Financial Statement Analysis
Task #1 What is a Firms Primary Objective?
Maximize Firm Value
Maximize Shareholder Value
Maximize Price per Share
Maximize Profitability
Measuring Profitability
Most prevalent metric : Return on Equity or
ROE
Net Income
Retur

Time Value of Money
Reading: Ch. 4
1
Rates of Return / Interest Rates
Think of an interest rate as the exchange rate
between future and current dollars.
Future Value (compounding for 1 period):
Current $ * (1+r) = FV
Present Value (discounting for 1 perio

Debt and Debt Valuation
Reading: Chapter 6
Common Types of Debt
Short Term (one year or less) almost always
sold on a discount basis
Treasury
Bills (issued by the Fed. Govt)
Federal Funds
Commercial Paper
Certificates of Deposit
Bankers Acceptances

Interest Rates and the Yield
Curve
Reading: Chapter 5
1
Risk-Free Rates are Time-Varying.
2
Risk-Free Rates Vary with Maturity & Over
Time
3
Rates Vary With Sovereign Issuer
4
Rates Vary With Corporate Issuer
5
Credit Spreads Vary Over Time
6
Interest Rat

Capital Budgeting Cash Flows
Reading: Ch. 10
Key Points
Focus on incremental after-tax cash
flows.not on accounting earnings/net income.
Getting accurate estimates of various inputs is
very difficult. Understanding the degree of
variability is even more

Capital Budgeting Discount Rates
Reading Ch. 10 Learning Objective 3 until the end of the chapter
and Ch. 11 (I wont test the stuff on Marginal Cost of Capital MCC)
Risk and Discount Rates
Higher risk should mean a higher required rate
of return, but what

Capital Budgeting & Evaluation
Criteria
Reading: Ch. 9
Some Recent Examples I
02 April 2002: On Monday evening, Hyundai
announced its decision to locate the
company's first American auto plant in
Montgomery. The facility, which is expected
to begin produc