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Chapter 1
• 1.1. Corporate finance
Page | 1
Advantages Disadvantages
 Easily and inexpensively formed  Unlimited personal liability for the

 Few Government and reporting business’s debts
regulations  Difficult to obtain large sums of
 Taxed once as personal income capital to facilitate growth and
tax expansion
 Minimise agency problems related  Difficult to transfer to another
to separation of ownership rights
and control / management
Partnership: One person pools money and expertises with friends or business
associates.
• Common business structure associated with professional occupations
(such as lawyers or accountants)
• Business is governed by a legal partnership agreement
• Partnership agreement sets out: - responsibilities in making decisions -
how profits are divided.
• Each partner has unlimited liability on debts
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 Taxed once as personal income tax  Unlimited liabilities

 Easy to establish  Not easy to transfer without the
Page | 2
 Able to raise funds when there is agreement of the remaining partner
more than one owner  Partnerships can potentially be
 Improved management with more unstable
than one owner  All partners have to bear legal
 Wider pool of knowledge, skills, and responsibilities equally if being sued
contacts
Corporate: a business organized as a separate legal entity owned by shareholders.

It is a separate and distinct entity from its owners and managers
• The owners of corporations are the shareholders who purchase the
company’s ordinary equity capital (Shares).
• Ownership is easily transferable between different owners (much easier than
for unincoporated business), and exists for as long as the company exists
Limited liability company
- Bases on proportion of shares invested in the company
- No personal responsibility on debts. It means that owners are not
subject to losses beyond the amount originally invested

 Easy to raise fund  Double tax

 Easily transferable between different  Costly to set up and exist
owners  Obey a lot of regulations and reports
Page | 3
 Limited liabilities: Owners are not  Conflict between “big” shareholders
subject to losses beyond the amount and “small” shareholders.
originally invested
 Improved management
Hybrid of limited and unlimited liability in limited partnership:

- General partners: manage business, unlimited liability
- Limited partners: do not manage business, limited liability
• LLC is a hybrid / combination of a partnership and a corporation, as they
provide limited liability to owners (like a corporation) but are taxed like a
partnership
• LLP is similar to a LLC but are used for professional firms, such as
accountants, lawyers, architects and real estate businesses (often called
professional corporation, the business has limited liability, but the
professinals can still be sued personally, for example for malpractice) One-
partner limited liability companies in Vietnam: mostly state-owned
 Utilize the advantages of limited  Complicated structure

and unlimited forms
• 1.3. Goals of financial management: Maximize the current market value

of shares not profit maximization
- The modern corporate form results in a separation of ownership from

corporate control
- Corporate ownership is held in the hands of numerous different shareholders
Page | 4 who cannot efficiently coordinate among themselves for decision-making
purposes
- As a result, the principal (shareholders) engage an agent (the board of
directors and management team) to act on their behalf, and transfer a large
proportion of their decision-making power to the agent
- The agent typically has little or no personal ownership interest in the
company, which gives them an incentive to maximise their own interests (and
personal utility)
• 1.4. Financial institutions and markets
* The stock market: a market on which securities are issued & traded.
- A security: a traded financial asset
- A corporation can “go public” by Initial public offering (IPO) on the primary
stock market.
IPO provides finance for real assets investment.
New issue increases Value of capital, Number of shares
- Secondary market: shares freely traded, ownership transfer, no effect on the
company, increase market liquidity… * Other financial markets:
Shares: reflect ownership Bonds: reflect borrowing
no definite maturity vary in maturity
- Money market: short-term securities (< 1year maturity)
- Capital market: long-term debt and equity

Financial intermediaries: an organization that raises money from investors and

provides financing to individuals and companies.
Financial markets help channel savings to corporate investment, and they help
Page | 5
match up borrowers and lenders. They provide liquidity and diversification
opportunities for investors. Trading in financial markets provides a wealth of
useful information for the financial manager.
Financial institutions carry out a number of similar functions but in different

way. They channel savings to corporate investment, and they serve as
intermediaries between borrowers and lenders. They provide liquidity for
depositors and, of course, play a special role in the economy's payment systems.
Insurance company allow policyholders to pool risks.
• 1.4. Financial institutions and markets
Chapter 2: The time value of money
A timeline shows when cash flows occur and they are cash inflows or cash outflows.
Opportunity cost Money has So, we must use interest

The Imflation different value at to take value in the same The Risk different time
point of time to compare.
Page | 6
The time value of money means a specific amount of money we have today is
more valuable than the same amount we receive at any point in the future because
of the impacts of interest, infilation, opportunity cost and risk.
Why (tiền lại có giá trị của tiền theo thời gian)
Money has different value at different time, because:
• Opportunity cost:
1 coin today can be invested to make a profit or simply deposited in the bank
for interest.
Then, 1 coin in the future will include:
1 coin of initial capital.
the amount of interest generated from the initial capital.
• The inflation: Because inflation causes a currency to depreciate, the
purchasing power of money is reduced over time
• The Risk : The future is uncertain, 1 coin today cannot be as valuable as 1
coin in the future.
a, The future value is total value of money and holder or investor can reveice after
particular periods.
+The future value of a single cash flow.
+ The future value of a cash flow stream.

A cash flow stream is defined as a collection of the sequent amount of

money in several periods or a series of cash flows occur in several
periods.
Page | 7 If we use CFt to denote the CF at the end of the period t, the CF stream
as:

Page | 8

+ The present value of a cash flow stream.

Page | 9
The present value of a cash flow stream is the sum of the present value of
each amount of money. (Other speaking, it is the cost the investor/holder has to pay
to receive the same cash flows in the future)

Page | 10

Cash flow stream
Perpetuity Growing Annuity Growing

Page | 11 Annuity
Perpetuity
• Perpetuity is a set of identical payments ocurring each period in an infinite future.

• Growing perpetuity is the perpetuity in which the payment at the end of each
period increases by instant rate g.
The PV of perpetuity = A /r
The PV of growing perpetuity = A / (r-g)
• Annuity is a set of fixed payments occurs in a particular finite number of

periods
An annuity is a series of equal cash flows occurring at equal time intervals,

for a specified period of time
An ordinary annuity : a series of equal cash flows that occurs at the end
of each period for some fixed number of periods.
Ordinary annuity: the first CF occurs after one period from today
Annuity due: the first CF occurs immediately
The ordinary A
A A
annuity A
… timeline
0 1 2 n-1 n
The annuity
due
A A
A
… timeline
0 1 2 n-1 n

ordinary annuity a
FV = nnuity
due
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HVTC
PV = =
𝐶𝑎𝑝𝑖𝑡𝑎
𝑙
PV =
Page | 12
• The growing annuity is an ordinary annuity which the payment increases by

instant rate g in each period.
(1 + 𝑟)𝑛 − (1 + 𝑔)𝑛
PV =
𝐹𝑉 = 𝐴 ∗ [ ]
𝑟−𝑔
• The stated annual interest rate or nominal interest rate (NIR) is the annual
rate without information on compounding. The effective annual interest rate
(EAR) refers to the compounding
EAR =
• The relation between NIR, the real interest rate, and the inflation rate is:
(1+ NIR ) = (1+ the real interest rate)*(1+the inflation rate)
Chapter 3: Risk and Return

3.1. Expected return
+Total Dollar return: on an investment is the result of your investment, maybe
gain or loss
𝑇𝑜𝑡𝑎𝑙 𝑑𝑜𝑙𝑙𝑎𝑟 𝑟𝑒𝑡𝑢𝑟𝑛 = 𝐷𝑒𝑣𝑖𝑑𝑒𝑛𝑑 𝑖𝑛𝑐𝑜𝑚𝑒 + 𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑔𝑎𝑖𝑛 (𝑙𝑜𝑠𝑠)
+ Percentage return or holding period return

The percentage return express how much we get from each dollar we invest.
( to compare the efficiency of investments which have different principle)
𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑔𝑎𝑖𝑛 (𝑃𝑜 − 𝑃1) + 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 (𝐷1)

𝑃𝑒𝑟𝑐𝑒𝑛𝑡𝑎𝑔𝑒 𝑔𝑎𝑖𝑛 =
𝐼𝑛𝑡𝑖𝑡𝑖𝑎𝑙 𝑠ℎ𝑎𝑟𝑒 𝑝𝑟𝑖𝑐𝑒 (𝑃0)
𝑔𝑎𝑖𝑛(𝐿𝑜𝑠𝑠)
= 𝑆ℎ𝑎𝑟𝑒 𝑝𝑟𝑖𝑐𝑒 𝑎𝑡 𝑡ℎ𝑒 𝑒𝑛𝑑 𝑜𝑓 𝑝𝑒𝑟𝑖𝑜𝑑 − 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒 𝑝𝑟𝑖𝑐𝑒
Page | 13
+ Expected return can be defined as the weighted average of the probability
distribution of possible results.

Page | 14 Calculating the variances
 Variance
 Standard deviation
 The coefficient of variation
Expected Return = (PJ * RJ)
3.2 Portfolio
3.2.1: Portfolio and Expected return on portfolio
A portfolio is a collection of investment securities.
The expected return on the portfolio is the weight average of theexpected returns on
the individual assets in the portfolio.
 The portfolio expect return
𝑛
𝑟𝑝 = ∑ 𝑤𝑖 ∗ 𝑟𝑖
𝑖 =1
3.2.2 Measuring portfolio risk
 Portfolio variance 𝝈𝟐 = 𝑊𝐴2 𝜎𝐴2 + 𝑊𝐵2 𝜎𝐵2 + 2𝑊𝐴 𝑊𝐵 𝐶𝑂𝑉(𝐴, 𝐵 ) Phương sai
 Portfolio standard deviation = SD = Độ lệch chuẩn =𝜎

 Covariance between securities A and B is calculated as follows:
Page | 15
 𝑪𝑽𝒑 = 𝝈𝒓𝒑𝒑
 Correlation coefficient: Hiệp phương sai
• If pAB = -1: the variables always move in exactly opposite directions.

Returns on two investments A and B are perfectly negatively correlated.
Risk of the portfolio consisting of two such investments can be eliminated
completely.
• If pAB = +1 the variables always move in exactly same directions.
• If pAB = 0: two variables are not related to each other, changes in one
variable are independent of changes in the other.
• If -1< pAB < +1: combining stocks into a portfolio reduces risk but does
not eliminate it completely.
3.3 Risk – Definition & Risk - Diversification
-Definition: There is no universally agreed-upon definition of risk.
+ Risk is the uncertainty of outcomes.
+ Risk refers to a chance that some unfavorable events will occur.

-Two types: Certainty and Uncertainty

-Divide Portfolio risk +Unsystematic
risk:
Page | 16  Is an individual risk of each company or each business branch.
 Can be eliminated by proper diversification.
 Is caused by such management capacity of leaders, material providing
sources, strikes, winning or losing of major contracts
and other events that are unique to a particular firm.
+Systematic (nondiversifiable) risk
 Can be called market risk.
 Can affect most companies, and cannot be eliminated by diversification.
 Can be war, inflation, change of interest rates, exchange rate or law system.
These conditions affect nearly all companies to some degree
-The principle of diversification: That portfolios of different sorts of assets

differently correlated with one another will have negligible unsystematic risk. In
other words, unsystematic risks disappear in diversified portfolios, and only
systematic risks persist, those related to particular assets.

Page | 17
3.4. The capital asset pricing model (CAPM) : says that the expect of return of a
sercurity or portfolio equals the rate on a risk -free security plus a risk premium.
3.4.1. Beta and risk premium
cov(i, m )
i = 2
m
βi: beta coefficient of security, reflects the sensitivity of this se curity to
market movements.
cov(i,m): covariance between return of security i and portfolio return.
2
m : portfolio variance (variance of the market return)
• β > 1: security is more sensitive, riskier than market

• β = 1: security’s change is similar to market’s, which indicates that, if
market moves up or falls by 10 percent, the security moves up or falls by 10
percent.
• β < 1: security is less sensitive, riskier than market
 The beta of porfolio is calculated as follows:

n
P = Wi x i
i =1
Here: Wi : weight of investment i in a portfolio

: beta of investment i Risk

premium
• The required rate of return on the security can be represented as
Page | 18
𝑅𝑖 = 𝑅𝑖𝑠𝑘 𝑓𝑟𝑒𝑒 𝑟𝑎𝑡𝑒 + 𝑅𝑖𝑠𝑘 𝑝𝑟𝑒𝑚𝑖𝑢𝑚 (𝑃ℎầ𝑛 𝑏ù 𝑐ủ𝑎 𝑟ủ𝑖 𝑟𝑜 𝑐𝑎𝑜 ℎơ𝑛)

• The capital asset pricing model: (CAPM)

Page | 19
Required rate =risk free rate + Market risk premium* Beta of the security
of return on a
security
Relationship between risk and return
• The security market line plots the results of the CAPM for all different risks
(betas).
Model CAPM:
+Beta = 0: the expected return on a security is equal to the risk free rate
+Beta = 1: the expected return on a security is equal to the expected return
on the market.
+The higher beta, the higher expected return.
• The security market line (SLM)

The slope of the SML could be expressed as:
-R(f)
Chapter 4: THE FINANCIAL STATEMENTS ANALYSIS
1. The financial statements (4)

- Financial statements : the balance sheet, the income statement, cashflow

statement, notes.
1.1. The balance sheet
Page | 20 - The balance sheet is snapshot of the firm.
- The balance sheet has two sides :
Assets :
+ Short-term asset : cash, marketable securities, account receiables,
inventories.
+ Long-term asset : fixed assets, long-term investments
Liabilities and the owners’ equity :
+ Liabilities : current liabilities, long-term liabilities +
Equity : owner’s equity, other sources and funds.
1.1.1. Asset
- Assets are classified as current and fixed.
- A fixed asset is one that has a relatively long life. Fixed assets can be either
tangible, such as a truck or a computer, or intangible, such as a trademark or
patent.
- A current asset has a life of less than one year. This means that the asset will
convert to cash within 12 months.
1.1.2. Liabilities and the owner’s equity -
Liabilities :
+ These are classified as either current or long-term.
+ Current liabilities, like current assets, have a life of less than one year
(meaning they must be paid within the year)

+ A debt that is not due in the coming year is classified as a long-term

liability.
- Equity consists of Owner’s equity and Other sources and funds.
Page | 21 1.1.3. Market value versus Book value
- The value shown on the balance sheet for the firm’s assets are book value
and generally are not what the assets are actually worth.
- Market value and book value might be somewhat similar because current
assets are bought and converted into cash over a relatively short span of
time. In other circumstances, the two values might differ quite a bit.
- Whenever we speak of the value of an asset or the value of the firm, we will
normally mean its market value.
1.2. The income statement
- The income statement measures performance over some period of time,
usually a quarter or a year. + The income statement equation is :
Revenues = Expenses – Income
Net income = Income – Income taxes
- Balance sheet as a snapshot, then you can think of the income statement as a
video recording coverting the period between before and after pictures.
1.2.1. Revenue
- Revenue is the value that a company actually receives during a specific
period, including discounts and deductions for returned merchandise.
- Revenue is also known as ……………………..
- Revenue = Q.P
1.2.2. Expense

- Expense is the economic cost that a business incurs throught its operations to
earn revenue.
- There are possibly an infinite number of expenses depending on the nature
Page | 22 and size of the business. They can be : cost of goods sold, operating
expense, interest expense…
- Expense classification
+ Classification According to Functions : manufacturing cost, administration
cost, selling and distribution cost and research and development cost. +
Classification According to Variability and Behaviour fixed costs, variable
costs.
+ Others Classification :
1.2.3. Income
- EBIT ( Operating Income ) : Earning before interest and taxes
- EBT ( Income before taxes ) : Earning before taxes = EBIT – I
- NI ( Net profit ) = EBT – Tax
1.3. Cash flow statement
1.3.1. Sources and uses of cash
- Sources of cash : Activities the bring in cash ( giảm tài sản, tăng nguồn vốn)
- Uses of cash : Activities that involve spending cash ( tăng tài sản, giảm
nguồn vốn )
- What we need to do is to trace the changes in the firm’s balance sheet to see
how the firm obtained and spent its cash during some period.
( từ BS xem xét các giá trị thau đổi của tài sản vàn nguồn vốn giữa đầu năm
và cuối năm )

( chỉ sắp xếp và tính toán của khoản mục chi tiết, không tính toán các khoản
mục tổng hợp để tránh tính lặp lại 2 lần )
Page | 23

1.3.2. The cash flows statement

- Cash flows from operating activities
- Cash flows from investing activities
- Cash flows from financing activities
Page | 24 1.4. Notes to financial statements
2. Comparison Analysis
2.1. Common-size statements
2.2. Common-base-year financial statements
2.3. Cross-sectional Analysis
Bonus questions:

- Purpose of financial statements:
Talk about the concept of financial statements, take an example: Balance sheet,
Income statement, Cash flow statement, Note.
Page | 25
The general purpose of the financial statements is to provide information about the
results of operations, financial position, and cash flows of an organization. This
information is used by the readers of financial statements to make decisions
regarding the allocation of resources. At a more refined level, there is a different
purpose associated with each of the financial statements. The income statement
informs the reader about the ability of a business to generate a profit. In addition, it
reveals the volume of sales, and the nature of the various types of expenses,
depending upon how expense information is aggregated. When reviewed over
multiple time periods, the income statement can also be used to analyze trends in
the results of company operations.
The purpose of the balance sheet is to inform the reader about the current status of
the business as of the date listed on the balance sheet. This information is used to
estimate the liquidity, funding, and debt position of an entity, and is the basis for a
number of liquidity ratios. Finally, the purpose of the statement of cash flows is to
show the nature of cash receipts and cash disbursements, by a variety of categories.
This information is of considerable use, since cash flows do not always match the
sales and expenses shown in the income statement.
As a group, the entire set of financial statements can also be assigned several
additional purposes, which are:

Credit decisions. Lenders use the entire set of information in the financials to
determine whether they should extend credit to a business, or restrict the amount of
credit already extended.
Page | 26
Investment decisions. Investors use the information to decide whether to invest,
and the price per share at which they want to invest. An acquirer uses the
information to develop a price at which to offer to buy a business.
- If a company has a higher current ratio than industry average but a lower
quick ratio than industry average, can we say the company’s liquidity is good?
Ans: No. We can only say that the company's current liquidity is better than that
of other companies in the same industry, but the company's quick liquidity is
worse than that of other companies in the same industry.
Chapter 5: WORKING CAPITAL AND FIXED ASSETS MANAGEMENT 1.

Working capital management:

Page | 27

• Increases financing costs • Increases risk
Accounts Receivable
Page | 28
High Levels (favorable credit terms) Low Levels (unfavorable

terms)
Benefit: Cost:
• Happy customers • Dissatisfied customers
• High sales Cost: • Lower Sales

• Expensive
Benefit:
• High collection costs
• Less expensive
• Increases financing costs

Page | 29
Accounts Payable and Accruals
High Levels Low Levels

Benefit: Benefit:
• Reduces need for external • Happy

finance-using a spontaneous financing suppliers/employees Cost:
Page | 30
source Cost: • Not using a spontaneous
• Unhappy suppliers financing source
* Determinants of working capital:
- Nature and size of business
- Production / Manufacturing Cycle + Production policy
+ Growth and expansions
- Credit policy of the firm
- Operating efficiency
- Profit element
Lưu ý: Đọc trong giáo trình trang 145, và thêm phần giải thích, lấy ví dụ ngắn gọn
cho mỗi ý trên. Sử dụng các ô vuông in đậm ở góc bên phải.
2.1. Cash management:
- Definition:
Cash is one of the most important current asset and it’s considered as the
“lifeblood” of a business, helping the business running in a continuous basic. The
term cash includes currency, checks, balance in bank accounts.
- There are four motives for holding cash: transactional motive, precautionary
motive, speculative motive and trade-off, but companies should hold an optimal
level of cash depends on its need.
Page | 31
- The goal of cash management:
+ Maintain an adequate level of cash on hand to meet the daily cash requirement in
operation
+ Maximize the amount of money that are available for investments and obtain the
maximum of interest earned on excess cash while ensuring the safety.
- Effective cash management entails:
Managing the cash balance: to find an optimal holding cash balance in order to
maximize the interest earned on funds that are not immediately needed and reduce
the cost associated with the delays in transmission of funds. Both excess and
inadequate cash can consequently degenerate a firm into problems.
Controlling the collections and disbursements of cash. The objective of the

managing is to speed up the collections and slow down the disbursements of cash.
The cash budget that involves the forecasts of the cash receipts and payments for
the next planning period, is used to improve the monitor of all cash flows, estimate
the cash needs for business and anticipate cash surpluses or deficits.
And more:
+ Improving cash flows forecasts
+ Synchronization of cash inflows and outflows
+ Acceleration of collections

+ Getting funds available where ever they are required
+ Control of cash disbursements
Page | 32 + Investing seasonal surpluses -

Optimal cash levels:
The optimal cash balance may vary in different firms and in different period of
time. It depends on the following factors:
The forecasts of future cash inflows and out flows of companies.
The efficiency of the firms’ cash flow management. The

availability of liquidity assets to the firms.
The companies’ borrowing capacity.
The companies’ tolerance of risk.
The optimum cash level can be estimated by using the Miller-Orr model or the
Baumol model.
2.2. Baumol model:
- The Baumol model is based on the following assumptions:
The cash is used evenly over a period of time.
The cash requirements of the firm are known with certainty in advance.
The transaction cost is known and is constant.
By holding the cash balances, the firm would incur the opportunity cost of interest
forgone by not investing in marketable securities. The rate of carrying cost is
known and is assumed to be constant.
The short term marketable securities can be freely bought and sold.
- The optimum cash level can be estimated by using the the Baumol model.
- Draw Baumol model:
Page | 33

Page | 34
If we start with $C, spend at a constant rate each period and replace our cash with
$C when we run out of cash.
+ The opportunity cost of holding cash: C/2 x r
+ As we transfer $C each period we incur a trading cost of F: If we need $T in total
over the planning period: The trading cost is T x F
C
- The optimal cash balance is found where the opportunity costs equals the trading
costs:
2TF
C* =
r
In which:
F = The fixed cost of selling securities to raise cash
T = The total amount of new cash needed
r = The opportunity cost of holding cash, i.e., the interest rate on marketable
securities

Page | 35
EOQ model with safety order:

Inventory management need to concern about the lead time. The lead time is
the time it takes from ordering to receiving an order. Deciding when it needs
to reorder or calculating reorder point – a safe inventory level at which a new
order should be placed to avoid running out of stocks.
3. Receivable Management:
- When a firm sells products or services, there are 3 main types of sale transactions
that regard when the cash is collected from the sales: Cash sales, Advance payment
sales, Credit sales.
- Term of sale: refers to the conditions that a firm establishes for selling products
and services on credit, consist of three elements:
+ The credit period: is the length of time for which credit is extended.
+ The cash discount: The cash discount is offered to accelerate the receivable
collection. There is a cost related to the customers’ use of cash for the credit period.

- Objectives of management of receivables:
To attain not maximum possible but optimum volume of sales.
Page | 36 To exercise control over the cost of credit and maintain it on a minimum possible
level.
To keep investments at an optimum level in the form or receivables.
To plan and maintain a short average collection period.

- Trade credit:
- Credit policy’s effects:
Page | 37 + Revenue Effects
Delay in receiving cash from sales
May be able to increase price
May increase total sales
+ Cost Effects
Cost of the sale is still incurred even though the cash from the sale has not been
received
Cost of debt – must finance receivables
Probability of nonpayment – some percentage of customers will not pay for products
purchased
Cash discount – some customers will pay early and pay less than the full sales price
- Monitoring receivables:
+ Improve firms ability to assess the creditworthiness of the client
+ Establish a credit limit based on the client’s expected ability to repay its debts
+ Limiting the effects of a client’s default

4. Inventory Management:
- Inventory components:
+ Raw material stock
+ Work-in-progress
+ Finished goods stock
- Inventory management concerns about:
+ What level of inventory a firm should hold

+ When the new order should be made to effectively operate its business.
+ The inventory management aims at finding an optimal inventory level that allows
a firm to provide uninterrupted production, sales and customer service at a
Page | 38
minimum cost.

- The inventory costs and inventory trade - off

Carrying costs or holding costs, which involves in keeping inventory over time, are
available costs increasing in direct proportion to the level of inventory held.
Page | 39
Ordering costs are fixed costs associated with placing and receiving an order.
Stock-out costs are costs occurring when there is insufficient inventory for using in
operation. This may happen in the order lead time (the time between the replacement
of an order and the arrival of that order).
- The inventory trade-off:
+ If low inventory levels then risk is:
High ordering cost
Cost of “stock-outs”
Loss of sales
Loss of profits
Loss of goodwill
Production dislocation
+ If high inventory levels then:
Cost of tying up cash (lost interest)
Storage costs
Management costs
Obsolescence
Deterioration
Insurance costs
Protection (e.g. security patrols)
- Inventory management model:

The Economic Order Quantity (EOQ) is used to calculate the optimal inventory
level at which the carrying costs and ordering costs are minimized.
The model’s assumption:

Page | 40
Inventory demand for the year is certain and known. The demand occurs at

constant rate.
Inventory replacement is instantaneous. There is no order lead time.
The cost of the orderings remains constant.
Page | 41
The purchase price is constant.
The optimal plan is calculated for only one product.
- Draw EOQ model:
- The EOQ model allows to c alculate an economic order - is the optimum size
of order at a minimum total cost combined of the carrying costs and ordering
costs.
- The economic order quantity EOQ or Q* is determined to give the lowest total
cost.
Formula: EOQ = Q* =
In which:
Q is size of inventory
D is total annual demand

F is the cost of each order (fixed cost of reordering)
C is carrying cost per unit
Page | 42 5. Working capital policies:

- Formula:
NWC = (Equity + Long-term liabilities) – Long-term assets
Page | 43 or NWC = Current assets – Current liabilities
- Notes to funding strategies for working capital :
Each financing strategy brings both advantages and disadvantages for companies.
Firms’ managers have to decide the balance between long -term and short -term
finance based on the trade-off between risk and profitability.
There is no existence of sound theoretical formula to help firms finding an optimal

combination of short- and long-term sources to finance working capital.
Managers should take other important factors such as the variability of sales and
cash flows into account in order to choose a suitable financing strategy that can
maximize the firms’ owner wealth.
4 different strategies for working capital:
Relaxed or matching strategy – the matching principle:

Fixed assets and permament current assets are financed with long-term
sources.
Aggressive financing strategy:

Page | 44

Page | 45
The firm finances a part of its permanent current assets with short -term
financing.
Conservative financing strategy:
Permanent assets and a part of temporary current assets are financed with
long-term financing.
Moderate strategy:
Within the three above approaches, no policy is the best for a firm because there are
no absolute benchmarks. These are primarily used inanalyzing ways that a company
approaches operational problems of working capital management.
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Liên hệ gia sư các môn: KTTC1(TV TA,NLKT (TV,TA), TCDN1234 (TV, TA), XSTK, NLTK, KTL, VI MÔ; VĨ MÔ;

TCC1;2; TACB1;2; TIN

 Easily and inexpensively formed  Unlimited personal liability for the

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 Taxed once as personal income tax  Unlimited liabilities

Corporate: a business organized as a separate legal entity owned by shareholders.

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 Easy to raise fund  Double tax

Hybrid of limited and unlimited liability in limited partnership:

 Utilize the advantages of limited  Complicated structure

• 1.3. Goals of financial management: Maximize the current market value

- The modern corporate form results in a separation of ownership from

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Financial intermediaries: an organization that raises money from investors and

Financial institutions carry out a number of similar functions but in different

• 1.4. Financial institutions and markets

Chapter 2: The time value of money

Opportunity cost Money has So, we must use interest

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+The future value of a single cash flow.

+ The future value of a cash flow stream.

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A cash flow stream is defined as a collection of the sequent amount of

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+ The present value of a cash flow stream.

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Cash flow stream

Perpetuity Growing Annuity Growing

• Perpetuity is a set of identical payments ocurring each period in an infinite future.

The PV of growing perpetuity = A / (r-g)

• Annuity is a set of fixed payments occurs in a particular finite number of

An annuity is a series of equal cash flows occurring at equal time intervals,

Annuity due: the first CF occurs immediately

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• The growing annuity is an ordinary annuity which the payment increases by

Chapter 3: Risk and Return

+ Percentage return or holding period return

𝐶𝑎𝑝𝑖𝑡𝑎𝑙 𝑔𝑎𝑖𝑛 (𝑃𝑜 − 𝑃1) + 𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑 (𝐷1)

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Page | 14 Calculating the variances

 The coefficient of variation

Expected Return = (PJ * RJ)

3.2.2 Measuring portfolio risk

 Portfolio standard deviation = SD = Độ lệch chuẩn =𝜎

 Covariance between securities A and B is calculated as follows:

 Correlation coefficient: Hiệp phương sai

• If pAB = -1: the variables always move in exactly opposite directions.

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-Two types: Certainty and Uncertainty

-The principle of diversification: That portfolios of different sorts of assets

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• β > 1: security is more sensitive, riskier than market

 The beta of porfolio is calculated as follows:

Here: Wi : weight of investment i in a portfolio

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: beta of investment i Risk