CHAPTER 1

3 financial decisions:
+ Investment decisions (capital budgeting decisions) -> what assets invest in
+ Financing decisions (capital – structure decisions) -> how to raise capital
liabilities equity
(quan tâm tới debt rate= total assets equity rate=
total assets
total assets=total capital)

+ profit distribution decisions (dividend decisions)

{pay dividend
(quan tâm tới net income=net profit reinvestment )

+ working capital management decisions {net working

gross working capital =short −term assets
capital =current assets−current liabilities

Forms of business
Form of business Sole proprietorship Partnership Corporation LLC
Owner of the business Manager Manager Shareholders Owners
Separation of ownership and
NO NO YES YES / NO
management
The owner’s liability Unlimited Unlimited Limited Limited
Financing choices Mainly owner’s Contribution of Issue securities and Owner’s money,
money partners, borrowing borrowing possible corporate
bonds and borrowing
Separation of personal and
NO NO YES YES / NO
corporate tax liability

1
Goals of financial management: maximize the current market value per share not profit maximization
n
CF t
V =∑ trong đó: V: value r: required rate of return (tỷ suất sinh lời đòi hỏi)
t =0 (1+r )t
(tại sao lại là maximize value chứ ko phải profit do profit maximization bỏ qua mất 2 yếu tố: risk và timing)

Agency problem (vấn đề đại diện): Conflict of interest between managers – owners
+ Dealing with agency problems:

{
cho các managers mua cổ phiếucủa cty → họ trở thành cổ đông và khi đó lợiích của họ gắn liền với shareholders
đưara ngay từ đầu các quy định , chuẩn mực ( nhất là cụ thể về mặt lợi ích) để managers phải tuân theo

Financial market Money market Capital market

Where companies can sell their A section of the financial A section of the financial
financial assets: new shares of market where SHORT-TERM market where LONG-TERM
Def stock, in exchange of investment FINANCIAL ASSETS with FINANCIAL ASSETS
capital high liquidity are traded (trading bonds, stocks,
debentures) are traded
Primary / Secondary / Over-the-
Classified
counter market
Establishing payment mechanism Offsetting differences between
Pooling risk cash inflows and outflows
Providing financial information Financing working capital
Function
Hedging risk
Promoting internal trade
Referencing discount rate

2
 CHAPTER 2
PV: initial value r: interest rate in 1 period n: number of the periods
The discounting process tính PV

Simple interest (after n I n=PV × r ×n

period) – tiền lãi nhận
được sau n kì
Future value (applied FV n=PV + PV × r × n=PV (1+ r × n)
simple interest)
Compounding interest I n=[ PV ×(1+ r)n−1 ] ×r =FV n −1 ×r
Single cash (after n period)
flow FV (applied FV n=PV ( 1+ r )
n

compounding interest) ( 1+r )n : future value interest factor value of 1 VND after n
periods at the interest rate r
Present value (PV) FV −n
PV = n
=FV ×(1+r )
(1+r )
−n
(1+r ) : discount factor how much you have to invest to get
1 VND after n periods
n
Cash flow FV (if cash flow denote
FV n=∑ CF t ×(1+ r)n −t
stream at the end of the period) t =1

n
FV (if cash flow denote
FV n=∑ CF t ×(1+ r)n −t +1
at the beginning of the t =1

period)

3
 n
PV (if cash flow denote CF t
PV n=∑
at the end of the period) t =1 (1+ r)t
n
PV (if cash flow denote CF t
PV n=∑
at the beginning of the t =1 (1+ r)t −1

period)
∞
PV of In general CF t
PV =∑
perpetuity t =1 (1+ r t )t
When CFt = A and r is A
PV =
r
kept constant
t −1
PV of In general ∞
CF t (1+ g)
PV =∑ t
growing t =1 (1+r )

perpetuity g: growth rate

When CFt = A ; r is kept A
PV =
r−g
constant; r > g
−n
Annuity Ordinary annuity 1−( 1+r )
PV = A ×
r
n
(1+ r) −1
FV = A ×
r
−n
Annuity due 1−( 1+ r )
PV = A ×(1+r )×
r
n
(1+r ) −1
FV = A ×(1+r )×
r
Growing When CFt = A ; r is kept n
(1+ r) −(1+ g) A
n
A(1+ g)
n
PV = A × n
= −
annuity constant; r > g (r −g)(1+ r) r−g (r −g)(1+ r )n

[ ]
n n
(1+r ) −(1+ g)
FV = A ×
r −g

4
 m
Quoted interval can EAR=(1+
NIR m
) −1= ( 1+ r k ) −1
m
count
m: số kì tính lãi trong năm
càng nhiều kỳ tính lãi trong 1 năm thì EAR càng cao nhưng NIR ko
đổi
r
Effective EAR=e −1

annual rate Quoted interval can’t e = 2.71828

(EAR) count (continuous FV =PV e
rn

compounding) r: constant yearly interest rate

PV =FV (e ¿¿−rn)¿
mn
FV =PV (1+r k )
r k : periodic interest rate
m: số kì tính lãi trong năm
( 1+nominal rate )=(1+the real interest rate)×(1+ theinflation rate)
Nominal cash flows -> discounted at the nominal rate
Real cash flows -> discounted at the real interest rate
Related real cash flows=
nominal cash flows
1+inflation rate
formula
1+ nominalrate
real interest rate= −1
1+inflation rate
FV
PV =
1+nominal rate
n
Discounted CF t
PV =∑ → NPV =PV −cost
cash flow t=0 (1+ r)t

model PV: present value of the expected cash flows in the future
r: discounted rate of the model
5
 (DCF) Model can be used for: capital budgeting decisions or securities valuing
+ NPV > 0: PV (cash inflows) > PV (cash outflows) -> should invest
+ NPV < 0: PV (cash inflows) < PV (cash outflows) -> shouldn’t invest

Why does money have time value?

CHAPTER 3
{ dollar terms (absolute terms)
Total return can be expressed percentage terms (relative terms)

Total dollar return ¿ D1 +(P1 −P 0)

D 1: direct income (dividend paid)
P1: ending price
P0: initial / beginning price

Total return Capital gain / loss: P1−P0 >/< 0

Percentage return capital gain+dividend total dollar return D1 +( P 1−P0 )
¿ = =
initial share price beginning price P0
Holding period return end of period value
¿( −1)×100 %
beginning of period value
(HPR)
Period: 1 day, 1 week, 1 month, 5 years,…
Expected return An investment = Dividend + Capital gain (loss)
n
Expected (rate) of
r =∑ pi × r i= p1 r 1+ p 2 r 2 +…+ p n r n
return (r ) = i=1

pi: the probability of i outcome

th
weighted average
r i : the ith outcome

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of possible n: the number of possible outcome
outcome A portfolio (r p) n
r p =∑ f i ×r i=¿ f 1 ×r 1 + f 2 × r 2 +…+ f n ×r n ¿
i=1

r p: expected rate of return on portfolio

r i : expected rate of return of assets i
f i: the fraction (the weight) of the portfolio’s value invested in asset (còn có
thể đc kí hiệu là w i)
the value of theinvestments∈asset i
f i=
total value of the portfolio

Deviation ¿ r i−r
n
An investment
σ 2=∑ pi ×(r i−r )2
i=1
2 2 2 2
A portfolio 2 khoản đầu tư =f σ A + f B σ B +2 f A f B COV ( A , B)
A
Variance n n
n khoản đầu tư =∑ f 2j σ 2j + ∑ f j f k COV ( j ; k )
j=1 j=1

Các cặp j;k: lần lượt 1,2; 2,3;1,3;…

An investment
√∑
n
σ= pi ×(r i−r )2
i=1

Low SD σ lower tight dispersion lower risk

Standard
High SD σ higher wide dispersion higher risk
deviation
Với 2 khoản invest có cùng expected return, khoản invest nào có variance (σ 2)
hay SD (σ ) lớn hơn thì rủi ro hơn.
A portfolio σ p=√ f 2A σ 2A + f 2B σ 2B +2 f A f B COV (A , B)

7
The coefficient of σ
CV =
r
variation (CV)
Compare the risk between 2 investments:
+ Using SD: 2 investments have the SAME expected return (r )
+ Using CV: 2 investments have the DIFFERENT expected return (r ) -> CV higher risk
higher
n
Covariance
COV ( A , B )=∑ pi ( r iA−r A ) (r i B−r B )=ρ AB × σ A σ B
i=1

Correlation COV (A , B)
ρ AB =
σ A σB
coefficient
If −1< ρ AB <1 -> combining stock into a portfolio reduces risk but does not eliminate it completely

{
ρ AB=± 1 : perfect positive /negative correlation ρ AB → ±1 : strong correlation
If ρ AB=0 :not related , have no correlation
ρ AB > ¿<0 : positive/negative correlation

Of a security COV (i , m)
β i=
σ 2m
β i: beta coefficient of the security
COV (i , m): covariance between return of security and portfolio return
2
σ m: variance of the market portfolio return
Beta (measure
systematic risk)
β >1: security MORE sensitive, riskier than market
β=1: security’s change similar to market’s change
β <1: security LESS sensitive, less risky than market
n
Of a portfolio
β p= ∑ w i × β i
i=1

8
CAPM Security Market Line E ( R M ) −Rf E ( R M ) −R f
SML Slope ¿ =
βM 1
Required Ri=R f + β i ( RM −Rf )
(expected) rate of R f : risk-free rate
return of β i: beta of security i
security/portfolio β i ( R M −R f ) : security risk premium -> ( R M −R f ): market risk premium
( Ri ) + beta = 0: risk-free security
+ beta = 1: expected return on security equal to expected return on the market
Higher beta ( β i) -> higher expected return

Risk: deviation between actual return vs expected return

Unsystematic risk vs systematic risk:

Unsystematic risk (specific risk) Systematic risk (market risk)
Affect Individual risk of each company Most companies
Can it eliminated by YES (but only when perfectly negative NO
diversification? correlation)
Diversification: the process of spreading an investment across assets
Caused by? Problems in particular firm: strikes, delayed Interest rates, exchange rates,
delivery by supplier, winning or losing inflation regulations
contracts,….

Capital asset pricing model assumptions:

9
(1) Security market is perfectly competitive and efficient
(2) Portfolios are perfectly diversified
(3) No tax, No inflation and No change in interest rate
(4) Investors have the same holding period
(5) Investors can borrow or lend at an unchanged risk-free rate
(6) All investors are risk averse (e ngại rủi ro)
(7) All investors have same estimation about expected return and variance

CHAPTER 4
Nguyên tắc lập bảng ptich diễn biến nguồn tiền (sources of cash) và sử dụng tiền (uses of cash)
B1: So sánh số liệu CUỐI KÌ với ĐẦU KÌ để tìm ra sự thay đổi của mỗi khoản mục trên BALANCE SHEET
B2: Mỗi sự thay đổi của từng khoản mục sẽ được phản ánh vào 1 trong 2 cột: sources of cash và uses of cash
theo nguyên tắc:
+ diễn biến sources of cash = ↑ nguồn vốn; ↓ asset
+ diễn biến uses of cash = ↓ nguồn vốn; ↑ asset
(chỉ tính cho các khoản mục CHI TIẾT, KHÔNG tính cho các khoản mục TỔNG HỢP)
+ Riêng đối với khoản HAO MÒN LŨY KẾ và TRÍCH LẬP DỰ PHÒNG:
↑ ghi sources of cash; ↓ ghi uses of cash

The XYZ sources and uses of cash

Sources of cash Amount of % Uses of cash Amount of %

10
 money money
(↑↓ ở từng loại tk chi tiết)…. (↑↓ ở từng loại tk chi tiết)….
Total sources 100 Total uses 100

Comparison Analysis:
+ Common – size statements: sử dụng percentage so sánh với tổng thể
+ Common – base – year FSs: chọn 1 năm gốc so sánh để tìm trend
+ Cross – sectional analysis: head-to-head analysis with its biggest compe
approach from an industry-wide lens -> identify companies with a particular strength

FINANCIAL RATIOS
Ratios
Ratios Formula Note
group
Current assets
Current ratio Current ratio=
Current liabilities
Quick (Acid – test) Current assets−Inventory
Quick ratio=
ratio Current liabilities

Liquidity Cash∧marketable securities

Cash ratio Cash ratio=
Current liabilities
measures
Times interest Đo lường xem 1 đồng lãi vay
earned ratio (TIE EBIT trong kì được thanh toán
TIE ratio=
ratio)/Interest Interest bằng bn đồng lợi nhuận trước
coverage ratio lãi và thuế
Assets Inventory turnover COGS Beginning+ Endin
Inventory turnover= Avergae Inventory =
Average Inventory 2

11
 Days’ sales in 360 days 360 days × Average Inventory 360 (hoặc 365) days là dựa
DSI = =
inventory (DSI) Inventory turnover COGS vào yêu cầu đề bài
Receivables Annual credit sales
Receivables turnover =
turnover Average AR

Days’ sales 360 days 360 days × Average AR Receivables

DSO= = =
outstanding (DSO) Receivables turnover Annual credit sales Average sales per day
Total purchases∨COGS
Payables turnover Payables turnover=
Average AP
Management
Days’ payables 360 days 360 days × Average AP Payables
DPO= = =
outstanding (DPO) Payables turnover Total purchases∨COGS Average COGS

Cash conversion
CCC=DSO + DSI−DPO
cycle (CCC)
Working capital Net sales
Working capital turnover =
turnover Average working capital Net sales (= Net revenue) =
Net sales Net sales - COGS
Total asset turnover Total asset turnover=
Average Total assets
Current assets Current ratio ×Current liabilities
Current asset ratio Current asset ratio= =
Total assets Total assets
Non – current asset Non−current assets ¿ 1−Current asset ratio
Non−current asset ratio=
ratio Total assets
Assets and
capital Total debts
Debt ratio Debt ratio=
Total assets
structure
Equity
Equity ratio Equity ratio= =1−Debt ratio
Total assets
Debt Assets 1
Debt-to-equity ratio Debt −¿−equity ratio= = −1= −1=Equity multiplier−1
Equity Equity Equity ratio

12
 Profit margin / Sales = Quantity x Unit price
Net profit
Return on sales ROS=
Net sales (¿ sales)
(ROS)
Basis earning power EBIT
Profitability BEP=
(BEP) Average Total assets
measures
Return on assets Net profit
ROA=
(ROA) Average Total assets

Return on equity Net profit Net income

ROE= =
(ROE) Average Total equity Equity(bool value)

Earnings per share Net income−Dividends on Preferred stock

EPS=
(EPS) Total outstanding shares

Book value per '

Total Owne r s equity−Preferred equity
BVPS=
share (BVPS) Total outstanding shares

Dividend per share

Market (DPS)
value Dùng cho cổ phần THƯỜNG
Price – earnings Price per share Market price
measures P/ E ratio= = (ko áp dụng cho cổ phần ưu
ratio (P/E ratio) Earning per share Net income (earnings)
đãi)
Market – to – book Market value per share
Market −¿−book ratio=
ratio Book value per share

Dividend payout
ratio
Earnings before EBIT =Gross profit −selling expenses−administrative expenses=∑ revenue−∑ cost
interest and tax

13
 (EBIT)
Earnings/Profit Interest: lãi vay
EBT = EBIT−Interest =EBIT −Debt ×interest rate
before tax (EBT)
Net income (Net Tax: thuế TNDN
profit; Profit after Net income=EBT −Tax=EBT ×(1−tax rate)
tax)
Variable cost Variable cost=Quantity × Variable cost per unit
Gross profit Gross profit =Net revenue−COGS
TH1: NWC > 0 (CA>CL)
=>all current liabilities and
non-current capital financing
current assets
-> less risky
=>current ratio > 1
Net working capital
NWC=Current assets−Current liabilities TH2: NWC < 0 (CA<CL)
(NWC)
=> a part of current liabilities
is used to finance non-current
assets
-> more risky
=> current ratio < 1
TH3: NWC = 0 (CA = CL)
The Du Pont Return on assets Net profit Net sales
ROA=ROS × Assets turnover= ×
Net sales( ¿ sales) Total assets
Indentity (ROA)

14
 Return on equity Net profit Total assets Sales Total assets
ROE= =ROA × =ROS × × =ROS × Assets turnover × Equity multipli
(ROE) Equity Equity Total assets Equity

The Sustainable Retention rate: tỷ lệ giữ chân

g=Retention rate× ROE0 =( 1−Dividend payout ratio ) × ROE0 =Retention rate × ROS × Total asset turnover × Equit
growth rate (g) khách hàng

CHAPTER 5
1. Working capital management
- Có 2 loại: Gross working capital = current assets và Net working capital = current assets – current liabilities
- Objectives:
+ Improve profitability
+ Ensure sufficient liquidity to meet short-term obligations
- Working capital management bao gồm:
+ Payables management
+ Cash management
+ Receivables management
+ Inventory management
- 4 motives of holding cash:
+ Transactional motive
+ Precautionary motive
+ Speculative motive
+ Trade-off

15
Cash Management: Optimal cash levels (Mức dự trữ tiền mặt tối ưu) -> using the Miller-Orr model or the Baumol
model
The Baumol model
- The optimal cash balance where opportunity costs = trading costs
Opportunity costs = Trading costs
C T
× R= × F
2 C
Trong đó: F: fixed cost of selling securities to raise cash
T: total amount of new cash needed
R: opportunity cost of holding cash, i.e., the interest rate,…

√
2
C 2 T ×F 2TF
+
2
× R=T × F -> C =2× R -> C ¿=
R
-> C ¿: optimal cash balance (mà tại đó total cost of holding cash thấp nhất)
C T
Total cost = 2 × R+ C × F =>The model concerned only transaction balances, not precautionary balances

The Miller-Orr model

Given L; solves for C ¿,U
¿
C=
√
3 F σ2
3

4R
+L
¿
4 C −L
Trong đó: σ 2 là variance of net daily cash flows

Average cash balace=

3
L: lower limit giới hạn mức dự trữ
U ¿ =3 C¿ −2 L=C ¿ + [ 2 ×(C¿ −L) ] U: upper limit tiền nắm giữ

16
 + Cash balance reach upper limit (U)
-> cash is invested elsewhere to get to target
cash balance (C)
C + Cash balance reach lower limit (L)
-> investments are sold to raise cash to get
L up to target cash balance (C)

+ C ¿ -> positive to trading costs (F)

Negative to interest rate (R)
+ C ¿ và average cash balance positive to variability of cash flows

Inventory Management
The Economic Order Quantity (EOQ) -> calculate the optimal inventory level at which carrying costs and ordering
costs are minimized
(calculate for only one product; do not risk of late delivery, lead time: ordering -> receiving an order)
Note
Total annual Total annual demand
¿ Number of order per period × Cost of each order=
D
ordering cost Order ¿ ×Cost of each order= ×F ¿
Q
C 1 :carrying costs per unit
Q+ 0
Total carrying cost ¿ Carrying costs per unit per period × Average inventory level ( ¿ units )=c 1 × Q + 0: 0 chính là khi cuối kỳ kho hết
2
hàng
17
 Q
C 1= ×c 1
2
với C 1: total carrying cost; c 1: carrying
D Q cost per unit (C = c 1)
The total cost (TC) ¿ c2 × +c 1 × =C 2 +C 1
Q 2 D
C 2= ×c 2
Q
với C 2: total fixed cost of reordering; c 2:
cost of each order (F = c 2)

√ √
Economic order 2 DF 2 D c2 Q: size of inventory
EOQ=Q¿ = =
quantity C c1 D: total annual demand
Qn Qn=D : annual demand
Reorder point Q đh=n ×
360 n: số ngày chờ đặt hàng
Working capital
¿ Estimated ( AR+ Inventory− AP ) + Desired level of cash balance
requirements
Operating cycle
Receivables management

Payables management

Fixed assets Management

Annual net sales
Sales to fixed assets ¿ assets prior ¿ accumulated depreciation ¿
Total ¿
Accumulated
Accumulated depreciation
depreciation to fixed ¿ assets ¿
Total ¿
assets ratio (AD to FA)
18
 ¿ Assets used ¿ create revenue ¿
Operating assets ratio Total assets
Cash flow to fixed assets Net income + Noncash expenses−Noncash sales
¿
requirements (CF to FA) Budgeted FA purchases
Net profit
Return on FA employed ¿
Total FA employed
R∧D expense
Intangibility index ¿
Capital expenditures

Annual rate of
¿ Residual value of FA × Depreciation rate accelerated
depreciation of FA
Accelerated
depreciation rate ¿ Rate of depreciation by straight line method × Adjustment coefficient
(%)
Rate of
Adjusted reducing balance method
depreciation by 1
¿
straight line số năm khấu hao

method
t ≤ 4 years => 1,5
Adjustment
4 years<t ≤ 6 years => 2,0
coefficient (time)
t >6 years => 2,5
Annual rate of Method of depreciation based on
¿ Amount of products yearly made × Averagerate of depreciation for aunit of product
depreciation of FA volume
Average rate of ¿ Primary price of ¿ assets ¿ Output by design capacity: sản lượng
Output by designcapacity
depreciation for a theo công suất thiết kế dự tính

19
unit of product

20