Corporate Finance 1

Cash Flow Statement

Summary of a business’s cash transactions over a certain time period

includes

1. Cash from operating activities

2. Cash from Financing activities

3. Cash from investing activities

What does it measure

• all the cash flows in and out

• explains variation of cash position

• change from beginning to end of period

Balance Sheet

indicates how a business is financed and where money comes from

its a picture at one point in time

2 categories : assets and liabilities

Liabilities

includes equity (liability to shareholders ≠ legal liability) & debt (legal liability, need to pay back what is borrowed + interest) → theres both short term (<1y) and long term (>1y) debt

2 ways to classify financings

1. International standard: longer term at the top

2. US standard: shorter term at the top

What does strong long term risk mean for a company

• an inability to pay back debt → “defaulting”

• the company will be taken over by institutions

• only financing can become a legal threat to a company

fixed assets

non-current assets (used over more than a year)

• tangible (PPE)

• intangible (rights of use, goodwill)

circulating/current assets

current assets (used for less than a year)

• inventory

• trade receivables

• cash

What is goodwill?

Extra value you buy when acquiring a company (goes beyond monetary value)

What are ROU/Rights of use assets?

Intangible assets

refers to the right of the lessee to occupy, operate, or hold a leased asset during the rental period

Release date of balance sheets

conventional date: 31st of December

HOWEVER: some use the end of their relative tax year

→ UK, US: end of tax year is April

balance sheets are snapshots so the date matter

E.g: end of december: right after christmas, lots of cash

What does Chanel tell us about balance sheets?

• They’re often called “consolidated statement of financial position” or else

• We need to recognize what it is by the presence of “Assets” and “Liabilities.”

Why is the original share cap of many companies small or even negative?

• companies are old

• worth of money has changed

Retained earnings

accounting prodits that have built up because they were not paid as dividends

→accumulated

→ money shareholders could’ve taken but decided to leave in company

→ eg in Chanel it was 11B in 2024

Reserves

amounts of money set aside for secific future financial purposes

non-controlling interest

• non-controlling shareholders

• cannot make decisions

• Chanel: oned by a family buy has agred to working with external shareholders

Eg: you cannot set up business in some countries without having local partners

Lease liabilities

commitments to paying rent.

can be long or short term

for chanel: short term are 355M, long term are 2350M

we can use these figures to calculate average lease length (here 7y)

retirement benefit obligations

• commitments in relation to the retirement of employees

• Eg: in UK, companies are liable for pensions of (ex) employees

provisions

money set aside to pay for long term commitments

eg: lawsuit, the minute you are being sued you should set aside some provisions in case

Trade payables

short-term expenses incurred by businesses when they use products or services from a third-party vendor or supplier.

use of fixed assets

• needed for production/distribution and administration

• when acquired they are recorded as assets in the balance sheet

• their use is progressively accounted for, affects the P&L

depreciation

• accounting method

• allocation of the cost of a fixed asset over its useful life

based on the idea that companies earn revenue from their assets and need to pay for them over a certain period of time

depreciation: how much of an asset’s value has been used (can be linear or more complex)

accounting for depreciation

cost in P&L

• COGs

• SG&A

→ decrease of net value of the assets in the balance sheet

amortisation

change in value over time of intangible assets

What is a group of companies?

a set of legally searate entities controlled by the same parent company

Why do parent companies create subsidiairies ?

to operate in different countries, own specific assets (eg:stores), acquire suppliers or optimize taxes and legal structures

Is a brand the same as a company?

No. a brand is ofte a group of companies, not a single legal entity.

What does consolidation mean ?

Combining the financial statements of a parent company and its subsidiaries into one set of accounts

→ presents the group as if it were a single economic entity

Can consolidation exist without a parent company?

Yes: the term can also refer to consolidation at the level of a business need or segment, even without formal ownership

P&L consolidation

Adding together the income statements of all companies in the group

Why must intra-group transactions (costs & sales) be eliminated?

Because internal sales and costs do not create value for the group as a whole

2 main intra-group configurations

1. Supplier / Manufacturer

2. Producer / Distributor

Balance sheet consolidation?

Adding together the assets, liabilities, and equity of all companies within the group (with some adjustments)

What is goodwill?

In the context of acquisition: represents extra value paid on top of the companys accounting value (usually for intangible value: patents, know-how)

How is it recorded?

As an intangible asset on the consolidated balance sheet.

LVMH & Tiffany’s : why was the goodwill so high?

• Book equity: ~$3.1bn

• Market value: ~$12bn

• Acsuisition price: ~$16bn

• Goodwill: ~$13bn

What is the main goal of financial performance analysis?

understanding how a company is performing over time

What is considered “evolution” in financial analysis?

YOY growth and changes in financial indicators