taxesLess: Taxes (rate = 40%)Net profits after taxesLess: Prefered stock dividendsEarning available for common stockholdersEarning per share (EPS)$1.000$330$70$120$10$$ 1,70$ 80150100The number of common stock=
36 Basic Financial Statements Balance SheetSummary statement of the firm’s financial position at given point in timeABC Corporation Balance Sheets ($000)Current assetsCashMarketable securitiesAccount receivableInventoriesTotal current assetsGross fixed assets (at cost)Land and buildingsMachinery and equipmentFurniture and fixturesVehiclesOtherTotal gross fixed assets (at cost)Less: Accumulated depriciationNet fixed assetsTotal assetsAssets$ $$ $$ $$ $$ $$ $December 31
37 Basic Financial Statements Balance SheetSummary statement of the firm’s financial position at given point in timeABC Corporation Balance Sheets ($000)Current liabilitiesAccounts payableNotes payableAccrualsTotal current liabilitiesLong-term debtTotal liabilitiesStockholders’ equityPreferred stockCommon stock- $1,20 par,shares outstanding in 2000&2001Paid in capital in excess of par oncommon stockRetained earningsTotal stockholders’ equityTotal liabilities and stockholders’ equityLiabilities and stockholders’ equity$ $$ $$ $$ $$ $$ $$ $December 31
38 Statement of Retained Earning Basic Financial StatementsStatement of Retained EarningReconciles the net income earned during a given year, and any cash dividends paid, with the change in retained earnings between the start and end of that yearABC Corporation Statement of Retained Earnings ($000) for the end yearEnded December, 2001Retained earnings balance (january 1, 2001) $500Plus: Net Profit after taxes (for 2001)Less: Cash dividend (paid during 2001)Preferred stock ($10)Common stock ( 70)Retanined earnings balance (Dec 31, 2001) $600
39 Statement of Cash Flows Basic Financial StatementsStatement of Cash FlowsProvides a summary of the firm’s operating, investment, and financing cash flows, and reconciles them with changes in its cash and marketable securities during the period of concernABC Corporation Statement of Cash Flows ($000) for the end yearEnded December, 2001Cash Flow from Operating ActivitiesNet Profits after taxes $ 180DepreciationDecrease in account receivableDecrease in inventoriesIncrease in account payableDecrease in accruals (100)Cash provided by operating $780Cash Flow from investment activitiesIncrease in gross fixed asset ($300)Changes in business interestCash used for investment activities (300)Cash Flow from financing ActivitiesDecrease in notes payable ($100)Increase in long-term debtsChanges in stockholders’ equityDividends paid (80)Cash provided by financing activitiesNet increase in cash and marketable securities $500