Financial Management

Aldo Lévy is Emeritus Professor (International Laboratory for Research in Sciences of Action, Lirsa Cnam) and a renowned researcher in finance and management control.Faten Ben Bouheni is Associate Professor of Finance and Financial Accounting and Head of the International Research Cluster in Economic Disruptions, Finance and Regulation at the ISC Paris Business School in France.Chantal Ammi is Full Professor of Marketing at Institut Mines-Télécom, Télécom Business School in France.

• ContentsIntroduction xiChapter 1. Value: IFRS vs. US GAAP 11.1. Value and the time 11.1.1. Cost of money, interest rate (nominal and real) 21.2. The time value of money: US GAAP 31.3. Future value and present value: capitalization and discounting in discrete time 41.3.1. Simple interest 41.3.2. Compound interest 91.4. US GAAP: future value and present value of rules of time travel 101.4.1. US GAAP: Effective annual rate and annual percentage rate 131.4.2. US GAAP: the determinants of interest rates 161.5. Annuities and unearned income: IFRS 191.5.1. Value of a sum of constant annuities 191.5.2. Current value of a sum of constant annuities 201.5.3. The updating of constant sums over an infinite period: the return 211.6. Calculating net present value and future value: US GAAP 221.6.1. Constant annuities of cash flows 221.6.2. Perpetuity 281.6.3. Growing cash flows 301.7. Market value 351.7.1. Relation required rate: value 361.7.2. Valuation of fixed rate debt 371.8. Actuarial rate of return 381.9. Value and risk 401.9.1. Probabilities and expected returns 401.9.2. Uncertain expected rate of return 411.9.3. Couple profitability, a risk: representation of expectation/standard deviation 411.9.4. Introduction to diversification: the case of two assets 421.9.5. Notions of diversification and non-diversifiable risk 431.9.6. Modeling randomized profitability with a two-factor model 451.10. Value and information 461.10.1. Information and uncertainty 461.10.2. Information efficiency 501.10.3. Exercises 50Chapter 2. Diagnosis of Financial Statements: IFRS 572.1. Economic and financial analysis of business data 572.1.1. Principles and levels of study 572.1.2. Typology of financial analysis 612.1.3. Destination of the financial statement analysis 632.2. Financial reading of the balance sheet 662.2.1. Principles of financial statement preparation 672.2.2. Mechanism 702.2.3. Functions: financing, investment, exploitation and distribution 792.2.4. Investment study 952.2.5. Random analysis 1142.2.6. Undetermined analysis 125Chapter 3. Analysis of the Financial Structure: IFRS vs. US GAAP 1313.1. Major functions of the French Accounting Plan 1313.1.1. Assets 1313.1.2. Current liabilities 1333.1.3. Sustainable resources 1353.1.4. Fixed assets 1413.1.5. Calculation of global net revolving fund 1423.2. The need for working capital requirement (WCR) 1443.2.1. WCRE (or WCE) 1453.2.2. WCREE 1453.2.3. Recommendations on the need for working capital 1473.2.4. WCR in days of HVAC 1493.3. Net cash 1543.3.1. Cash flow and the result are linked without being correlated 1553.3.2. Analysis and recommendations 1563.3.3. Financial analysis in market value 1603.3.4. Presentation of the balance sheet in net asset values 1623.3.5. Structural risks 1643.3.6. The risk of imminent failure 1643.3.7. Recommendations 1643.4. Balance sheet analysis: US GAAP 1643.4.1. Balance sheet features 1653.4.2. Balance Sheet Diagnosis 170Chapter 4. Analysis of Activity: Analysis of Profit and Loss Account: IFRS vs. US GAAP 1794.1. Profitability and management performance 1794.1.1. Intermediate Management Balances 1804.1.2. Current exploitation 1834.1.3. Non-operating current 1914.2. Management indicators of the Banque de France 1934.2.1. Partial or current indicators 1944.2.2. Global indicators 1984.3. Correspondences of FCA indicators – Banque de France 2004.4. CAF cash flow 2024.4.1. Principles 2024.4.2. FCA approach 2044.4.3. Analysis of the Order of Chartered Accountants 2054.5. Renewed indicators (IFRS) of management 2054.5.1. EBITDA 2064.5.2. ROA 2064.5.3. ROE 2064.5.4. NOPAT 2064.5.5. ROCE 2064.5.6. COFROI 2064.5.7. Free cash flow 2074.5.8. EVA MVA 2074.6. Income statement analysis: US GAAP 2074.6.1. Case study 1: Mydeco Corporation 2214.6.2. Case study 2: Atlas 224Chapter 5. Analysis of Operational Profitability and Risk: IFRS 2275.1. Profitability according to the chosen full cost model 2285.1.1. Results Achieved in Full Cost by Analysis Centers and Unit Cost of Indirect Costs 2285.1.2. Study 2325.1.3. Results obtained in full cost by activity (Activity by Costing) 2325.2. Budget based on normal activity 2355.2.1. Activity 2365.2.2. Budget for which indirect costs are unbundled in terms of being variable and fixed 2365.2.3. Cost-effectiveness 2365.2.4. Profitability 2465.3. The breakeven point 2495.3.1. Representation2505.3.2. Indicators of profitability 2525.3.3. Decision-making 2535.4. Operating leverage 2625.5. Return on equity 2705.5.1. Economic profitability 2715.5.2. Leverage 2725.5.3. Financial Leverage 272Chapter 6. Analysis by Ratios: IFRS 2776.1. Composition and evolution ratios 2776.1.1. Flow/Level 2796.1.2. Level/Level 2806.1.3. Levels/Flows 2836.1.4. Flux/Flux 2856.1.5. Flow/Level 2866.1.6. Combination 2876.2. Database 2896.2.1. Activity ratios, profitability, balance, investment, debt, profitability of the Banque de France 2906.2.2. Expeditious method of credit managers 300Chapter 7. Analysis by Flux Tables: IFRS vs. US GAAP 3057.1. Functional chart of the French Accounting Plan 3067.1.1. Table of changes in total net working capital WC 3067.1.2. Table of changes in working capital requirement 3237.1.3. Synoptic diagram of the links between two-year financial statements 3267.2. Financing table of the Banque de France 3277.2.1. Functional balance 3277.2.2. Cash flow statement 3307.3. Cash flow statement of the French Association of Chartered Accountants 3397.3.1. Net cash flows from operations 3397.3.2. Net cash flows from investments 3427.3.3. Net cash flows related to financing 3427.3.4. Change in balance sheet cash position 3437.3.5. Diagnosis of the financing table of the French Association of Chartered Accountants 3437.4. Free cash flow table spanning several years 3457.4.1. The method 3477.5. Summary of the restatements of financing and flow tables 3537.5.1. Table 3537.5.2. Risk diagnosis 3547.6. Statement of cash flow analysis: US GAAP 3597.6.1. Features of cash flow statement 3597.6.2. Cash flow statement diagnosis 3627.7. Statement of stockholders’ equity 364Conclusion 367Glossary 369Bibliography 379Index 381