Английский язык. Практический курс для решения бизнес-задач

В числе компаний, на акции которых приходилась наибольшая доля в 47-миллиардных активах Berkshire по состоянию на 31 декабря 2005 г., – American Express Ameriprise Financial Anheuser-Busch, Coca-Cola, M&T Bank, Moody’s, PetroChina, Procter & Gamble, Wal-Mart, Washington Post, Wells Fargo, White Mountains Ins. Эти данные содержатся в годовом отчете Berkshire Hathaway за 2005 г. По итогам 2005 г. прибыль Berkshire Hathaway выросла на 16,6% до $8,5 млрд, или $5538 в пересчете на акцию. В 2004 году прибыль составила $7,31 млрд, или $4753 на акцию. За год было инициировано 5 сделок по поглощению. Балансовая стоимость акций Berkshire выросла на 6,4%. Акции Berkshire Hathaway не подвергались дроблению 41 год.

Source: www.k2kapital.org

Lesson 36

Corporate Finance

Read and translate the text and learn terms from the Essential Vocabulary.

Corporate Finance for Beginners

The role of a corporation’s management is to increase the value of the firm to its shareholders while observing applicable laws. Corporate finance deals with the strategic financial issues associated with achieving this goal.

Balance Sheet Approach to Valuation

Managers can make better decisions if they can predict the impact of those decisions on the firm’s value. A simple way of valuing the equity of a company is to subtract its liabilities from assets. However, this book value has little resemblance to the real value of the company. First, the assets are recorded at historical costs. Second, assets such as trademarks, loyal customers, and talented managers do not appear on the balance sheet but may significantly affect the firm’s ability to generate profits.

Cash vs. Profits

Another way to value the firm is to consider the future flow of cash. Since cash today is worth more than the same amount of cash tomorrow, a valuation model based on cash flow can discount the value of cash received in future years. Decisions about finances affect operations and vice versa. The firm’s working capital flows in a cycle, beginning with cash that may be converted into equipment and raw materials. Additional cash is used to convert the raw materials into inventory, which then is converted into receivables and eventually back to cash, completing the cycle. The goal is to have more cash at the end of the cycle than at the beginning.

The change in cash is different from accounting profits. A company can report consistent profits but still become insolvent. For example, if the firm extends customers increasingly longer periods of time to settle their accounts, even though the reported earnings do not change, the cash flow will decrease.

Note also the distinction between cash and equity. Shareholders’ equity is the sum of common stock at par value, additional paid-in capital, and retained earnings. Shareholders’ equity is on the opposite side of the balance sheet from cash. Shareholder equity changes due to three things: 1) net income or losses; 2) payment of dividends; 3) share issuance or repurchase. Changes in cash are reported by the cash flow statement, which organizes the sources and uses of cash into three categories: operating activities, investing activities, and financing activities.

Cash Cycle

The duration of the cash cycle is the time between the date the inventory is paid for and the date the cash is collected from the sale of the inventory. A company’s cash cycle is important as it affects the need for financing. The cash cycle is calculated as:

days in inventory + days in receivables – days in payables

Financing requirements will increase if either of the following occurs:

– Sales increase while the cash cycle remains fixed in duration.

– Sales remain flat but the cash cycle increases in duration.

Revenue, Expenses, and Inventory

A firm’s income is calculated by subtracting its expenses from its revenue.

However, not all costs are considered expenses; accounting standards and tax laws prohibit the expensing of costs incurred in the production of inventory. These costs must be allocated to inventory accounts and appear as assets on the balance sheet. Once the finished goods are drawn from inventory and sold, these costs are reported on the income statement as the cost of goods sold (COGS).

Assets

Assets can be classified as current assets and long-term assets. It is useful to know the number of days of certain assets and liabilities that a firm has on hand:

Accounts receivable (A/R)

Number of days of A/R = (accounts receivable / annual credit sales) (365).

This also is known as the collection period.

Inventory