Principle of Finance


N's spirit Basic MBA > Principle of Finance

Principle of Finance

Finance, particularly corporate finance, is used when the company estimates the value of a business and a company. While profit & loss sheet shows the result of corporate activity for a period and balance sheet shows the status of financing and asset in a time, cash flow is used in finance theory

In finance theory, we have to follow the following two principles.


Cash flow instead of profit

The reason why cash flow is used is that cash flow is the fact base numbers which means to be accurately calculated in any accounting rules. For examples, profit is frequently affected by change the depreciation policy or inventory calculating policy. On the contrary, cash flow is not affected by these changes. Therefore, it is frequently said that "Cash is King".


Net value instead of book value

The reason why net value is used is that net value more accurately shows how much is assets than book value shows because book value is purchasing based price but doesn't show present price. Since balance sheet show book value of asset and equity, net value should be calculated by a financial method such as DCF method or net stock value in finance theory instead.


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Finance
Principle of Finance
FCF (Free Cash Flow)
DCF (Discount Cash Flow)
WACC
Beta
Unlevered Beta
IRR
Terminal Value
Disadvantages of WACC
APV (Adjusted present value) Method
Making Portfolio and Diversification of Risk 1
Making Portfolio and Diversification of Risk 2
Return analysis by DCF 1
Return analysis by DCF 2
Important Indicator of DCF
Optimized Debt Equity Ratio
Tax Shield by Debt
Types of Debt
Policy of Dividend
Relationship between Policy of Dividend & Stock Price
Relationship between Own Shares Purchase & Stock Price
Investment to raise Stock Price
Bond
Coupon-Bearing Bond
Discount Bond
Bond with Warrant
Comparison of Yield Rate among Several Bonds
Securitization
Project Finance
M&A
Effect of M&A
Synergy Analysis
Financing in M&A
Process of Purchasing Stock Price in M&A
Types of Selling Business
Spinoff
Tracking Stock
Curve Out
LBO (Leveraged Buy Out)
MBO (Management Buy Out)
PPA (Purchase Price Allocation)
PMI (Post Merger Integration)


N's spirit Basic MBA > Principle of Finance

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