Corporate Finance Principles and Financial Ratio Analysis
Corporate Goals and Intrinsic Value
Maximizing Shareholder Wealth
The primary goal of a corporation is to maximize the long-term stock price (intrinsic value), rather than focusing on short-term profits. Ethical conduct is mandatory, as mistreating stakeholders ultimately destroys value. Intrinsic value represents the fundamental long-run value derived from cash flows and risk, whereas the stock price is a short-run price determined by marginal investors. In equilibrium, the price equals the intrinsic
Read MoreTax Planning Strategies and Accounting Principles
Tax Fundamentals and Revenue Formulas
The fundamental formula for taxation is: Tax Burden/Revenue = Tax Base × Tax Rate. The Tax Base represents the value subject to tax. Tax types and bases are identified by what triggers the tax: an event (something occurs), a transaction (buying or selling), or value (the worth of property).
Core Principles of Taxation
- Sufficiency: The tax system raises enough revenue to cover government expenditures.
- Simplicity: It is easy for the government to collect and for
Corporate Governance Principles, Theories and Regulations
Meaning and Definitions
“Governance” from Latin ‘gubernare’ = ‘to steer’ (as in steering a ship).
OECD (1999): “A set of relationships between a company’s board, its shareholders and other stakeholders. It also provides the structure through which the objectives of the company are set, and the means of attaining those objectives, and monitoring performance, are determined.”
Cadbury Committee (1999): “Concerned with holding the balance between economic and social goals and between individual and communal
Read MoreFinancial Management Formulas and Ratio Analysis
Cost-Volume-Profit (CVP) Analysis
- Contribution Margin (CM) per Unit = Selling Price − Variable Cost per Unit
- CM Ratio = (Selling Price − Variable Cost) ÷ Selling Price × 100
- Break-Even Units (BEU) = Fixed Expenses ÷ CM per Unit
- Break-Even Sales (BES) = Fixed Expenses ÷ CM Ratio
- Additional Units (AU) = Target Profit ÷ CM per Unit
- Total Units (TU) = BEU + AU
- Total Sales = TU × Selling Price
- Margin of Safety = Actual Sales − BES
Net Present Value (NPV) Analysis
- NPV = Σ (Cn × PV Factor) − Initial
Corporate Governance: Principles, Regulations, and Compliance
Meaning, Objectives and Principles of Corporate Governance
Corporate Governance is the system by which companies are directed and controlled. It provides a framework for achieving a company’s objectives while balancing the interests of shareholders, management, customers, suppliers, financiers, government, and society.
Core Objectives
- Ensuring management accountability
- Protecting minority shareholders
- Promoting transparency and ethical conduct
- Complying with laws and regulations
- Enhancing long-term shareholder
Essential Financial Formulas and Banking Metrics
Unit 1: Interest and Returns
- Simple Interest: I = P × i × t or I = P × i × days/360
- Final Value: FV = P + I or FV = P(1 + i × t)
- Compound Interest: FV = P(1 + i)^n
- Present Value: PV = FV / (1 + i)^n
- Period Return: Return = (FV – I0) / I0
- AER: AER = (1 + Return)^(360/days) – 1
Unit 2: Deposits, Loans, and Credit
Deposits
- Gross Interest: Igross = C0 × i
- Tax: Tax = Igross × tax rate
- Net Interest: Inet = Igross – Tax
- Net Final Amount: Cnet = C0 + Inet
- AER Calculations:
- General: AER = (1 + ik)^k – 1
- Monthly: