# COMM 300: Financial Analysis

### From BluWiki

- 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"

## Class notes

### 10/4/2005

### 10/5/2005

### 10/27/2005

### 10/31/2005

### 11/02/2005

### 11/03/2005

## 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

- Intro

- Alternatives & decision
- Action plan

### 11/09/2005

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

## 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)

## portfolio returns

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

### 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.

### Misc. Notes

#### 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

#### 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

#### 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

#### Intro to excel

- $B$2 is a static reference to B2

#### 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