MANAJEMEN KEUANGAN

(MNZ16)
 OUTLINES
UTS
• Financial Management and the Firm & A
Review of Financial Statements
• Financial Statement Analysis
• Discounted Cash Flow Analytics
• Risk Analysis
• Bond Valuation
• Review
 OUTLINES
UAS
• Equity Valuation
• The Opportunity Cost of Capital
• Capital Investment Decision Analysis
• Financial Leverage and Capital Structure
Policy
• Financial Forecasting and Planning
• International Corporate Finance
 BOOK
– Keown, Arthur J., Martin, John D., Petty, J. William.
(2017).Foundations of
Finance.9th.Pearson,England
 KOMPOSISI PENILAIAN
• TUGAS = 30%
• UTS = 30%
• UAS = 40%
 CLASS RULES
• Point system :
Tambah :
(+) Aktif
(+) Tugas
(+) Latihan Soal
 Kompetensi Umum
• Mahasiswa dapat merapkan berbagai
pendekatan / konsep manajemen keuangan
sebagai salah satu pertimbangan pengambilan
keputusan bisnis
Financial Management and the
Firm
SESSION 1
 MATERI
1) The Goal of the Firm
2) Five Principles That Form the Foundation of
Finance
3) The Role of Finance in Business
4) The Legal Forms of Business Organization

Keown, Arthur J., Martin, John D., Petty, J. William

BAB : 1
Hal : 28-45
 The Goal of the Firm
• Fundamental Goal of a business = to create value for the
company’s owners (shareholders)  Memaksimalkan
kekayaan shareholders dengan cara memaksimalkan harga
saham
• How? By making good financial decision that will maximize the
price of the stock.
• Shareholders = The legal owners of the firm
• All financial decisions will affect the firm’s stock price. Poor
decision  stock price fall, good decision  pushing up the
price of the stock
• The market price of the firm’s stock reflects the value of the
firm
Five Principles That Form the Foundation of
Finance

Principle 1 : Cash Flow is What Matters

• Cash flow = aliran kas masuk dan keluar
• Cash flow represent money that can be spent
• Cash flow determines the value of a business
 Five Principles That Form the Foundation of
Finance (Cont’d)
Principle 2 : Money Has a Time Value
• Pilih mana? $1,000 NOW or $1,000 a year later?
• A dollar received today is more valuable than a dollar received one
year from now
• If you choose $1,000 a year later, you suffered an “opportunity
loss / opportunity cost”
• Opportunity cost = the cost of making a choice in terms of the next
best alternative that must be foregone
• Example :
Choice 1 : loan money to your brother at no interest
Choice 2 : loan money to a friend with 8% interest
Then opportunity cost of making the load to your brother = 8%
Five Principles That Form the Foundation of
Finance (Cont’d)
Principle 2 : Money Has a Time Value
• Our focus = the creation and the measurement
of value
• To measure value = kita menggunakan konsep
dari Time Value of Money untuk menghitung
“Future Benefits dan Costs” dari suatu project ke
nilai sekarang.
• If benefit / cash inflows > costs = create wealth
 ACCEPTED
Five Principles That Form the Foundation of
Finance (Cont’d)
Principle 3 : Risk Requires a Reward
• Investor  expect return on investment
• Requirement of the return :
1. A return for delaying consumption - no one would put off
the use (consumption) of their money if they were not to be
rewarded by earning more satisfaction (money) in the future.
2. An additional return for taking on risk - Investors don’t like
risk and seek to avoid it. Risky investments are unattractive,
UNLESS, they offer the prospect of greater returns. The higher
the risk, the higher the expected rate of return
Five Principles That Form the Foundation of
Finance (Cont’d)
Principle 4 : Market Price Are Generally Right
• To understand how securities are valued or
priced, it’s necessary to understand the
concept of an efficient market
• Efficient Market = pasar dimana harga
sekuritas mencerminkan semua informasi
tentang sekuritas tersebut dan juga nilai
aktualnya kepada publik
Five Principles That Form the Foundation of
Finance (Cont’d)
Principle 5 : Conflicts of Interest Cause Agency Problem
• Conflict of interest = they will do what is in their best interests rather
than the best interests of the organization
• Sometimes, there is conflict of interest between what is for the
managers and shareholders
• Example : Shutting down an unprofitable plant
• Agency Problem = Problems and conflicts resulting from the
separation of the management and ownership of the firm
• Manager may make decisions that are not in line with the goal of
maximizing shareholder wealth
• Example : avoid risky project
• Ideally  what is good for shareholders must also be good for
managers
 The Role of Finance in Business
• Finance = the study of how people and businesses evaluate investments
and raise capital to fund them
• There are three basic types of issues that are addressed by the study of
finance :
1. What long-term investments should the firm undertake?
This are of finance is generally referred to as capital budgeting
2. How should a firm raise money to fund these investments?
The firm’s funding choices are generally referred to as capital structure
decisions
3. How can the firm best manage its cash flows as they arise in its day-to-
day operations?
This area of finance is generally referred to as working capital
management
 The Role of Finance in Business (Cont’d)

Why Study Finance?

Although finance is primarily about the
management of money, a key component of
finance is the management and interpretation
of information
Even if you’re not planning a career in finance,
understanding of finance is very essential, both
for your career or your own personal finances.
 The Role of Finance in Business (Cont’d)

The Role of the Financial Manager

• Vice president for finance / Chief Financial Officer (CFO)
responsible for overseeing financial planning, strategic
planning, and controlling the firm’s cash flow.
• Treasurer = firm’s financial activities, including cash and credit
management, making capital expenditures decisions, raising
funds, financial planning and managing any foreign currency
received by the firm
• Controller = managing the firm’s accounting duties, including
providing financial statements, cost accounting, paying taxes,
etc.
The Legal Forms of Business Organization

1. Sole Proprietorships (perusahaan perseorangan) :

– A business owned by a single individual
– Owners maintain title to assets and profits
– Unlimited liability
– Termination occurs on owner’s death or by
owner’s choice
 The Legal Forms of Business Organization
(Cont’d)
2. Partnership (perusahaan persekutuan) :
An association of two or more individuals joining together as
co-owners to operate a business for profit
a. General Partnership :
A partnership in which all partners are fully liable or the
indebtedness incurred by the partnership
b. Limited Partnership :
A partnership in which one or more of the partners has limited
liability, restricted to the amount of capital of capital he or she
invests in the partnership.
There must be at least one general partner with unlimited liability
Limited partners cannot participate in the management of the
business and their names cannot appear in the name of the firm
 The Legal Forms of Business Organization
(Cont’d)
3. Corporation :
– An entity that legally functions separate and
apart from its owners
– Owners (shareholders) dictate direction and
policies of the corporation
– Shareholder’s liability is restricted to the amount
invested in the company
– Life of the corporation doesn’t depend on the
status of its owner.
– Ownership can easily be transferred
A Review of Financial
Statements
SESSION 2
 MATERI
1) The Income Statement
-Common-sized Income Statement
2) The Balance Sheet:
-Common-sized Balance Sheet
-Types of Assets
-Types of Financing
-Working Capital
3) Measuring Cash Flow
-Profits versus Cash Flow
-Statement of Cash Flow
Keown, Arthur J., Martin, John D., Petty, J. William
BAB : 3
Hal : 76-127
 The Income Statement
Or Profit and loss statement =
Indicates the amount of profits generated by a
firm over a given time period, such a 1 year.
Basic form : Sales – expenses = profits
 The Income Statement (Cont’d)
• Sales (revenue)  selling price x unit sold = total sales
• Cost of goods sold = cost of producing or acquiring product or
service to be sold
• Gross profit = sales or revenue minus the cost of goods sold
• Operating expenses =
– Marketing and selling expenses  cost of promoting the
firm’s products or services
– General and administrative expenses  example :
executive salaries and rent expense, depreciation expense
= noncash expense to allocate the cost of depreciable
assets such as plant and equipment over the life of the
asset
 The Income Statement (Cont’d)
• Operating income (earning before interest and
taxes) = sales less the cost of goods sold less
operating expense
• Interest expense = result from borrowing money
• Earning before taxes / taxable income = operating
income – interest expense
• Income tax = earning before taxes x tax rate
• Net income / net profit = earning available to
common stockholders
Constructing an Income Statement
(Example 2.1)
• Menielle, Inc. is a wholesale distributor of
electronics. It sells laptops, cameras, and
other electronic gadgets. Use the scrambled
information below to construct an income
statement, along with a common-sized income
statement. Also calculate the firm’s earnings
per share and dividends per share
Constructing an Income Statement
(Example 2.1) Cont’d
• Interest expense = $35,000
• Cost of goods sold = $150,000
• Selling and marketing expenses = $40,000
• Administrative expenses = $30,000
• Number of shares outstanding = 20,000
• Sales = $400,000
• Common stock dividends = $15,000
• Income taxes = $40,000
• Depreciation expense = $20,000
 STEP 1 : FORMULATE A SOLUTION STRATEGY
Sales
Less : Cost of goods sold
= Gross Profit
Less : Operating expenses (Selling and marketing expenses +
general and administrative expenses + depreciation expense)
= Operating Income
Less : Interest expense
= Earnings before taxes
Less : Income taxes
= Net income
STEP 2 : CRUNCH THE NUMBERS
 STEP 3 : ANALYZE YOUR RESULTS
• The firm is profitable
• Earning a net income of $85,000 or $4.25 per share
• Paying $15,000 in dividends or $0.75 per share
• For every $100 of sales, Menielle earned $62.5 in
gross profits, $40 in operating income, and $21.3 in
net income
• The dividends/ earning ratio is $15,000 : $85,000 =
17.6%, indicating that the firm is retaining most of its
earnings to grow the firm
 The Balance Sheet
• Balance Sheet : a statement that shows a firm’s
assets, liabilities, and shareholders equity at a specific
point in time.
• It is a snapshot of the firm’s financial position on a
particular date
• Balance Sheet reports company’s accounting book
value = the value of an asset as shown on a firm’s
balance sheet. It represents the historical cost of the
asset rather than its current market value or
replacement cost
 The Balance Sheet (Cont’d)
Total Assets = Total Debt (liabilities) + Total
Shareholder’s Equity
Total Assets = resource owned by the firm
Total liabilites and Total Shareholders’ Equity =
how those resources were financed
 The Balance Sheet (Cont’d)
Types of Assets
• Assets listed from the most liquid to the least liquid
• Liquidity = the ability to convert an asset into cash
quickly without a significant loss of its value
• Company’s Assets :
1. Current Assets
2. Long-term Assets (fixed assets : property, plant,
and equipment, and other long-term assets)
 The Balance Sheet (Cont’d)
Type of Assets
1. Current Assets (gross working capital)
Cash = cash on hand, demand deposits
Marketable Securities = short term that can quickly be
converted into cash
Account Receivable = money owed by customers who
purchased goods or services from the firm on credit
Inventories = raw materials, work in progress, and finished
goods for sale
Other Current Assets = other short-term assets that will
benefit future time periods, such as prepaid expense
 The Balance Sheet (Cont’d)
Type of Assets
2. Long-term Assets (Fixed Assets)
a. Fixed Assets (property, plant, equipment)
Machinery and equipment, buildings, land
Depreciation Expense : a noncash expense to allocate the
cost of depreciable assets, such as plant and equipment,
over the life of the asset (income statement)
Accumulated Depreciation : the sum of all depreciation
expense taken for a depreciable asset up to the date of the
financial statement (balance sheet)
Gross fixed assets : the original cost of a firm’s fixed assets
Net fixed Assets : gross fixed assets minus the accumulated
depreciation up to the date of the balance sheet
 The Balance Sheet (Cont’d)
Example :
A truck purchased for $20,000, depreciated over a 4-
year-life ($20,000 : 4 = $5,000)
 The Balance Sheet (Cont’d)
b. Other Long-term Assets
All the firm’s assets that are not current assets or
fixed assets
Example :
– Long term investments
– Intangible Assets = company’s patents, trademarks,
goodwill
 The Balance Sheet (Cont’d)
Types of Financing
• Debt : liabilities consisting of such sources as
credit extended by suppliers or a loan from a
bank
• Equity : stockholder’s investment in the firm
and the cumulative profits retained in the
business up to the date of the balance sheet
 The Balance Sheet (Cont’d)
Type of Financing - Debt
1. Short-term Debt (Current Liabilities) = should be repaid within
the next 12 month
a. Account Payable (trade credit) = debt owed to suppliers
when a firm purchases inventory on credit (30, 60, 90 days)
b. Accrued Expenses = expenses that have been incurred but
not yet paid in cash (e.i: accured wages)
c. Short-term Notes = amount borrowed from a financial
institution (banks or other lending source) that are due and
payable within 12 months
d. Other Current Liabilities = additional debt payable within
the next 12 months, such as taxes payable or interest
payable
 The Balance Sheet (Cont’d)
Type of Financing - Debt
2. Long-Term Debt = loans from banks or other
sources that lend money for longer than 12
months
Loan to finance real estate is called a
mortgage, which the lender has first claim on
the property in the event the borrower is
unable to repay the loan
 The Balance Sheet (Cont’d)
Type of Financing – Equity
1. Preferred stockholders
– Received dividend in fixed amount
– When the firm being liquidated, these stockholders are
paid after the creditors but before the common
stockholders
2. Common stockholders
– Residual owners of a business
– When the firm being liquidated, these stockholders are
paid after the company paying all expenses (receive only
what is leftover), after the creditors and preferred
stockholders are paid
 The Balance Sheet (Cont’d)
Type of Financing – Equity
The amount of a firm’s common equity is equal
to the sum of two items :
1. The amount a company receives from selling
stock to investors
2. The amount of a firm’s retained earnings
 The Balance Sheet (Cont’d)
Type of Financing – Equity
1. The amount a company receives from selling stock to
investors
Common stock : shares that represent ownership in a
corporation
Par value / nilai nominal : the arbitrary value a firm puts on
each share of stock prior to its being offered for sale
Paid-in capital : the amount a company receives above par
value from selling stock to investors
Treasury Stock : the firm’s stock that has been issued and
then repurchased by the firm
 The Balance Sheet (Cont’d)
Type of Financing – Equity
Example :
If a company sells a new issue of common stock for $100 per
share and sets the par value of the stock at $1 per share, then
paid in capital = $99 ($100 - $1)
So if it sold 1,000 shares, the total paid in capital would be = $99
x 1,000 shares = $99,000
Thus, total increase in the common equity in the balance sheet
would be appear as follows :
Par value ($1 x 1,000 shares) $1,000
Paid-in capital ($99 x 1,000 shares) $99,000 +
Total increase in common stock $100,000
 The Balance Sheet (Cont’d)
Type of Financing – Equity
2. The amount of a firm’s retained earnings
– Retained earnings = the net income that has been
retained in the business rather than being distributed to
the shareholders
– Cumulative total of all the net income over the firm’s life –
common stock dividends that have been paid over these
years
 The Balance Sheet (Cont’d)
• To conclude, the common stockholder’s equity
can be represented as follows :
 The Balance Sheet (Cont’d)
- Working Capital
• Current assets = gross working capital
• Net working capital = current assets – current
liabilities
• The larger the net working capital a firm has,
the more able the firm will be to pay its debt
as it comes due
 Constructing a Balance Sheet
(Example 2.2)
Given the information below for Menielle, Inc.
construct a balance sheet !
 Measuring Cash Flow
Profits versus Cash Flow
• Profit and Cash are not the same thing
• Even a profitable companies can go broke
• Many a profitable business on paper has had to
file bankruptcy because the amount of cash
coming in did not compare with the amount of
cash going out
• An income statement is not a measure of cash
flows because it is calculated on accrual basis
rather than a cash basis
 Measuring Cash Flow (Cont’d)
Profits versus Cash Flow
• Accrual Basis Accounting : method of accounting
when profits are recorded when earned (whether or
not the profits have been received in cash) and
expenses are recorded when they are incurred (even
if money has not actually been paid out)
• Cash basis Accounting : profits are reported when
cash is received and expenses are recorded when
they are paid
 Measuring Cash Flow (Cont’d)
Profits versus Cash Flow
1. A company may have had sales $1 million of the
year but may not have collected all these sales. If
there’s $80,000 on account receivable, then there is
only $920,000 of sales had been collected
2. Some inventory purchased on credit. $500,000
inventories purchased, but $100,000 is in credit.
The actual cash paid for inventory = $400,000
3. Etc.
 Measuring Cash Flow (Cont’d)
Statement of Cash Flow
Statement that shows how changes in balance sheet accounts and income
affect cash and cash equivalents, and breaks the analysis down to
operating, investing, and financing activities
1. Generating cash flows from day-to –day operations
How much cash is being generated in the normal course of operating
a business
2. Investing in fixed assets and other long-term investments
When a company purchases or sells fixed assets, such as equipment
and buildings
3. Financing the business
Cash inflows and outflows occur from borrowing or repaying debt,
paying dividends, and issuing stock or repurchasing stock from the
shareholders
 Measuring Cash Flow (Cont’d)
CF Activity 1 : Cash Flow from Day-to Day Operations
• Convert the company’s income statement from an accrual basis to a cash
basis
• 6 Steps :
1. Add back depreciation expense since it is not a cash expense
2. Subtract (Add) any increase (decrease) in accounting receivables
3. Subtract (Add) any increase (decrease) in inventory
4. Subtract (Add) any increase (decrease) in other current assets
5. Add (subtract) any increase (decrease) in account payables
6. Add (subtract) any increase (decrease) in other accrued expense
CF Activity 1 : Cash Flow from Day-to Day Operations
1. A firm’s sales are either cash sales or credit sales. If AR
increase= customer did not pay everything in cash
– Any increase in AR needs to be subtracted to determine
the cash that has been collected from customer
– Decrease in AR, indicates a cash inflow
Cash collection from sales = sales – change in accounts
receivables
2. Increase in inventories shows that firm bought inventories,
vice versa
3. If other current assets increase, it’s cash outflow, vice versa
4. Account payable increase = cash inflow, vice versa
CF Activity 1 : Cash Flow from Day-to Day Operations
 Measuring Cash Flow (Cont’d)
CF Activity 2 : Investing in Long-Term Assets
• Long term assets = fixed assets, long-term
investments in other companies, intangible assets
(goodwill, patents, trademarks)
• Company purchases fixed assets = increase in gross
fixed assets = cash outflows, vice versa
 Measuring Cash Flow (Cont’d)
CF Activity 3 : Financing the Business
• Cash inflows =
– The firm borrows more money (an increase in short term
and long term debt)
– Owner(s) invest in the business (an increase in
stockholders’ equity)
• Cash Outflow =
– The firm repays debt (a decrease in short-term and/or long
term debt)
– The firm pays dividends to the owner(s) or repurchase the
owner’s stocks (a decrease in equity)
 Measuring Cash Flow (Cont’d)
Example 2.3
Given the following information for Callye, Inc.,
prepare a statement of cash flows (in thousands)