Managerial Finance ملاحظة: فى هذه المحاضرة تم شرح معايير الحكم على جدوى المشروع وهى ليست مكتوبة بالمحاضرة وهى مهمه Note: Feasibility Indicators as we illustrate in the class and not written here in this lecture and these indicators is important.

What is finance ? Finance can be defined as the art and science of managing money. Finance is concerned with the process, institutions, markets, and instruments involved in the transfer of money among individuals, businesses, and governments.

Managerial Finance Managerial Finance is concerned with the duties of the financial manager in the business firm. Financial managers actively manage the financial affairs of any type of business.

Relationships To Economic: Ex. Include supply and demand analysis, profit max., price theory. The primary economic principle used in managerial finance is Marginal-cost-benefit analysis. To Accounting: In Decision making process the accountants devote most of their attention to the collection and presentation of financial data, while financial manager evaluate the accounting statements, develop additional data, and make decision.

Goal of the Business Maximize Profit Maximize shareholders wealth

Financial Statements Income Statement Balance sheet

Income Statement The income statement provides financial summary of the firms operating results during a specified period.

Sales Revenue Less: cost of goods sold Gross Profit Less: Operating Expenses Selling expense General and administrative expenses Lease expense Depreciation expense Total operating expenses Operating Profits Less: Interest expense Net profits before taxes Less: Taxes Net profits after taxes Less: preferred stock dividends Earnings available for common stockholders Earnings per share (EPS) Dividend per share (DPS)

Earnings per share (EPS) Calculated by dividing the earnings available for common stockholders by the number of shares of common stock outstanding.

Dividend per share (DPS) Calculated by dividing the dollar amount of dividends paid to common stockholders by the number shares of common stock outstanding.

Balance sheet Is a summary statement of the firm's financial position at a given point in time. It balances the firm's assets and liability. Assets: what is owns Liabilities: what is owes

Liabilities and stockholders equity:Assets: Current liabilitiesCurrent Assets Accounts payableCash Notes payableMarketable securities AccrualsAccounts receivables Total current liabilitiesInventories Long-term debt (includes financial leases)Total current assets Total liabilitiesGross Fixed Assets Stockholders, equityLand and buildings Proffered stockMachinery and equipment Common stockFurniture and fixtures Paid-in capital in excess of par on common stock Vehicles Retained earningsOthers (included financial leases) Total Gross Fixed Assets Less: Accumulated depreciation Total stockholders equityNet fixed assets Total liabilities and stockholders' equityTotal assets

Using Financial Ratios Involves methods of calculating and interpreting financial ratios to analyze and monitor the firm's performance. The basic inputs to ratio analysis are the firm's income statement and balance sheet.

Categories of financial ratios Liquidity ratios Activity ratios Debt ratios Profitability ratios Market ratios

Categories of financial ratios Liquidity ratios: Current ratio = current assets /current liabilities It measures the business ability to meet its short-term obligations. Quick ratio = (current assets-Inventory)/ current liabilities A quick ratio of 1.0 or greater is recommended.

Categories of financial ratios Activity ratios: measures the speed with which various accounts are converted into sales or cash-inflows or outflows. Inventory turnover = cost of goods sold / Inventory Average collection period = Accounts receivable / Average sales per day = Accounts receivable / (annual sales/365) Average payment period = accounts payable / average purchases per day (annual 365 day) Total asset turnover = Sales / total assets

Categories of financial ratios Debt ratios: measures the proportion of total assets financed by the firm's creditors. Debt ratio = total liabilities / total assets Time interest earned ratio = earnings before interest and taxes / interest Fixed-payment coverage ratio = earnings before interest and taxes +lease payment / interest +lease payments+(principal payments+preffered stock dividends)*(1/(1-T))

Categories of financial ratios Profitability ratios: Gross profit margin= Gross profit/sales =(sales-cost of goods sold)/sales Operating profit margin = operating profit / sales Net profit margin = earnings available for common stockholders / sales Earnings per share= earnings available for common stockholders /number of shares of common stock outstanding Return on total assets = earnings available for common stockholders / total assets Return on common equity = earnings available for common stockholders / common stock equity

Categories of financial ratios Market ratios: Price/earnings ratio = market price per share of common stock / earnings per share Market /book ratio = market price per share of common stock / book value per share of common stock