Corporate Finance, Tax, & Financial Accounting Basics
Dưới đây là tựa đề và tóm tắt các bài viết ngắn gọn về corporate finance, tax & financial accounting của các tác giả khác mà Ngữ vô tình đọc được bắt đầu từ ngày hôm nay (26/3/2021) và sẽ được cập nhật dần theo thời gian. Đã từng tâm sự về sự cần thiết phải biết chút ít về chủ đề này ở đây.
Còn trước hết là phần giới thiệu về nguồn miễn phí để tìm hiểu căn bản về corporate finance and financial accounting.
Có thể tìm hiểu cơ bản, có hệ thống, một cách thuận tiện về financial accounting & corporate finance từ nguồn sau đây:
Damodaran Online (Prof. Aswath Damodaran, NYU) [and his “Musings on Markets” blog]
Financial and Managerial Accounting (Lolita Paff, Penn State University)
University of Minnesota (Financial Accounting)
Corporate Finance Institute (Finance & Accounting) [Good one!]
Edspira (Corporate Finance & Financial Accounting)
Havard Business School (Accounting & Finance) (A Manager's Guide to Finance & Accounting)
Dr. Foley’s Classes (jufinance.com)
Accounting Coach (learn accounting for free)
Lumen Learning (Financial Accounting)
Marginal Revolution University (Youtube Channel)
The meaning of Financial Accounting (Lecture-note textbook, Matthew Shaffer)
Studyfinance.com (Finance & Accounting Basics)
Free Online Courses
Corporate Finance Institute
Enroll in CFI’s FREE online courses and earn industry-recognized certificates:
► Introduction to Corporate Finance
► Reading Financial Statements
And more from CFI here.
Corporate Finance (by University of Maryland)
Introduction to Balance Sheets - video (9:53 minutes)
Interpreting the Balance Sheet - practice questions
Introduction to the Income Statement - video (15:27 minutes)
Interpreting the Income Statement - practice questions
A Bank's Income Statement - video (11:59 minutes)
Distinction between cash flows and earnings
Balance Sheet and Income Statement Relationship - video (3:40 minutes)
Statement of cash flows (Net income —> cash flow)
Basic Cash Flow Statement - video (3:44 minutes)
Reflecting Depreciation in Cash Flow - video (4:00 minutes)
(*Originally collected and shared by edX for a free course on Corporate Finance-ColumbiaX. Khan Academy provides all of the above videos.)
Guide to Financial Ratios
A comparison of IFRS and Vietnamese GAAP (PwC, Dec 2021)
Đọc cho nó vuông Báo cáo Tài chính [Youtube video by Chàng-Ngốc-Già (TS. Võ Đình Trí)]
International Financial Reporting Standards (IFRS 3), Business Combinations
Quick Reference Guide to Valuing Assets in Business Combinations (AICPA, 2018)
Taxation of Cross-border Mergers and Acquisitions (Frasers, 2022)
The Inward Investment and International Taxation Review: Vietnam (Baker McKenzie)
Vietnam - Taxation of cross-border mergers and acquisitions (KPMG, 2021)
The Lending and Secured Finance Review
Online Calculators: [They are convenient but my 2 cents for any corporate finance student is that you build your own Excel/Google Sheets formulas/models and do your best to gain some familiarity with them. Well, my high-school friends know that I’m not a math guy. But I worked my ass off to earn an “A” for my law-school corp finance final.]
The time value of money (TVM) is a core financial principle that states a sum of money is worth more now than in the future.
In the online course Financial Accounting, Harvard Business School Professor V.G. Narayanan presents three reasons why this is true:
Opportunity cost: Money you have today can be invested and accrue interest, increasing its value.
Inflation: Your money may buy less in the future than it does today.
Uncertainty: Something could happen to the money before you’re scheduled to receive it. Until you have it, it’s not a given.
Essentially, a sum of money’s value depends on how long you must wait to use it; the sooner you can use it, the more valuable it is.
This chapter summarizes the major theoretical and empirical contributions of the financial economics and law and economics literature on the use of debt in corporate financing. It then derives implications for corporate governance, contract law and practice, and organizational law. Because the borrower-lender relationship is governed primarily by contract, the focus is on ex ante contracting and other private ordering, rather than ex post creditor remedies and the bankruptcy regime. Special attention is paid to covenants in debt contracts, as a means of mitigating borrower agency costs. The recent literature emphasizes the extent to which a firm’s capital structure and governance are interrelated. If firms behave efficiently, decisions about how much and what types of debt to employ amount to predictions about which governance regime will optimize firm value.
Step-Up in Basis (Investopedia)
A step-up in basis is the readjustment of the value of an appreciated asset for tax purposes upon inheritance. The higher market value of the asset at the time of inheritance is considered for tax purposes. When an asset is passed on to a beneficiary, its value is typically more than what it was when the original owner acquired it. The asset receives a step-up in basis so that the beneficiary's capital gains tax is minimized. A step-up in basis is applied to the cost basis of property transferred at death […]
Generally, inherited property is worth more than when originally acquired. For example, consider a house bought for $250,000 in 1980 but is worth $900,000 when it is inherited. The step-up in basis rule resets the house’s value at $900,000 for the beneficiary. If the heir then sells the house for $1 million, instead of being, taxed on the $750,000 capital gain from $250,000, their capital gain would be $100,000—the difference between the sales price and the $900,000 stepped-up basis. If the house goes for $900,000, they would owe no capital gains tax. The benefit is similar for capital gains on inherited stock that has appreciated.
Quarterly Earnings Report (Investopedia)
A quarterly earnings report is a quarterly filing made by public companies to report their performance. Earnings reports include items such as net income, earnings per share, earnings from continuing operations, and net sales. By analyzing quarterly earnings reports, investors can begin to gauge the financial health of the company and determine whether it deserves their investment.
Environmental, Social, and Governance (ESG) Criteria (Investopedia)
Environmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.
Capital Reserve (Investopedia)
A capital reserve is an account in the equity section of the balance sheet that can be used for contingencies or to offset capital losses. It is derived from the accumulated capital surplus of a company, created out of capital profit.
Shrinkflation (Corporate Finance blog)
You have heard of inflation, deflation, and stagflation. Recently, you may have noticed shrinkflation. Due to rising costs of raw materials and labor, producers have begun to shrink package sizes. For example, ice cream maker Tillamook announced that it was shrinking the size of its cartons from 56 oz to 48 oz, a 14 percent shrinkage. Since consumers tend to look at price rather than package size, the move is intended to keep sales constant. Of course, shrinkflation is really inflation in another guise. In fact, the United Nations FAO Food Price Index make its biggest leap since October 2010, and reached its highest level since September 2011. Shrinkflation is not a new phenomenon, but it is an indication of rising inflation.
Pro forma financial information (pro formas) presents historical balance sheet and income statement information adjusted as if a transaction had occurred at an earlier time.
Operating Margin (Investopedia)
Operating margin measures how much profit a company makes on a dollar of sales after paying for variable costs of production, such as wages and raw materials, but before paying interest or tax. It is calculated by dividing a company’s operating income by its net sales [the sum of a company's gross sales minus its returns, allowances, and discounts]. Higher ratios are generally better, illustrating the company is efficient in its operations and is good at turning sales into profits….
Companies in different industrial sectors of the economy, such as information technology, energy, financial services or health care can have wildly different operating margins, so it’s important to understand the limitations of this performance measurement. The automotive sector, for example, can have very high materials and assembly-related costs, or cost goods sold (COGS)….
Operating margins can also vary significantly within a single company’s operations. For instance, Amazon (AMZN) has an overall operating margin of just over 7%, but that is heavily influenced by its e-commerce operations that have significantly higher costs associated with labor, facilities and transportation vs. its cloud computing unit Amazon Web Services.
LIBOR End Is Near (Corporate Finance)
The Financial Stability Board (FSB), which coordinates financial rules for G20 countries, outlined its new transition polices to move away from LIBOR by the end of 2021. A number of U.S. dollar LIBOR rates will be available until the end of June 2023, but can only be used for legacy contracts. The FSB is encouraging the use of overnight risk-free rates, which include SOFR in the United States and SONIA in Great Britain.
Capital Gains Tax (Investopedia)
A capital gains tax is a tax on the growth in value of investments incurred when individuals and corporations sell those investments. When the assets are sold, the capital gains are referred to as having been "realized." The tax doesn't apply to unsold investments or "unrealized capital gains," so stock shares that appreciate every year will not incur capital gains taxes until they are sold, no matter how long you happen to hold them.
The U.S. capital gains tax only applies to profits from the sale of assets held for more than a year, referred to as "long-term capital gains." The rates are 0%, 15%, or 20%, depending on your tax bracket. Short-term capital gains tax applies to assets held for a year or less, and are taxed as ordinary income [“for which the highest bracket is currently 37% for incomes over $523,600 for single filers and over $628,300 for married filing jointly.”]
On 26 March 2021, the government of Vietnam issued Decree No. 28/2021/ND-CP ("Decree No. 28"), providing regulations for the financial management of Public-Private Partnership (PPP) projects in Vietnam. Decree No. 28, which took effect on its signing date, does not mention which document it will replace, but it essentially supplants Circular No. 88/2018/TT-BTC of the Ministry of Finance on 28 September 2018 guiding the financial management and fees for selecting investors in PPP projects (“Circular No. 88”). As such, it clarifies some points of confusion and supplements the legal framework with additional guidance.
Supported by the favorable geographical and natural conditions, and constrained by the restrictions on thermal power projects in the last few years, Vietnam has been promoting the solar and wind renewable energy in the last 5 years, and now the LNG-to-power (the concept of using liquefied natural gas for power production) (“LNG”). Fear of being late, many local and foreign investors have been lining up to find opportunities to develop large scale gas-fired power plants using LNG as fuel (“LNG Project”) despite the unclear legal framework. The first LNG Project with a capacity of 3,200 MW on an area of 40ha, including a LNG floating terminal and storage FSU, a gas recycling station (FSRU), with the estimated total investment close to US$ 4.0 billion, approved in January 2020 by Bac Lieu Provincial People's Committee, with planned construction commencement in early 2021 for initial commercial operations by 2023, is more than likely delayed. At the same time, various MOUs were just signed between the potential investors and the relevant provincial people’s committee to start the pre-feasibility studies for big LNG Projects in the last few months while the Prime Minister is yet to approve the upcoming national power development plan for the period of 2021-2030, with a vision to 2045 (the “PDP VIII”). This brief looks at the overview of the LNG Project legal framework to have a more comprehensive picture on this very important development in Vietnam.
Total Cost of Ownership (Investopedia)
The total cost of ownership (TCO) is the purchase price of an asset plus the costs of operation. Assessing the total cost of ownership represents taking a bigger picture look at what the product is and what its value is over time. When choosing among alternatives in a purchasing decision, buyers should look not just at an item's short-term price, known as its purchase price, but also at its long-term price, which is its total cost of ownership. The item with the lower total cost of ownership is the better value in the long run.
A Systematic and Critical Review on the Research Landscape of Finance in Vietnam from 2008 to 2020 [covering researches on Stock Market, Foreign Investment, IFRS Adoption, Banking System, Corporate Governance, Ownership Concentration and SMEs Financing.]
This paper endeavors to understand the research landscape of finance research in Vietnam during the period 2008 to 2020 and predict the key defining future research directions. Using the comprehensive database of Vietnam’s international publications in social sciences and humanities, we extract a dataset of 314 papers on finance topics in Vietnam from 2008 to 2020. Then, we apply a systematic approach to analyze four important themes: Structural issues, Banking system, Firm issues, and Financial psychology and behavior. Overall, there have been three noticeable trends within finance research in Vietnam: (1) assessment of financial policies or financial regulation, (2) deciphering the correlates of firms’ financial performances, and (3) opportunities and challenges in adopting innovations and ideas from foreign financial market systems. Our analysis identifies several fertile areas for future research, including financial market analysis in the post-COVID-19 eras, fintech, and green finance.
Divestment is the process of selling subsidiary assets, investments, or divisions of a company in order to maximize the value of the parent company. Also known as divestiture, divestment is effectively the opposite of an investment and is usually done when that subsidiary asset or division is not performing up to expectations. In some cases, however, a company may be forced to sell assets as the result of legal or regulatory action [Ngu Truong: in an antitrust case, for example]. Companies can also look to a divestment strategy to satisfy other strategic business, financial, social, or political goals.
Compounding is the process in which an asset's earnings, from either capital gains or interest, are reinvested to generate additional earnings over time. This growth, calculated using exponential functions, occurs because the investment will generate earnings from both its initial principal and the accumulated earnings from preceding periods. Compounding, therefore, differs from linear growth, where only the principal earns interest each period. Compounding typically refers to the increasing value of an asset due to the interest earned on both a principal and accumulated interest. This phenomenon, which is a direct realization of the time value of money (TMV) concept, is also known as compound interest.
The Buffett Rule (Investopedia)
The Buffett Rule was part of the tax plan proposed by President Barack Obama in 2011. It was a fair share tax and got its name from billionaire investor Warren Buffett who famously stated that it was wrong that he pays a lower tax rate than his secretary. The Buffett Rule contends that the tax system is not fair because it puts a greater proportional tax burden on wages than it does on investment income. The middle-class shoulder this burden because their income primarily consists of wages subjected to income, payroll, and other federal taxes whereas upper-class income consists primarily of investment income taxed at preferential capital gains rates.
How to Interpret Valuation When Buying and Selling Stocks (by Morningstar)
[O]ur analysts use what’s called discounted cash flow analysis, and the idea is that a company’s value today is based on its ability to generate free cash flows into the future. Free cash flows would be all the cash that’s available to shareholders after all other obligations are paid. Things like operating costs, investments in working capital, investments in capital expenditures, after all those cash outflows, what’s left for shareholders? That free cash flow could either be paid out to shareholders directly as dividends or might be retained by the company, reinvested in acquisitions or future growth projects, or whatever it is, or even let the cash accumulate on the balance sheet.
[T]he future free cash flows also have to be discounted back to the present, because cash five and 10 years from now is not worth as much as cash in your pocket today. If you have the cash in your pocket today, you could either invest it and earn a return, plus it’s also more certain that you’ll have it if you actually have it on hand versus the cash flows that a company is going to generate in the future are subject to all sorts of uncertainties in a business environment.
There are two big sources of changes to fair value estimates.
The first would be that our fair value estimates naturally tend to increase over time with what’s called the time value of money. As time marches on, you’re discounting each year’s future free cash flows by one year less for every year that passes, and the company is receiving cash flows, it’s piling up on the balance sheet, being paid out as dividends, or whatever it is. A company’s fair value tends to increase over time to the extent that those cash flows are retained. Dividends are just received directly, but cash flow that’s retained, we expect to add to the intrinsic value of a company.
All else equal, you would expect a fair value estimate to increase by the cost of equity every year. This is an assumption that our analysts are using in their models. It’s basically the discount rate for the free cash flows to equity holders less the dividend yield. If a stock has a 10% cost of equity according to our analysts and it pays a 2% dividend yield, then you would expect the fair value estimate to go up by about 8% a year, again, holding all else equal.
Compound interest (or compounding interest) is the interest on a loan or deposit calculated based on both the initial principal and the accumulated interest from previous periods. Compound interest can be thought of as "interest-on-interest," and will make a sum grow at a faster rate than simple interest, which is calculated only on the principal amount.
The rate at which compound interest accrues depends on the frequency of compounding, such that the higher the number of compounding periods, the greater the compound interest. Thus, the amount of compound interest accrued on $100 compounded at 10% annually will be lower than that on $100 compounded at 5% semi-annually over the same time period. Since the interest-on-interest effect can generate increasingly positive returns based on the initial principal amount, it has sometimes been referred to as the "miracle of compound interest."
Net Working Capital
For an interpretation of the NWC definition in M&A contracts see Court Rejected Seller’s Attempt to Reclaim Pre-Closing Cash.
Overview of EBITDA and Adjusted EBITDA (extracted from Gray Reed article, see more here)
EBITDA [earnings before interest, taxes, depreciation and amortization] is one of the most commonly used […] measurements of earnings. Adjusted EBITDA is calculated by adding or subtracting certain expenses to and from EBITDA in order to provide a clearer picture of a company’s profitability and to make it easier to compare a business from year-to-year and to its industry competitors.
Gross Operating Revenue
– Operating Costs and Expenses
= Consolidated Net Income
+ Interest Expense
+ Income Taxes
+ Depreciation and Amortization
+/- Permitted Adjustments and Addbacks
= Adjusted EBITDA
Capital expenditures (CapEx) are funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, buildings, technology, or equipment. CapEx is often used to undertake new projects or investments by a company. Making capital expenditures on fixed assets can include repairing a roof, purchasing a piece of equipment, or building a new factory. This type of financial outlay is made by companies to increase the scope of their operations or add some economic benefit to the operation.
A dividend is the distribution of some of a company's earnings to a class of its shareholders, as determined by the company's board of directors [or in Vietnam, by the general shareholders as recommeded by the board]. Common shareholders of dividend-paying companies are typically eligible as long as they own the stock before the ex-dividend date. Dividends may be paid out as cash or in the form of additional stock.
An initial public offering (IPO) lock-up period is a caveat outlining a period of time after a company has gone public when major shareholders are prohibited from selling their shares. During the IPO lock-up company insiders and early investors cannot sell their shares, helping to ensure an orderly IPO and not flood the market with additional shares for sale. Lock-up periods usually last between 90 to 180 days. Once the lock-up period ends, most trading restrictions are removed.
A recent article in the Wall Street Journal notes that banks sharply increased their loan loss reserves in 2020 in response to the pandemic. Increasing such reserves reduces a bank’s reported profit, and decreasing them improves the profit picture. By 2021, the loan losses had not emerged at the level the banks anticipated, so their profits will be rising as the loan reserves are decreased. According to the WSJ, “U.S. banks are sitting on a pile of cash that could turn into billions of dollars of profits.” There’s only one problem. Loan loss reserves are just accounting entries. Increasing and decreasing them impacts reported profits, but has no cash flow implications. As JPMorgan CEO Jamie Dimon said "It's ink on paper . . .we don't consider that earnings."