COMM 300: Financial Analysis

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Capital in capital budgeting: the budgeting of the use of the assets in the firm
Capital in weighted average cost of capital: the average cost of the "capital structure"

[edit] Class notes

[edit] 10/4/2005

[edit] 10/5/2005

[edit] 10/27/2005

[edit] 10/31/2005

COMM 300: Financial markets

[edit] 11/02/2005

COMM 300: Capital budgeting

[edit] 11/03/2005

[edit] Writing a case

Major parts:
- Intro
  - KNOW EVERYTHING about the situation
  - Contries
  - Significance of era
  - Who are the players
  - Everything about it
- Issues
  - What are the problems
  - What do the people need?
- Analysis

- Alternatives & decision
- Action plan

[edit] 11/09/2005

COMM 300:

Risk & return

Definations:

Event - particular outcome Probability: percentage chance that an event will occur Probability distribution: the probability of all possible events Uncertainty: variability in outcomes (this can be anything - not just money) Risk: probability of realizing low or negative returns

[edit] Determing returns

See notes for finance version of standard deviation

Coefficient of variation = standard deviation / expected return (Normalizes std. dev. for the return - $1 deviation on a $10 return is more risky than on a $100 return)

[edit] portfolio returns

The weighted average of all the returns (weighted for the percentage amt

[edit] portfolio risk

diversification reduces risk

random diversification can only reduce risk so much. This will only diversify firm-specific risk, not diversify systemaic (macro-economic) risk.

[edit] Misc. Notes

[edit] Using the financial calculator

Problem:
- -50k inital outflow
- 10 k inflow for 7 years
- 8k inflow in year 8
- cost of capital of 9%

Calculating on calculator
- -50,000 button: CFj (enter -50k into Cash flow register)
- 10,000 CFJ
- 7 Nj (do that previous command 7 times)
- 8,000 CFj (year 8)
- 9 I/YR (enter cost of capital)
- PRESS NPV for Net Present Value

[edit] Finanacial health

Memo on top, giving a diagnosis (what's up)
Interpreting the test results
- Historical ratio analysis
- Cross sectioanl ratio
- Sources & uses of funds
  - THIS MUST BALANCE
  - MUST TALKE ABOUT WHERE THEY ARE GETTING THEIR MONEY FROM

[edit] Financial forcasting

Memo on top, giving PROGNOSIS
- Tell them what will happen, and how do you know this.
- Pro forma
- Explain assumptions
- What the result will be (in three years?)
  - Tell what income statement & balance sheet will be like in the next three years
  - BALANCE SHEET MUST BALANCE
  - Surplus or deficit? (must be on one side)
  - Realize: you can get money from a loan, increasing notes payable, increasing AR, cost cutting etc.
- WE DON'T HAVE TO CALCULATE BETA COEEFICIENT OR STOCK PRICE

[edit] Intro to excel

$B$2 is a static reference to B2

[edit] Notes on personal budget

make it realisitc
determine discount rate by figuring out the cost of capital, then moving it up or down because of risk

the market share reporter

[edit] 11/14/2005

COMM 300: Weighted Average Cost of Capital