financial managers:

- investment decision
- financing decision
- asset management
- decision that needs to make => effect to profit

CHAPTER 1: INTRODUCTION
1.1. The role of financial management
1.1.1. Definition
- is concerned with the acquisition, financing and management assets with overall
goals in mind
1.1.2. The role of financial management
- planning corporate financial strategy
- organization and implementation of corporate financial strategy
- control the process of implementing corporate financial strategy

Financial strategy: planning, implementing and controlling

3 main decision of financial management:

- investment:
- what is the optimal firm size (firm size: number of employees, revenues,
capital and total assets)?
- what specific assets should be acquired?
- what assets (if any) should be reduced or eliminated?
- financing:
- what is the best type of financing?
- what is the best type of financing mix (financing mix: retained earning,
shareholder’s equity, debt/liabilities)
- asset management:
- how do we manage existing assets efficiently?
- financial management has vary of degrees of operating responsibility over
assets?
- greater emphasis on current assets management than fixed asset
management?

1.1.3. The financial management function

- Goal of a firm:
- maximize shareholders’ wealth
- maximize the firm’s value
- maximize the value of the firm’s common stock
Shareholders’ value
- Stock:
- Par value: the nominal or face value assigned to the stock by the issuing
company
- Dividend: payment to the shareholders, a portion of the company’s earning
distributed to shareholders as a reward for their investment
- Market value: the current price at which the stock is trading. It is determined
by the individuals buying or selling the stock

CSR - Corporate Social Responsibility --- Stakeholders’ wealth

Problems of profit maximization

- Short-term focus, neglect long-term goals
- Ignores changes in the risk level of the firm
- Ignores the time value of money

1.2. Organization of financial management

- BOD --- CEO --- VPs [CFO] --- Controller(financial accounting, cost accounting, taxes,
data processing) / Treasurer (cash n. M/S management, capital budgeting analysis,
financial planning, credit analysis, investor relations, pension fund management)
- Differences between CFO n. CA
- CFO:
- Financial strategy
- Broader role
- encompassing overall financing strategy and management
- Chief accounting:
- Financial reporting
- final product: financial statement
- focus on specific aspects
- accounting and compliance

Jobs of the Financial Managers

- (1) Cash raised from investors
- (2) Cash invested in firm
- (3) Cash generated by operations
- (4a) Cash reinvested
- (4b) Cash returned to investors

1.3. Business tax, financial environments

1.3.1. The business environment
- Type of company: partnership, LLC, JSC, sole proprietorship
- Sole proprietorship:
- A business from which there is 1 owner
- The oldest form
- No double tax
- Pros:
- Easily n. inexpensive formed
- Single tax filing on individual form
- Cons:
- Unlimited liability
- Hard to raise additional capital
- Limited life
- Cannot issue bonds/stocks
- No separation between owner’s n. company’s liability
- Partnership:
- A form of enterprise set up by at least 2 partners n. has a status of
legal person
- Types of partnership:
- general partnership: unlimited liability and are liable for all
obligations of partnership
- limited partnership: liability limited to their capital
contribution
- Pros:
- low setup cost
- relatively quick setup
- limited liability for limited partner
- Cons:
- unlimited liability (general partners)
- difficult to raise add capital
- transfer of ownership difficulties
- LLC:
- a business form that provides its owners (called “members”) with
corporate style limited personal liability and federal-tax treatment of a
partnership
- Pros:
- limited liability
- can issue bond
- Cons:
- do not issue shares
- transfer of ownership difficulties
- Corporation:
- a business form legally separate from its owners
 - an artificial entity that can be own assets and incur liabilities
- Pros:
- limited liability
- easier to raise large quantities of capital
- unlimited life
- easy to transfer ownership
- Cons:
- double taxation
- more difficult to establish
- more expensive to set up n. maintain
- Agency theory:
- modern corporation: there exists a separation between owners and managers
1.3.2. Tax environment
- financial relationship between firms and the government
- social development = infrastructure development
- balance relationship = the welfare of the economy and the nation
- role of business towards the government: payment of taxes, rendering of advice,
source of information
- role of government towards business sectors: infrastructure and manpower
development, financial assistance (low interest loans, tax incentives)
1.3.3. Financial environment
- the financial market is composed of all institutions and procedures for bringing
buyers n. sellers of financial instrument together
- the purpose of financial markets is to efficiently allocate savings to ultimate ussers
- financial market:
- money market vs capital market
- money market: the market for short-term ( <1 year original maturity)
government and corporate debt securities (treasury bills, commercial
papers, bankers’ acceptance, commercial note)
- capital market: the market for relatively long-term (>1 year maturity)
financial instrument (eg. bonds, stocks)
- primary market vs secondary market
- primary market: a market where new securities are bought and sold
for the 1st time (“ a new issue” market)
- secondary market: a market for existing (used) securities rather than
new issues

CHAPTER 2: THE TIME VALUE OF MONEY

The time value of money is a basic financial concept which holds that money in the present
is worth more than the same sum of money to be received in the future
- Do not compare/plus/subtract different cash flows at different times
 => transfer the cash flows to the same period of time

Timelines
0 1 2 n-1 n
|----------------------|----------------------|---------------------------------------------|----------------------|
CFo CF1 CF2 CFn
- The intervals from 0 to 1, 1 to 2, and 2 to 3 are time period such as years or months
- Time 1 is one period from today, and it is both the end of Period 1 and the beginning
of Period 2
- 0: the present (now), the beginning of period 1
- 1: the end of period 1, the beginning of period 2
- n: the end of period n
- CF: cash flow

TYPES OF CASH FLOW

- Annuity (rental fee,..): niên kim, slow
- Represent a series of equal payments (or receipts) occurring over a specific
number of equidistant periods
- Ordinary annuity: payments or receipts occur at the end of each
period, ex: rent due
- Annuity due: payments or receipts occurs at the beginning of each
period
- Mix flow

2.1. The interest rate (Simple interest, Compound interest)

- The simple interest: that is paid (earned) on only the original amount, or principal,
borrowed (lent)
- The compound interest: paid (earned) on any previous interest earned, as well as on
the principal borrowed (lent). It is implies that interest paid (earned) on a loan (an
investment) is periodically added to the principal
- Ex: interest 10%/year
0 1 2
|-----------------------------|-----------------------------|
Invest: 100m
Single interest: 10m 10m
Compound interest: 10m (100+10)x10%=11m
(in finance normally use compound interest/ in all situation we use compound
interest)
2.2. The future value
- The value at some future time of a present amount of money, or a series of
payments, evaluated at a given interest rate
2.2.1. Future value single deposit
0 1 2 n-1 n
i% |-------------|-------------|------------------------------------|-------------|
Po FV1 FV2 FV(n-1) FVn
(future value of Po)
Po: Present Value:
FV1 = P0 + P0 x i% = P0 (1+i%)1
FV2 = FV1 + FV1 x i% = FV1 (1+i%) = P0(1+i%)
…
FVn=P0(1+i%)n
FVn: Future value or ending amount of your account after n periods
PV: present value or beginning amount
i: interest rate
n: number of periods
2.2.2. Future value of ordinary annuity
(end of period 1) (end of period 2) (EoP 3)
0 1 2 3
|-----------------------------------|-----------------------------------|-----------------------------------|
Today (Present) 100 100 100
| Equal cash flow each 1 period apart|

ORDINARY ANNUITY - exist in the end of the period

0 1 2 n-1 n
i% |---------------|---------------|-----------------------------------------------|---------------|
CF1 CF2 ……. CF
Cash flow often start at 1
𝑛−1
FVn =CF (1+i) +...+ CF (1+i) + CF (1+i) = CF. ∑ (1+i)t
0 n-2 n-1

𝑡=0
0
CF at n = CF (1+i)
….
CF2 at n = CF (1+i)n-2
CF1 at n = CF (1+i)n-1
19
Example: i=10%, CF=15, n=20 => FV20= 15. ∑ (1+10%)t = 859,124 mil VND
𝑡=0
2.2.3. Future value of annuity due
0 1 2 n-1 n
i% |---------------|---------------|-----------------------------------------------|---------------|
CFo CF1 CF2 ……. CF
Cash flow start at 0
CF at n = CF (1+i)1
 CF1 at n = CF (1+i)n-1
CF0 at n = CF (1+i)n
𝑛
FVn=CF (1+i) + CF (1+i) + CF (1+i) = CF. ∑ (1+i)t
1 n-1 n

𝑡=1
2.3. The present value
- Is the current values of a future amount of money, or a series of payments, evaluated
at a given interest rate
- FVn=PV.(1+i)n
- PV0 = FVn/(1+i)n
FV: future value or ending amount of your accounts after N periods
PV: present value or beginning amount
2.3.1. Present value of single deposit
0 1 2 n-1 n
CF |-------------|-------------|------------------------------------|-------------|
PV CF CF CF CF
1
When CF at 1 => PV = CF/(1+i)
When CF at 2 => PV= CF/(1+i)2
….
When CF at n => PV = CF/(1+i)n
𝑛
PV = CF. ∑ . 1/(1+i)t
𝑡=1
2.3.2. Present value of annuity
Ordinary annuity:
0 1 2 n-1 n
CF |-------------|-------------|------------------------------------|-------------|
PV CF CF CF CF
1
When CF at 1 => PV = CF/(1+i)
When CF at 2 => PV= CF/(1+i)2
….
When CF at n => PV = CF/(1+i)n
𝑛
PV = CF. ∑ . 1/(1+i)t
𝑡=1
Annuity due:
0 1 2 n-1 n
|---------------|---------------|-----------------------------------------------|---------------|
CFo CF1 CF2 ……. CF
Discount all CF to 0
When CF at 0 => PV = CF/(1+i)0
 When CF at 1 => PV = CF/(1+i)1
….
When CF at n-1 => PV = CF/(1+i)n-1
𝑛−1
PV = CF. ∑ . 1/(1+i)t
𝑡=0
2.4. Some application
- !Quick: How long does it take to double $5000 at a compound rate of 12% per year
(approx.)?
0 n
|-----------------------------------------------| i=12%
PV=$5000 FVn=$10000
n n
FVn = PV(1+i) => 10000 = 5000 x (1+i) => n = 6.11 (years)
Quicker method to calculate n call Rule 72:
72 72
Rule 72 => n= 𝑖
. Applied to example: n= 12
= 6 (years)
- Ex1: X company buys a new product. Which one below is the most profitable option?
Option A: Product price is $150,000. Pay immediately. Shipping cost $10,000
Option B: Product price is $170,000. Must pay 50% immediately, the rest pay
after 1 year. Free shipping
Option C: Product price is $165,000. Pay 20% immediately. Pay 30% after 1
year, pay 50% after 2 years. Shipping cost is $15,000
The average interest rate on the market currently 8% per year
Option A: P=150,000; Ship=10,000
=> PV = 150,000+10,000= 160,000
Option B: P=170,000; i=8%; n=1
0 1
|-------------------------------------|
85,000 85,000
1
=> PV = 85,000 + 85,000/(1+8%) =$163,703
Option C: P=165,000; Ship= 15,000; i=8%; n=2
0 1 2
|-------------------------|-------------------------|
20%=33,000 30%=49,500 50%=82,500
=> PV= 33,000 + [49,500/(1+8%) ] + [82,500/(1+8%)2] + 15,000
1

=164,563
Option A is the most profitable
- Ex2: ADC Corp takes a loan of $80 million from HSBC bank. The rate of interest is 7%
per annual. The first installment will be paid at the end of year 1. Determine the
amount of equal annual installment if ADC Corp wants to repay in 10 installment.
installment loans: provide a borrower with a fixed amount of money that
must be repaid with regularly scheduled payment; each payment includes a
 portion of the principle amount borrowed and the payment of interest on the
debt
Loan = 80mil; i=7%; ordinary annuity; n=10; R=? (installment price)
0 1 10
7% |---------------|--------------------------------------|
80 mils R ….. R
According to the theory of time value of money, we have:
10
80 mils = R. ∑ . 1/(1+7%)t => R = 11, 390 mils
𝑡=1
- Ex3: P. Wicks is borrowing $10,000 at a compound annual interest rate of 12%.
Amortize the loan if annual payments are made for 5 years.
Step 1: Calculate the installment:
According to the theory of time value of money, we have:
5
10,000 = R. ∑ . 1/(1+12%)t => R = 2774
𝑡=1
Step 2: Amortize the loan
EoY Installment Interest Principle Ending Balance
= e/b x 12% = install - interest =b/d - principle

1 2774 10,000x12%= 1200 2774-1200=1574 10,000-1574=8426

2 2774 8426X12%= 1011 2774-1011=1763 8426-1763=6663

3 2774

4 2774

5 2774

CHAPTER 3: FINANCIAL ANALYSIS

Who needs to understand financial analysis?
- Investors:
- ability to pay dividends
- present 2 expected future earnings => profitability
- the firm: internal control
3.1. Financial statement
- Financial analysis is the art of transforming data from financial statement inti
information that is useful for informed decision making
- Types of Financial statement
- Balance sheet
- Income statement
- Cash Flow statement
 - Notes to Financial statement
3.1.1. Balance sheet
- A summary of the assets, [liabilities and owner’s equity] = capital of a business at a
moment in time usually at the end of a year or a quarter
- A snapshot of the firm’s financial position at a moment in time
Asset (Left -hand) - reports the assets Capital (Right-hand) - reports how these
that earn income assets are financed
- Current asset - Liabilities
- Cash - Short-term/current lia.
- Marketable securities - Acc.Payable
- Account receivable - Accrued expense
- Inventories - Short-term notes
… - Long-term lia.
- Long-term/ Fixed asset - Long-term notes
- Machinery n. equip - Mortgages
- Buildings - Owner’s equity
- Land - Preferred shares
… - Common shares
- Others - Par value
- Investments - Paid in capital
- Patents/Intangible assets - Retained earnings
TOTAL ASSET = TOTAL LIABILITIES + OWNER’S EQUITY
3.1.2. Income statement
- A summary of a firm’s revenue and expense over a specified period, ending with net
income/loss for the period
- A slow-motion film abt the firm’s income
NET INCOME = TOTAL REVENUE - TOTAL EXPENSE
- Sample of I.S
Sales: Operating
- (minus) Cost of goods sold Activities
Gross Profit
- (minus) Selling expense
- (minus) Admis. expense
- (minus) Depreciation exp.

Earning before Interest and Taxes (EBIT) Financing

- (minus) Interest expense Activities
Earning before Taxes
- (minus) Taxes
Net income before Preferred dividends
- (minus) Preferred shares dividends
 Net Income available to Common Shareholders
3.1.3. Cashflow statement
- A summary of a firm’s cash receipts and cash payments during a period of time
- Report a firm’s cash inflows and outflows, segregated 3 categories: operating,
investing, and financing activities
- Operating cash flows:
- Sales of goods n. serv.: inflow
- Dividends income: inflow
- Pay suppliers: outflow
- Pay employees: outflow
- Pay govern. for taxes: outflow
- Investing:
- sales of fixed asset: inflow
- sales of debt or equity securities: inflow
- Financing:
- borrowing: inflow
- Pay shareholders dividends: outflow
NET CASH FLOW = CASH INFLOW - CASH OUTFLOW
3.1.4. Notes to financial statement
- Are the supplemental notes includes with the published financial statement of a
company
- To explain the assumption used to prepare the numbers in the financial statements
as well as the accounting policies adopted by the company
- help different types users to interpret all the numbers added in the financial
statements
3.2. Financial ratios analysis
3.2.1. Financial structure ratios
- Asset structure ratios
- Indicates the extent of total funds invested for the purpose of working capital
and throws light on the importance of current assets of a firm
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
- Current Assets to Total Asset Ratios = 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
𝐹𝑖𝑥𝑒𝑑 𝐴𝑠𝑠𝑒𝑡𝑠
- Fixed Assets to Total Asset Ratios = 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
- Example:
- Service firms -----> current ass.
- Manufacturing firms ------> fixed ass.
- Retail -------> current ass.
- Capital structure ratios
- Highlight the relative importance of debt financing to the form by showing
the percentage of the firm’s assets that is supported by debt(lia.) financing
 𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡
- Debt to Total Asset Ratios = 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡𝑠
- Relationship between a company’s total debt and it shareholder’s equity
𝑇𝑜𝑡𝑎𝑙 𝐷𝑒𝑏𝑡
- Debt to Equity Ratios = 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟𝑠 𝑒𝑞𝑢𝑖𝑡𝑦
=> In asset structure of a company, they focus on current asset
=> The percentage of debt>equity
𝑇𝑜𝑡𝑎𝑙 𝑜𝑤𝑛𝑒𝑟'𝑠 𝑒𝑞𝑢𝑖𝑡𝑦
- Equity Ratios = 𝑇𝑜𝑡𝑎𝑙 𝐴𝑠𝑠𝑒𝑡
3.2.2. Liquidity ratios
- The measurement of a company’s capacity to pay its outstanding liabilities with its
assets on hand
- Ex:
Asset Capital
- Current asset - Liabilities
- Cash_most liquidity - Short-term/current lia.
- Marketable securities - Acc.Payable
- Account receivable - Accrued expense
- Inventories_lowest liquidity - Short-term notes
(cuz buz can not sell product - Long-term lia.
or production disrupt) - Long-term notes
… - Mortgages
- Long-term/ Fixed asset - Owner’s equity
- Machinery n. equip - Preferred shares
- Buildings - Common shares
- Land - Par value
… - Paid in capital
- Others - Retained earnings
- Investments
- Patents/Intangible assets
- Current Ratios _ chỉ số thanh toán hiện thời: measure the ability of converting
current assets into cash to meet short-term obligations
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑎𝑠𝑠𝑒𝑡
- Current Ratios = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎.
- Cash Ratios: Company’s ability to repay its short-term debt with cash or near-cash
resources, such as easily marketable securities
𝐶𝑎𝑠ℎ 𝑛, 𝑐𝑎𝑠ℎ 𝑒𝑞𝑢𝑖𝑣𝑎𝑙𝑒𝑛𝑡
- Cash Ratio = 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑙𝑖𝑎.
- Interest coverage ratios: measure the firm’s ability to meet its interest payments and
thus avoid bankruptcy
𝐸𝐵𝐼𝑇
- Interest coverage ratios = 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝐸𝑥𝑝𝑒𝑛𝑠𝑒
3.2.3. Activity ratios _ chỉ số quản trị tài sản/hoạt động
- Inventory turnover:
 - Showing how many times a company has sold and replaced inventory during
given period
- Show turnover pimples weak sales and possibly excess inventory, while a
faster implies either strong sales or insufficient inventory
𝐶𝑜𝑠𝑡 𝑜𝑓 𝑔𝑜𝑜𝑑 𝑆𝑜𝑙𝑑 (𝐶𝑂𝐺𝑆)
- Inventory turnover = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 = (đầ𝑢 𝑘ì − 𝑐𝑢ố𝑖 𝑘ì)/2
- I.T Low : because A.I increase (efficient sales, excess inventory)
- I.T High: cuz A.I decrease (good sales, lack inventory)
- Receivable turnover (vòng quay KPT)
- Quantity a company’s effectiveness in collecting its account
receivable, or the money owed by cust. or clients
𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠
- Receivable turnover = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐴𝑐𝑐𝑜𝑢𝑛𝑡 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒
𝐷𝑎𝑡𝑎 𝑎𝑡 𝑡ℎ𝑒 𝑏𝑒𝑔𝑖𝑛𝑛𝑖𝑛𝑔 + 𝐷𝑎𝑡𝑎 𝑎𝑡 𝑡ℎ𝑒 𝑒𝑛𝑑
- Average data = 2
- Fixed asset turnover: measure a company’s ability to generate net sales from
its fixed asset investment, mainly property, plant n. equip.
𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠
- Fixed asset turnover = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐹𝑖𝑥𝑒𝑑 𝑎𝑠𝑠𝑒𝑡
3.2.4. Profitability ratios
- Show the combined effects of liquidity, asset management and debt on operating
results
- Profitability ratios assets a company’s ability to earn profits from its sales or
operations, balance sheet assets or shareholders’ equity
- Return on Sales (ROS): a ratio used to evaluate a company's operational efficiency.
This measure provides insight into how much profit is being produced per dollar of
sales
𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡 𝑎𝑓𝑡𝑒𝑟 𝑡𝑎𝑥𝑒𝑠
- ROS= 𝑁𝑒𝑡 𝑆𝑎𝑙𝑒𝑠
(Net profit after tax = net income)
- ROA, Return on Assets : value càng cao, DN hoạt động càng tốt
- refers to a financial ratio that indicates how profitable a company is in
relation to its total assets
𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡 𝑎𝑓𝑡𝑒𝑟 𝑡𝑎𝑥𝑒𝑠
- ROA= 𝑁𝑒𝑡 𝐴𝑠𝑠𝑒𝑡𝑠
(Net profit after tax = net income)
- Compare financial ratios of firm in same industry
- Return on Equity (ROE): indicates the profitability to the shareholders of the firm
(after all expense and taxes)
𝑁𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡 𝑎𝑓𝑡𝑒𝑟 𝑡𝑎𝑥𝑒𝑠
- ROE= 𝑆ℎ𝑎𝑟𝑒ℎ𝑜𝑙𝑑𝑒𝑟'𝑠 𝑒𝑞𝑢𝑖𝑡𝑦
(Net profit after tax = net income)
- Trong thực tế thường lấy data bình quân
- Investor quan tâm vì nó cho biết mối đồng vốn đầu tư sẽ cho bao nhiêu lợi
nhuận
- EPS = Earning per share (volume càng cao càng tốt): indicates how much money a
company makes for each share of its stock and is a widely used metric to estimate
corporate value
𝑁𝑒𝑡 𝑖𝑛𝑐𝑜𝑚𝑒 − 𝑃𝑟𝑒𝑓𝑒𝑟𝑟𝑒𝑑 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠 (𝑖𝑓 𝑎𝑛𝑦)
- EPS = 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑐𝑜𝑚𝑚𝑜𝑛 𝑠ℎ𝑎𝑟𝑒