Welcome to Financial
Management Course!
Faculty of Economics and Management
Lecturer: Dr Mai Nguyen Thuy
Email: [Link]@[Link]
1
Teaching schedule
Module 1 Introduction to financial management
Module 2 Financial statements _ Overview and analysis
Module 3 Time value of money
Module 4 Investment criteria
Module 5 Bond valuation
Module 6 Stock valuation
Module 7 Project cashflows
Module 8 Inflation in project appraisal
Module 9 Project risk analysis
Module 10 Cost of capital
Module 11 Company valuation
2
Module 2 _
Financial Statements
Analsyis
Course: Financial Management
Master of Business and Administration
3
Topics Covered
➢Business activities
➢Financial statements overview
➢Balance sheet
➢Income statement
➢Cash flow
➢Cash equaltion
➢Source and use
➢Cash flow statement
4
❖ Objectives • Shareholder’s wealth
❖ Strategies • Products, market
Investing Financing
(short, long term) FIRM (short, long term)
ASSETS DEBT + EQUITY
Operating
PROFIT/LOSS
5
• Shareholder’s wealth
❖ Objectives • Products, market
Investing
❖ Strategies Financing
Short-term: Short-term:
- Cash - Loans
- Receivable - Payable
- Inventory - Employments
- Investment - Taxes
Long-term: Long-term:
- PPE Operating - Debt
- Intangible (Production, - Equity
- Invesment services) - Others
PROFIT/LOSS
ASSETS DEBT + EQUITY
6
Questions for discussion
❖Any party involved in working with business (by
rights or responsibility) want to know the two basic
information:
➢The business’s financial position
➢The business’s operating performance
Discussion:
- Who is involved in a business?
- What do they do with the information?
7
Financial statements role
FINANCIAL
STATEMENTS
Who
Business involved
in
RESOURCES
8
INTRODUCTION TO FINANCIAL STATEMENTS
❑Balance sheet
❑Income statement
❑Cash flow statement
9
Balance Sheet: Investing & Financing
ASSETS DEBT + EQUITY
- Current assets: - Liabilities (debts)
✓ Cash ✓ Borrowing
Investing ✓ Receivable ✓ Payable Financing
Activities ✓ Inventory ✓ Employments Activities
✓ Investment ✓ Taxes
- Non-current - Shareholders’
assets Equities
✓ Initial capital
✓ Retained earnings
10
Income statement : Operating
SALES REVENUE
(-) Cost of Good Sold (COGS)
(=) Gross profits (GM)
(-) Operating Expenses (GSA)
(=) Earnings before Interest, Taxes, and Depreciation (EBITDA) Operating
(-) Depreciation (DA) Activities
(=) Earnings before Interest and Taxes (EBIT)
(-) Interest (I)
(=) Earnings before Taxes (EBT)
(-) Taxes (T)
(=) Net Earnings (Income) (NI)
(-) Dividends
(=) Retained Earnings (RE)
11
Relationship between
Balance sheet and Income Statement
Balance Sheet Balance Sheet
(31/12/20X1) (31/12/20X2)
Income Statements
(For the year 20X1)
Notes:
If Income Statement shows Possitive net income, then Retained Earnings on the
Balance sheet 2023 will increase
If Income Statement shows Negative net income, then Retained Earnings on the
Balance sheet 2023 will decrease
RETAINED EARNINGS (As a part of Equity) = Revenue – Expenses
So: Equity increases by Revenue
Equity decreases by Expenses
12
Happy Corp
Balance Sheet, at 31 Dec 2023
ASSETS 2022 2023 LIABILITY & EQUITY 2022 2023
Cash $363 $488 Account payable $450 $292
Accounts receivable 503 365 Borrowings 1,600 1,070
Inventories 289 300 Total current liability $2,050 $1,362
Total current assets $1,155 $1,153 Capital 700 750
RE 405 541
Total Equity $1,105 $1,291
Net fixed assets $2,000 $1,500 Total Liability and
Total assets $3,155 $2,653 Equity $3,155 $2,653
13
Happy Corp.
Income Statement, year ended 31 Dec 2023
2022 2023
Sales revenue $3,074 $2,800
(-) Cost of goods sold 2,088 1,711
(=) Gross profits $986 $1,089
(-) Operating expenses 325 450
(=) Earnings before Interest, Tax, and
$661 $639
Depreciation (EBITDA)
(-) Depreciation expense 239 200
(=) Earnings before Interest and Tax (EBIT) $422 $439
(-) Interest 200 109
(=) Earnings before tax (EBT) 222 330
(-) Tax (35%) (*) 78 116
(=) Net income (NI) $144 215 14
Happy Corp.
Income Statement, year ended 31 Dec 2023
(single step)
2022 2023
Sale revenue, net $3,074 $2,800
Cost:
Cost of goods sold 2,088 1,711
Selling and administration 325 450
Depreciation 239 200
Interest 200 109
Taxes 78 116
Total Costs $2,930 $2,586
Net Income $144 $215
15
Cash Flow
Payable
(Purchasing
on credit) (Pay supplier)
Cash
(Collection)
(Sales on
Receivable cash)
(Sales on
credit)
(Operating)
Inventory
Fixed Assets
(Investing) (Depreciation)
16
Cash Equation
▪Assets = Liability + Equity
Current assets + Non-current assets = Liability + Equity
Cash + Receivable + Inventory = Payable + Loan + Equity – Non-
current assets
Cash = Payable + Loan + Equity – Non-current assets – Receivable – Inventory
LIABILITIES + EQUITY ASSETS
Notes: Liabilities and equity move in the same direction with cash
Assets move in the opposite direction with cash
17
Happy Corp
Balance Sheet and the Cash Flow
Cash
Assets 2022 2023 Change
Flow
Cash $363 $488 $125 ($125)
Accounts receivable 503 365 ($138) $138
Inventories 289 300 $11 ($11)
Net fixed assets $2,000 $1,500 ($500) $500
Account payable $450 $292 ($158) ($158)
Borrowings 1,600 1,070 ($530) ($530)
Capital 700 750 50 50
Retained earnings 405 541 $136 $136
18
Source and Use
19
HAPPY CORP.
CASH FLOW STATEMENT, 2023
(Indirect method)
20
HAPPY CORP.
CASH FLOW STATEMENT, 2023
(Indirect method)
21
HAPPY CORP.
CASH FLOW STATEMENT, 2023
(Direct method)
22
HAPPY CORP.
CASH FLOW STATEMENT, 2023
(Direct method)
23
HAPPY CORP.
CASH FLOW STATEMENT, 2023
(Direct method)
Same as operating cash flow in Indirect method!
24
Source: [Link] 25
Dr. Nguyen Thuy Mai – Faculty of Economics and Management 26
Source: [Link] 27
.chn
Source: [Link] 28
.chn
In 2020, operating activities create a
positive cash flow of VND 11,587 bil.
In 2020, cash flow from operating (11,587
bil) and financing (16,054 bil) used to cover
investing cash flow (18,495 bil)
Source: [Link] 29
30
Minicase: SUNDSET BOARDS, INC
❖Page 47
❖Note:
➢Preparing income statements for 2014, 2015
➢Preparing balance sheets for 2014, 2015
➢Preparing cash flow statement
31
Minicase: SUNDSET BOARDS, INC
INCOME STATEMENT 2014 2015
Sales
Cost of goods sold
32
Minicase: SUNDSET BOARDS, INC
BALANCE SHEET, YEAR ENDED 31ST DECEMBER 2014
Cash Accounts payable $20,143
Total assets Total Liab. and equity
Source: Fundamental of Corporate Finance, Chapter 2, Ross, Westerfield, and Jordan 33
Minicase: SUNDSET BOARDS, INC
BALANCE SHEET, YEAR ENDED 31ST DECEMBER 2015
Cash Accounts payable
Total assets Total Liab. and equity
Source: Fundamental of Corporate Finance, Chapter 2, Ross, Westerfield, and Jordan 34
Minicase: SUNDSET BOARDS, INC
I. OPERATING ACTIVITIES
Net Income $66,410
Cash flow from Operating activities
35
Minicase: SUNDSET BOARDS, INC
II. INVESTING ACTIVITIES
Cash flow from fixed assets
Cash flow from Investing activities
36
Minicase: SUNDSET BOARDS, INC
III. FINANCING ACTIVITIES
Increase in long-term loan
Increase in owner's equity
Dividend payment
Cash flow from Financing activities
37
Mini Case: SUNDSET BOARDS, INC
NET CASH FLOW (=I+II+III)
Reconcilliation:
Cash at the beginning of 2014
(+) Cash changed during the year 2015
(=)Cash at the end of 2015
38
Minicase: SUNDSET BOARDS, INC
3. Using the OCF equation:
OCF = EBIT + Depreciation – Taxes
The OCF for each year is:
OCF2014 =
OCF2015 =
40
Minicase: SUNDSET BOARDS, INC
3. Calculating Cash flow from assets (free cash flow):
Operating cash flow
(-) Net capital spending
(-) Change in working capital
(=) Cash flow from assets
41
Minicase: SUNDSET BOARDS, INC
[Link] the OCF equation:
OCF = EBIT + Depreciation – Taxes
The OCF for each year is:
OCF2014 = $94,931 + 55,506 – 24,859
OCF2014 = $125,578
OCF2015 = $108,702 + 62,738 – 28,461
OCF2015 = $142,979
42
4. Capital sepnding was:
Capital spending
Ending net fixed assets
(– )Beginning net fixed assets
(+) Depreciation
Net capital spending
43
5. And the change in net working capital was:
Change in net working capital
Ending NWC
(–) Beginning NWC
Change in NWC
44
6. So, cash flow from assets is:
CASH FLOW FROM ASSETS
Operating cash flow
(–)Net capital spending
(–) Change in NWC
(=)Cash flow from assets
45