Ppt on leverages in financial management

16 - 1 CHAPTER 16-7 Capital Structure Decisions: The Basics (Short version) Business vs. financial risk Capital structure theory Setting the optimal capital.

optimal” capital structure, or Do they simply represent stupidity on the part of financial managers? 16 - 9 16 - 10 16 - 11 DIGRESSION: TAX SHIELD Advantage of debt in a world of corporate taxes is that interest payments are a tax-deductible / future financial distress, which brings with it lower sales, EBIT, and bankruptcy costs. Lowers value of stock and bonds. Agency costs: The costs of monitoring managers’ actions. Increases with leverage. More on agency and bankruptcy costs 16 - 42 Bankruptcy Costs In a/


17.1 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer. Chapter.

, arbitrage is possible. Arbitrage and Total Market Value of the Firm 17.23 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer. EXCEPT Consider two firms that are identical in every respect EXCEPT: Company NL – no financial leverage Company L – $30,000 of 12% debt Market value of debt for Company L equals its par value/


Financial Analysis of Starbucks.  Industry and Market – Commodity – Starbucks is only global chain – Dominated by single or small chain retailers – Global.

Financial Analysis of Starbucks  Industry and /0.470.460.54 Cash Flow Liquidity Ratio 0.810.821.00 Liquidity Ratios Liquidity Ratios (continued) Efficiency in managing cash  Net Trade Cycle  Average Collection Period  Days Inventory Held  Days Payable Outstanding Liquidity / Coverage 108 1341,087 Fixed Charge Coverage 2.562.752.86 Cash Flow Adequacy 1.241.251.37 Leverage Ratios (continued) Profitability Ratios Address overall efficiency and performance  Gross Profit Margin  Operating Profit Margin /


Mercer capital is listed on New Zealands Financial Service Provider Register (No. FSP347626) and is also a member of the Financial Services Complaints.

Understanding FOREX World Money Management Margin & Leveraging Strategy Tester and Statistics FREEDOMLITE Program Setting the Configuration for FREEDLITE Mercer capital is listed on New Zealands Financial Service Provider Register (No. FSP347626) and is also a member of the Financial Services Complaints Limited. PLATFORM UNDERSTANDING COMPULSORY – 90 DAYS PROGRAM There is a requirement for all agents to go through 90 Days program in LEARNING the Expert/


Chapter 13 Leverage and Capital Structure. © Pearson Education Limited, 2015.13-2 Learning Goals LG1Discuss leverage, capital structure, breakeven analysis,

total liabilities ÷ total assets). –The higher this ratio is, the greater the relative amount of debt (or financial leverage) in the firm’s capital structure. Measures of the firm’s ability to meet contractual payments associated with debt include the/ structure range. It is not yet possible to provide financial managers with a precise methodology for determining a firm’s optimal capital structure. Nevertheless, financial theory does offer help in understanding how a firm’s capital structure affects the firm/


14 - 1 CHAPTER 14 Capital Structure and Leverage Business vs. financial risk Optimal capital structure Operating leverage Capital structure theory.

than originally estimated, how would the analysis be affected? If there were higher business risk, then the probability of financial distress would be greater at any debt level, and the optimal capital structure would be one that had less debt/factors affect the Target Capital Structure? 1.Sales stability? 2.High operating leverage? 3.Increase in the corporate tax rate? 4.Increase in the personal tax rate? 5.Increase in bankruptcy costs? 6.Management spending lots of money on lavish perks? 14 - 41 Long-term/


Article: The Real Cause of the Financial Crisis. Outline What is financial leverage How financial leverage works Example how financial leverage related.

save Jims presentation a good video that save Jims presentation References Andy Singh., Leverage 101: The Real Cause of the Financial Crisis(2008) Brigham, Eugene F., Fundamentals of Financial Management (1995). Brigham, Eugene F., Fundamentals of Financial Management (1995). Mock, E. J., R. E. Schultz, R. G. Schultz, and D. H. Shuckett, Basic Financial Management (1968). Mock, E. J., R. E. Schultz, R. G. Schultz, and D. H/


13 - 1 Lecture Fourteen Capital Structure and Leverage Business vs. financial risk Operating leverage/financial leverage Optimal capital structure Capital.

financial leverage? Financial risk? Financial leverage is the use of debt and preferred stock. Financial risk is the additional risk concentrated on common stockholders as a result of financial leverage. 13 - 8 Business Risk vs. Financial Risk Business risk depends on business factors such as competition, product liability, and operating leverage. Financial/ operating leverage? 3.Increase in the corporate tax rate? 4.Increase in the personal tax rate? 5.Increase in bankruptcy costs? 6.Management spending /


© Tata McGraw-Hill Publishing Company Limited, Financial Management 18 - 1 Chapter 18 Operating, Financial And Combined Leverage.

presence or absence of financial leverage. Financial leverage can be more precisely expressed in terms of the degree of financial leverage (DFL). The DFL can be calculated by Eq. (3) © Tata McGraw-Hill Publishing Company Limited, Financial Management 18 - 18 As a rule, when a percentage change in EPS resulting from a given percentage change in EBIT is greater than the percentage change in EBIT, financial leverage exists. In other words, financial leverage occurs when the quotient/


1-1 CHAPTER 1 An Overview of Financial Management Career Opportunities Issues of the New Millennium Forms of Businesses Goals of the Corporation Agency.

leverage High operating leverage EBIT H 1-422 What is financial leverage? Financial risk? Financial leverage is the use of debt and preferred stock. Financial risk is the additional risk concentrated on common stockholders as a result of financial leverage. 1-423 Business risk vs. Financial/ the item has risen substantially in the interim. 1-588 CHAPTER 19 Multinational Financial Management Multinational vs. domestic financial management Exchange rates and trading in foreign exchange International money and /


1 - 1 CHAPTER 1 Overview of Corporate Finance and the Financial Environment Corporate finance Forms of business organization Objective of the firm: Maximize.

(NOPAT/Capital = EBIT(1-T)/TA) are unaffected by financial leverage. L has higher expected ROE: tax savings and smaller equity /in the optimal range. Stock splits generally occur when management is confident, so are interpreted as positive signals. 1 - 706 Factors that make multinational financial management different Exchange rates and trading International monetary system International financial markets Specific features of multinational financial management CHAPTER 15 Multinational Financial Management/


An Overview of Finance Chapter 1. Career Opportunities in Finance uFinancial markets uInvestments uManagerial finance.

investors about how management views the firm’s prospects Signaling Theory uReserve borrowing capacity F the ability to borrow money at a reasonable cost when good investment opportunities arise F firms often use less debt than “optimal” to ensure that they can obtain debt capital later if it is needed Variations in Capital Structures among Firms uWide variations in use of financial leverage among industries/


Leverage & Capital Structure. Leverage A firm is said to be leveraged if it has fixed costs. There are two types of leverage: Operating leverage – fixed.

that the most expensive sources of capital are equity (common stock and retained earnings). From leverage analysis, we know that adding debt adds risk. Adding risk adds cost to WACC. Therefore adding debt will increase its cost, and the cost of equity. The goal of the financial manager is to maximize shareholder wealth: What level of debt will maximize the value of the/


17.1 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer. Chapter.

, arbitrage is possible. Arbitrage and Total Market Value of the Firm 17.23 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer. EXCEPT Consider two firms that are identical in every respect EXCEPT: Company NL – no financial leverage Company L – $30,000 of 12% debt Market value of debt for Company L equals its par value/


Private Wealth Management Pulling the Rabbit Out of the GRAT Hat: Some of the Most Creative Structural GRAT Planning Ideas We See Out There.

Client’s Descendants if Used With a Leveraged FLLC Asset GRAT (Continued) Growth member interest & $6,000,000 Preferred member interest (7.0% coupon) Doing Good Donor Advised Fund Contributes $18,000,000 in financial assets $420,000 Annual Preferred Coupon Generous FLLC George Generous 1 2 $6,000,000 Preferred interest (7.0% coupon) Managing and non-managing member interest & $11,708,100 9/


Copyright © 2009 Pearson Prentice Hall. All rights reserved. Chapter 12 Leverage and Capital Structure.

returns to the firm’s owners. Generally, increases in leverage result in increases in risk and return, whereas decreases in leverage result in decreases in risk and return. The amount of leverage in the firm’s capital structure—the mix of debt and/ capital structure, the financial manager must accept as given these levels of EBIT and their associated probabilities. These EBIT data effectively reflect a certain level of business risk that captures the firm’s operating leverage, sales revenue variability,/


Leverage and Capital Structure Dr. C. Bulent Aybar Professor of International Finance.

up valuable investment opportunities, especially when faced with the prospect of default. In such cases, corporate managers are likely not only to postpone major capital projects, but to make cutbacks in R&D, maintenance, advertising, travel, or training that end up reducing future profits. © Dr. C. Bulent Aybar Optimal Leverage with Taxes, Financial Distress, and Agency Costs © Dr. C. Bulent Aybar Asymmetric Information Due to/


Management Simulations, Inc. The Nature of Accounting “Accounting is the identification, measurement and communication of financial information about economic.

’s data Leverage = Total Assets / Total Equity. Ideal Leverage 1.81 to 2.80 – from shareholder’s perspective Lenders prefer to examine Debt / Assets Managers favor Debt / Equity The Analyst Report on the website provides coaching on Financial Structure Management Simulations, Inc/net profit in this example tells the management team there is additional work to be done in the Strategy section Red number – bad, black number - good Management Simulations, Inc. Cash Flow Statement Shows movement of cash in and /


Chapter 12.

Risk Break-even analysis Operating leverage, financial leverage, and combined leverage Calculate: operating leverage, financial leverage, and combined leverage Optimal capital structure Capital structure theory Graph the moderate position on capital structure Agency costs and free cash flow Basic tools of capital structure management Business risk and global sales Risk Likely variability associated with expected revenue or income streams Business Risk Dispersion (variability) in the firm’s expected earnings/


16 - 1 Copyright © 2002 by Harcourt, Inc.All rights reserved. CHAPTER 16 Capital Structure Decisions: The Basics Impact of leverage on returns Business.

by Harcourt, Inc.All rights reserved. Conclusions Basic earning power = BEP = EBIT/Total assets is unaffected by financial leverage. L has higher expected ROI and ROE because of tax savings. L has much wider ROE (and EPS)/ reserved. Forecasting models can generate results under various scenarios, but the financial manager must specify appropriate input values, interpret the output, and eventually decide on a target capital structure. In the end, capital structure decision will be based on a combination of/


Financial Leverage and Capital Structure Policy

The firm can increase leverage by issuing debt and/or repurchasing outstanding shares The firm can decrease leverage by issuing new shares and/or retiring outstanding debt Choosing a Capital Structure What is the primary goal of financial managers? Maximize stockholder wealth! /35) = 13.95% Remind students that a D/E ratio = 1 implies 50% equity and 50% debt. The amount of leverage in the firm increased, so the cost of equity increased. But, the overall cost of capital decreased. M&M Proposition II + Case II/


Chapter 6 The capital play an important role in both starting a bank and insuring its survival. Directors and managers of banks, customers and regulatory.

management has become as much a matter of legal requirement in the public interest as it is a matter of management discretion. Why Worry About Bank Capital? Capital requirements reduce the risk of failure by acting as a cushion against losses, providing access to financial/operational risk, and other related risks 2- The need for leverage to improve the returns to equity. Commercial bank must have the financial leverage resulting from low level of equity in relation to assets. From the owners “point of view /


Chapter 16 Capital Structure.

increases, firm value increases Interest tax shield (TCD) Improvements in managerial incentives. If leverage is too high, firm value is reduced by present value of financial distress costs agency costs The optimal level of debt, D*, balances these benefits and costs of leverage. 97 16.6 Additional Consequences of Leverage: Agency Costs and Information Asymmetric information Managers’ information about the firm and its future cash flows/


Capital Structure Decisions

0.24 0.39 E(TIE) 2.5x 8 Conclusions Basic earning power = BEP = EBIT/Total assets is unaffected by financial leverage. L has higher expected ROI and ROE because of tax savings. L has much wider ROE (and EPS) swings because / (More...) Forecasting models can generate results under various scenarios, but the financial manager must specify appropriate input values, interpret the output, and eventually decide on a target capital structure. In the end, capital structure decision will be based on a combination of/


Financial Leverage and Capital Structure Policy

companies are usually highly leveraged, whereas companies involved in technological research are not. Uncertainty of Operating Income Even without debt, firms with uncertain operating income have high probability of experiencing financial distress. Thus these firms must finance with equity (e.g. Drug companies) Determinants of Capital Structure According to Financial Managers According to a survey (Pinegar and Wilbricht) financial managers consider the following factors in making capital structure/


Chapter 15 Capital Structure Decisions

point using the following graph: Operating Profit and Operating Leverage Sales Risk By consulting with the marketing management of the company, the financial managers at Gearing have determined the price at which they can sell the gaskets based on the volume of sales: When we introduce the demand function for the product, we introduce more variability in the operating profit margin. Hence, operating earnings are/


The Financial Manager and the Firm

asset turnover, which measures firm’s asset use efficiency. The equity multiplier, which measures firm’s financial leverage. Exhibit 4.5: Relations in the DuPont System of Analysis Selecting a Benchmark A ratio analysis becomes relevant only when compared against a benchmark. Financial managers can create a benchmark for comparison in three ways: 1. Time-trend 2. Industry average 3. Peer group Selecting a Benchmark Time/


John V. Balanquit johnthecpa.wikispaces.com

leverage, efficiency, productivity, liquidity and value How to calculate, interpret, and evaluate the key ratios related to leverage, efficiency, productivity, liquidity, and value Why financial forecasts provide critical information for both management and external parties How to prepare financial/) Valuation Ratios Interpreting Ratios Can you draw any conclusions for the comparative valuation ratio data summarized in this table? Copyright Copyright © 2007 John Wiley & Sons Canada, Ltd. All rights reserved./


(using financial statements)

assess risk Used by investors to assess stocks and bonds Used to compare with industry and over time FINANCIAL RATIOS Types of ratios Liquidity -ability to meet short term debt Asset management -efficiency in using resources Financial leverage management -level of risk due to debt Profitability -effectiveness in generating profits Market-based -market’s view of the firm Liquidity Ratios Current ratio = Current assets Current liabilities CR/


Capital Structure Decisions

financial leverage. Business Risk vs. Financial Risk Business risk depends on business factors such as competition, product liability, and operating leverage. Financial risk depends only on the types of securities issued: More debt, more financial risk. Concentrates business risk on stockholders. How are financial and business risk measured in/theory Symmetric information - same information Asymmetric information - managers have better information than investors Firms with favorable future - use debt/


Key Issues 3 ways to increase the value of money Asset turnover model

/ (merchandise inventory* = manager and GMROI buyer) Store operations Net sales Square foot Net sales / (director of stores, square foot store manager) *Inventory = Average inventory at cost Income Statements: Wal-Mart vs Tiffany (2000, in millions) Wal-Mart Tiffany Net/ + Asset turnover Financial Leverage Accounts receivable Total current assets Total assets + + Other current assets Fixed assets Effect of Changes in the SPM on ROI Return on Investment Asset Turnover = Net Profit Margin Leverage Ratio x x /


Copyright © 2010 Pearson Prentice Hall. All rights reserved. Chapter 14 Financial Ratios and Firm Performance.

. Using the 2009 income statement and balance sheet of Tri-Mark Products Inc., as constructed in Problems 1 and 2 above, compute its financial ratios. How is the firm doing relative to its industry in the areas of liquidity, asset management, leverage, and profitability? Copyright © 2010 Pearson Prentice Hall. All rights reserved. 14-39 ADDITIONAL PROBLEMS WITH ANSWERS Problem 4 (continued) RatioIndustry Average Current Ratio2/


Capital Structure and Leverage

) /[Q*(P-V) –F] Probability Low operating leverage High operating leverage EBITL EBITH Typical situation: Can use operating leverage to get higher E(EBIT), but risk increases. What is financial leverage? Financial risk? Financial leverage is the use of debt and preferred stock. Financial risk is the additional risk concentrated on common stockholders as a result of financial leverage. Financial Leverage DFL= % change in EPS/%change in EBIT EPS=NI /N=(EBIT-I)(1-T/


Chapter 16: Capital Structure Decisions: The Basics

signal. Implications for managers? Debt Financing and Agency Costs One agency problem is that managers can use corporate funds for non-value maximizing purposes. The use of financial leverage: Bonds “free cash flow.” Forces discipline on managers to avoid perks and/The stock price after debt is issued but before stock is repurchased reflects shareholder wealth: S, value of stock Cash paid in repurchase. (More…) Stock Price for wd = 20% (Continued) D0 and n0 are debt and outstanding shares before recap./


Financial Derivatives

should monitor continuously the commitments represented by the derivative product. Financial derivative instruments that have leveraging features demand closer, even daily or hourly monitoring and management. Leveraging Some derivative products may include leveraging features. These features act to multiply the impact of some agreed-upon benchmark in the derivative instrument. Negative movement of a benchmark in a leveraged instrument can act to increase greatly a partys total repayment/


Capital Structure Determination

-equity ratio. Thus, there is no one optimal capital structure. Traditional Approach Traditional Approach -- A theory of capital structure in which there exists an optimal capital structure and where management can increase the total value of the firm through the judicious use of financial leverage. Optimal Capital Structure -- The capital structure that minimizes the firm’s cost of capital and thereby maximizes the value/


ENGG 401 X2 Fundamentals of Engineering Management Spring 2008

the number of times the inventory is “turned over” Generally, a high inventory turnover is an indicator of good inventory management. But a high ratio can also mean there is a shortage of inventory, which may mean the company may miss a/ contractual obligation and can’t be missed. Using Preferred Shares or Debt to raise capital are examples of financial leverage Concepts in Corporate Finance – Leverage Leverage is when you use the money from someone else to grow the company, or achieve its goals Common /


Leverage & Capital Structure

financial leverage. *兩種fixed financing costs: interest expense與preferred stock dividend Degree of Financial Leverage Operating & Financial Leverage Degree of Financial Leverage 注意:若有特別股存在,則這裡要再減去特別股股利 Degree of Financial Leverage Interval Estimate of DFL Operating & Financial Leverage Degree of Financial Leverage Interval Estimate of DFL DFL = % Change in EPS = 46.67% = 1.33 % Change in EBIT 35.00% In/ more diffused and therefore separated from management. Manager has incentives to consume more perks and/


Financial Instruments –Overview and advisory services Energy and Managing Authorities (EMA) Network Brussels, 17 March 2015 Robert PERNETTA Policy Analyst.

Learn and build on the experience from 2007-2013 Managing Authority Holding Fund Financial products Specific fund managed by financial intermediary Final recipients Key advantages State aid compatibility Governance structures Based market practise Full pass on of advantage to final beneficiary Minimum leverage ensured Renovation Loan based on a Risk sharing loan model Urban Development Fund (in preparation) Useful sources Off the shelf instruments (Annexes to/


Gayle Willett Pacific Northwest Risk Management Education Project College of Agriculture and Home Economics Cooperative Extension Department of Agricultural.

rates, prices of competing commodities, etc.). 3.Financial n Variability in returns to equity capital and in cash flow resulting from financing. n Subject of this discussion. o Objectives of Discussion 1.Define and Characterize Financial Risk. 2.Identify Sources of Financial Risk. 3.Note the Relationships Between Debt, Leverage, and Risk. 4.Determine Appropriate Debt and Leverage. 5.Manage Credit and Liquid Reserves. 6.Understand Risk Implications/


Vendor Management Frequent regulatory findings:

revenues/profits Reputation 15 Risk Assessment Management oversight Does Management have the competence? Does Management have the time? Contingency plans Do others offer this product/service? Can it be brought in-house? Regulatory guidance What additional/ to document this process Pillar 2 Vendor financial stability Vendor’s expertise, systems, controls Vendor’s knowledge of relevant regulations Leveraging institution purchasing and contracts management Pillar 3 Service levels Pricing Business continuity /


CMA Part 2 Financial Decision Making

+ Div. on Pre. Stock Eliminates issues associated with accrual accounting 2.5 – Leverage Types of Leverage A company uses leverage in two ways: financial and operating. Financial leverage is raising capital through debt rather than equity. While debt holders are entitled to / It should increase as the company grows Permanent financed with long-term debt SU 6.2 – Cash Management Managing the cash levels What are the motives for holding cash? Transactional Precautionary Speculative What is the firms optimal/


Moody’s Asset Management Conference: Will There Be A Great Rotation?

: Nuveen Investments Yield Curve Shift, Year To Date, Has Been Insignificant US Muni General Obligation AA+ Curve Source: Bloomberg 4 Financial Management Financial Management Leverage issuers have used variable and fixed dividend rates. Relative cost of liquidity providers and remarketing a factor In a low rate environment, incentive exists to “term out” fixed-rate financing Issuance of “term trust” versus perpetual versus a marketing consideration, given/


Capital Structure and Leverage KHALID AZIZ 0322-3385752.

will move the capital structure in the direction of more debt. The firm’s leverage positions at expected output levels with and without the project are summarized as follows: The economic outlook is uncertain and some managers fear a decline in sales of as much as 10% in the coming year. Evaluate the effect of the proposed project on risk in financial performance. A:The firm’s/


LEVERAGE ANALYSIS. Leverage The dictionary meaning of the firm leverages refers to “an increase means of accomplishing purpose ”. In machines, leverages.

valid in business too. In financial management, it is used to describe the firms ability to use fixed assets costs funds to satisfy to magnify the returns of its owners. DEFINATION : “Leverage is the ratio of the net rate of return on shareholder’s equity and net rate of return on total capitalization.” Types of leverage There are three types of leverages- 1. Financial leverage 2. Operating leverage 3. Composite leverage Financial leverage/


1 Analysis and Impact of Leverage Chapter 15. 2 Learning Objectives Learning Objectives  Understand the different between business risk and financial.

’s break-even point in terms of units produced and sold, and in sales dollars.  Distinguish among the financial concepts of operating leverage, financial leverage, and combined leverage.  Calculate the firm’s degree of operating leverage, financial leverage, and combined leverage.  Explain why a firm with a high business risk exposure might logically choose to employ a low degree of financial leverage in its financial structure. 3 Goal of a firm Managers objective is to maximize/


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