Course slides

Page Investment and financing Int Bachelor of Business Administration HS Fulda Christian Diegmüller MA Page Recommended reading: • Basics of Financing and Investment [Electronic Resource]: with Case studies and exercises / by Ulrich Pape • De Gruyter Oldenbourg 3., revised & extended edition • startup crowdfunding and equity crowdfunding : A Guide for founders [Electronic Resource]: With capital from the CrowdYoung business online finance / by Dana Melanie Schramm and Jakob Carstens • Wiesbaden: Imprint: Springer Gabler, 2014 Page idea • Christian Diegmüller MA • Teacher for special tasks (LBA) • Email: christian.diegmueller@w.hs-fulda.de • Tel: 0661/9640 - 2552 • Office LS 306 Page introduction Page introduction • Why F & I as the content of your studies? - investment and financing Decisions in the financial sector of the Company Financial sector is a core area of the Companies - Good fin Decision basis Existence and success of the company Page introduction • Why F & I as the content of your studies? - Investment decision • How are financial resources of the company be used? - financing decision • How are financial resources of the company To be procured? - Financial management deals with Capital procurement and use Page introduction • Financial decisions are Closely with the internal business Performance area • Voltage field between - Procurement market - Performance range - sales market - Financial market Page introduction 8th Source: http://www.teialehrbuch.de/Kostenlose-Kurse/Finanzmanagement/32013Biele- und-Grundlagen-der-betriebs-Finanzwirtschaft.html Page introduction • When looking at it, across from - Deposit - Payouts • = Cash Flow Page 10 introduction • Terms - Cash and cash equivalents: Cash on hand + Daily bank receipts and withdrawals - Financial assets: ZMB + Receivables liabilities Net assets: Financial assets Facts 10 Page 11 introduction • Terms - Deposits and withdrawals • Refer to ZMB - Income and expenditure • Refer to monetary assets - Income and expenses • Change the net assets 11 Page 12 introduction • Cash flows are thus changes in the ZMB of the company • ZMB consists of cash (cash) Cash payment, In particular bank deposits • Cash flows are - Positive (Deposits) - Negative (Payouts) *** " Page 13 introduction • The cash flow statement shows sources and Use of cash flow • See next slide 13 Page 14 introduction 14 Source: http://www.controllingportal.de/Fachinfo/Grundlagen/DieKapitalflussrechnung.html Page 15 introduction • The concept of capital - Classical view • Wide interpretation: balance sum • Narrow interpretation: shows origin of capital values (Liabilities) - Monetary Capital Concept • Employed funds in the company (Payments) 15 Page 16 introduction • Interdependence between investment and investment financing 16 assets liabilities Balance sheet investment financing Middle-income Use of resources Page 17 • Circulation of financial resources 17 Capital market Goods market Deposit Deposit Payout Payout Capital requirement And / or Tion Capital Use G / investment Return on capital / Ge Winn Internal financing Capital outflow: Interest, Repayments, distribution Page 18 introduction • The ultimate corporate objective: longAnd livelihood • Supported by Objectives, Social Objectives and Financial targets • Financial targets (increase in company value) - Liquidity - Profitability - Safety - Growth - Independence 18 Page 19 introduction • Supreme financial accounting Goal: Increase in company value - Gives the interests of the investors first priority - Provides the prerequisite for the achievement of others Goals • Liquidity: - guaranteeing the ability to pay - buzzer of the ZMB plus deposits> sum of the Liabilities; Otherwise insolvency 19 Page 20 introduction • Profitability: - Efficiency of capital use - Total capital profitability • Profit / loss> Total cost of capital - Equity profitability • Profit / loss> Equity costs • Safety: - Minimization (not avoidance) d Risk 20 Page 21 introduction • Growth: - If profitability> capital costs • Independence: - Entrepreneurial disposition freedom 21 Page 22 Investment calculation Page 23 Investment calculation • Overview: - Basis of the investment calculation - Static investment calculation - Dynamic investment calculation - Extensions and alternatives 23 Page 24 basis of Investment calculation Page 25 Definition of investment • An investment is the long-term Binding of financial resources in material (Machines, buildings, ) and in Intangible assets (Software, patents, ) as well as in Financial assets with the aim of In the future 25 Page 26 Definition of investment • A cash flow is generated by investing, Consisting of deposits and withdrawals in Several future periods • A simple investment consists of one Payout at the beginning of the investment project And one or more subsequent ones Deposits • Payment in practice is uncertain • Investments made are difficult Reversible / correctable 26 Page 27 Differentiation of Investment • By investment object - property investment - Intangible investment - financial investment • After investment - start-up / initial investment - Reinvestment • Replacement investment • Rationalization investment - expansion investment 27 Page 28 Investment account is part of the Investment planning 28 initiation ID Alternatives forecast Effects rating decision implementation Control / adaptation Suggestions from operational processes, strateg Analyzes To avoid suboptimal decisions Analysis of the impact of various Alternatives to the whole company Evaluation based on targets, eg Through investment accounts What alternative is to be implemented? Implementation of the chosen alternative, Often multi-year projects Already in progress continuous control And adaptation (target / actual) Page 29 Investment planning takes place Multiple levels 29 Planning level Planning object strategically tactical Operationally Preparation of investment plan (5-10 years) Investment budget / plan for year Decision on individual I projects Page 30 Objective of the investment calculation • Identification of beneficial investment projects within Of possible investment projects • Benefitability is based on finanzw Objectives of the Company - financial advantage • Basic question: - Should I-project be carried out? - Alternative: not perform - Absolute advantage 30 Page 31 Objective of the investment calculation • Multiple I projects are closed Reciprocal, the question is: - Which of the most beneficial I-projects is To carry out Relative advantage • Individual decisions Program decisions 31 Page 32 Overview of the Investment procedure 32 Invoices Cost comparison Profit comparison Profitability analysis Stat Amortization calculation Capital value method Method of annuity Internal interest rate method static dynamic Page 33 Static Investment Procedures Page 34 Commonality of static Investment procedure • Pragmatism and easy application in the foreground • Accuracy occurs in the background (inaccuracy) • Static = temporal structure of the payment stream Not taken into account • Concentration on only one (representative) period • As a rule, no consideration of cash flows, only static Sizes such as revenues and costs (exception: Amortization calculation) • Decision under security All relevant information is given and Reliable (exception: amortization account) 34 Page 35 Commonality of static Investment procedure • Success orientation - Cost comparison - Profit comparison calculation - Profitability analysis • Safety orientation - Amortization calculation "35 Page 36 Cost comparison bill Page 37 Cost comparison • Restriction on cost perspective • Target size - Annual costs from realization d Investment object • Decision: - implementation, if cost the set limit is not Exceed (absolute decision) - Choice of the alternative with the lowest cost (Relative decision) 37 Page 38 Cost comparison • Cost types - Running costs • Variable costs (vary with application rate) - Required: Determination of the amount applied • Running fixed costs - Are constant, not of the application rate Page 231 Interest rates on loans • Variable-rate credit - The interest rate of the loan will be continually updated to reflect the adjusted change in market interest - Adjustment may periodically (eg Quarter) or irregular (as necessary, happen discretion of the Bank) - In regular adjustments is an orientation usual at the reference rate on the market - For borrower (lender) beneficial in falling (rising) market interest rates 231 Page 232 Redemption forms of loans Page 233 Redemption forms of loans Einfälliges loans redeemable loan annuity loan repayment Eradication with a payment at the end of the term Repayment in fixed, steady amounts Sum of interest and amortization payment s remains constant interest Constant interest payments interest payments fall on the running time Interest portion of Annuity decreases, Repayment portion increases liquidity Over the life of small Load, at maturity very high Over the life decreasing stress, no separate stress at maturity constants load on full term Financierungskosten High Low medium 233 Page 234 Nominal interest rate and effective interest Page 235 Nominal interest rate and effective interest • The effective interest rate is a measure of the actual Borrowing costs • Are nominal amount and the amount paid to the Loan identical and fall no further Financing costs, are effective interest and Nominal rate equal • If the payment amount of the loan is lower than the nominal amount, the difference as a discount is designated, effective interest is higher than nominal interest • The effective interest rate is the internal rate of return of Payment number of credit 235 Page 236 Kreditleihe • In addition to pure money transfer can in Credit agreement and the provision of Creditworthiness of the lender, usually banks, consist (Kreditleihe) - guarantee facility • Bank as a lender accepts for borrowers a guarantee or warranty to any Third - bank guarantee or bank guarantee • For companies often - In deferrals to the state (duties, taxes) - Process guarantees - Performance guarantees 236 Page 237 Kreditleihe • For bank a contingent liability (Uncertainty of occurrence, only if Borrower its obligations to Third does not comply) • consideration of the borrower is the Payment guarantee commission (1% to 3%) to the Surety or guarantee sum • Advantage for borrower: conserve own liquidity 237 Page 238 trade credit • If credit subject the provision of a The object is • Common type: Supplier Credit - Granting of deferred payment for payment goods already delivered • parameters: duration of the payment term, discount • Do not use of discount caused Opportunity costs in the amount of the cash discount - high Cost of trade credit 238 Page 239 trade credit • Standard hedging instrument: Retention of title - Supplier reserves the right to goods supplied until before full payment of the Invoice amount before • Without retention of title go supplied Goods in the insolvency of the buyer on - By retention of title supplier right of separation 239 Page 240 Credit agreement with Bank Credit • Comes by application and acceptance into existence • All agreements are in the loan agreement summarized - Type d loan - Height d loan - Running time - redemption - Termination (for both sides) - Interest and other costs - Collateral loan d - Negative clause, safeguard clauses, - Jurisdiction - Recognition Conditions in Private Client also Schufa clause 240 Page 241 Capital market financing by bonds Page 242 Capital market financing bonds • The purchaser of a bond (bondholders) represents the bond issuer a certain amount of money (nominal value) for a specified period (term) are available In return, receives the bondholders a return pay at maturity of the bond the issuer the nominal value of the current Bondholders back 242 Page 243 Capital market financing bonds • Also possible: bond, debenture, Denomination in bonds • sum of the nominal amounts of all Bonds Issue size = the bond • Issuers State (government bonds) and Companies (corporate bonds, Corporate bonds, Bank bonds) 243 Page 244 Capital market financing bonds • requirement for the issuance of a bond by a company whose emissivity - In contrast to not to issue shares Legal form attached - Rather minimum credit, minimum issue volume of € 100 million • emission method similar to IPO in Framework of equity financing 244 Page 245 Amenities feature of bonds • nominal interest rate • Rated value • Running time • Frequency of interest payment • issue price • Redemption price • collateral 245 Page 246 credit risk • capital market interest rate as discount rate - Comparable plant - Criteria particularly risk and maturity • risk is a significant risk of the bond, which significantly is determined by the creditworthiness of the issuer • A higher credit rating lowers the financing costs for the issuer, low interest in receiving FK • risk-free interest rate (risk-free interest rate) arising from the Effective yield default risk-free government bonds (eg Bunds) • Corporate bonds have default risk, thus they have higher Interest offer as default risk-free government bonds • The difference in the effective rate of a particular Corporate bond and a comparable risk-free Government bond is called a credit spread or credit risk premium • The better the credit rating, the lower the credit risk premium 246 Page 247 Rating from rating agencies • The Rating giving rating agencies a judgment over an issuer or a bond from • rating agencies act on behalf of the issuers • bonds with a rating of "triple B" (lt Standard and Poor's) have investment grade • bonds with lower credit ratings are considered speculative 247 Page 248 rating of CRAs rating Explanation (lt Moody's) aaa Bonds of the highest quality with minimal credit risk aa High quality, very low risk of default A Quality of the upper class, low risk of default Baa Medium quality, moderate risk Ba Speculative elements, significant credit risk B Speculative, high risk of default Caa Bad standing, very high risk of default Ca High speculative, likely near failure or failure already occurred views of principal and interest C occurred Typically failure, with little prospect of nominal value and interest 248 Page 249 Important special forms of bonds • Prematurely callable bond - Issuer reserves put the notes to Early Redemption at specific dates prior to maturity can • Subordinated bond - Claims of bondholders are compared to other creditors in bankruptcy only satisfied if all other claims settled are 249 Page 250 Important special forms of bonds • zero coupon bond (zero bond) - Bondholders receives no current interest payment - Compound interest are to repay the nominal value paid • convertible - Bondholders has in certain periods during the term (conversion periods) the right, the bond in a certain number of shares of convert emitting company 250 Page 251 Important special forms of bonds • Option Bond - Bondholders obtained in addition to the bond a warrant of him during Option period may, in addition to the bond a certain number of shares issuing company at a to acquire certain price 251 Page 252 Compare credit financing (Bank) vs loan financing (Capital Markets) problem Bank capital market Find matching debtor Bank accepts search Organised market brings Buyers and sellers together Borrower's creditworthiness Bank accepts credit scoring system rating agencies assess debtor Security d Plant Risk transformation diversification Lenders must diversification itself carry out Plant only small loans Lot size transformation by Bank Small denomination in file Issue capital commitment Maturity transformation Bank Liquid trading market 252 Page 253 Comparison of business perspective dimension bank loan bond interest rate Comparable Comparable One-time and ongoing costs No or low Very high effort organization Low High time Low High creditor One (few) Many anonymous creditors influence High Low visibility Very low High 253 Page 254 hybrid capital Page 255 hybrid capital • characteristics of equity and debt • Also called: Mezzanine Capital • Legal Overview - Closer to the FK • Business View - Closer to the EK • Examples - convertible bonds - Bonds - Subordinated bonds - Participation certificates - Silent participation 255 Page 256 Characteristics of hybrid capital • liability for losses - Adheres before erstrangigem FK • Contribution to Success - Fixed and performance-related interest shares • Participation in corporate governance - Information and control rights • Temporary availability - Temporary • Tax treatment - Interest payment as an expense • effect on liquidity - Low impact of current interest 256 Page 257 foray • The case Prokon 257 Page 258 internal financing Page 259 internal financing • In internal financing, the financial resources by the company itself generated This includes the Avoid outflows a • financing - Substitution of assets - Financing from sales 259 Page 260 internal financing • Financing from sales - Retained earnings - Financing tenders - Financing of reserves 260 Page 261 substitution of assets • company decides the capital tied up in to reduce fixed and current assets • To form - Sale of non-essential operating items of AV (Eg buildings) - Sale of non-essential operating items of AV to a leasing company and then Leaseback by the company (sale and lease Back) - Working Capital Management • decrease of receivables • Reduction of inventories 261 Page 262 retained earnings • retention (accumulation) of recognized gain (open Self financing) or by formation of quiet Reserves (silent self-financing) • Open self-financing - Corporations recognized by Retained earnings have sole proprietorships / partnerships only the position of "equity" 262 Page 263 retained earnings • Silent self-financing - Undervaluation of assets - Overvaluation of liabilities, in particular of provisions • Benefits for companies - Reduction of dependence on external investors - Reduced cost justification to investors than external financing - No explicit interest payments, no repayment obligation, perpetual availability - Strengthening the EK-base • Most important form of financing for small and medium Companies 263 Page 264 funding from Depreciation counter values • In all assets with a finite useful enters impairment - Edited by depreciation • depreciation as an expense leads to a reduction of the gain and thus to Reduction of the tax burden • depreciation and disbursements d Company fall but apart payouts only found in (re) Procurement the asset item instead • The gain reduction by depreciation is thus no direct Payment in the same amount • Thus, the company binds through depreciation funds, which up are replacement for other purposes • Prerequisite is the fronting of revenue and AFA, otherwise loss 264 Page 265 Capital structure, capital cost, financial planning and finance controlling Page 266 Capital structure • The term "capital structure" Describes the relationship between private equity and liabilities • Total capital = private equity + liabilities • Ratios: - Equity ratio: private equity / total capital - Debt ratio: liabilities / total capital - Debt to equity ratio: liabilities / private equity 266 Page 267 Capital cost and return of the entrepreneuer • Profitabilities - Return on equity: profit after interest / private equity - Return on debts: interest / debts - Return on assets: profit after interest / total capital 267 Page 268 The leverage effect • Return on assets> return on debts - Positive leverage effect - Additional debts rise the return on equity • Return on assets