NATIONAL EXPERIMENTAL UNIVERSITY OF GUAYANA

ACADEMIC VICE-RETORTORATE
CAREER PROJECT: ADMINISTRATION MENTION BANKING AND FINANCE
SUBJECT: CORPORATE FINANCE

Report
on
topics
1,2 and
3
Prof: Students:

Gilberto Moreno Di felice Gianna v24377147

Estanga Gabriela v27596124

Ron Arianna v27836500

Ciudad Bolivar, January 2021

 Introduction

To begin any science for its study, it places definitions, looks for history and bases the
importance on the time it covers, which also happens with finances.
Finance, long considered part of economics , emerged as an independent field of study
early in the last century. Originally they were related only to the documents , institutions
and procedural aspects of the capital markets . With the development of technological
innovations and new industries, they caused the need for a greater amount of funds,
promoting the study of finance to highlight the liquidity and financing of companies . The
focus was more on external functioning than on internal administration . Towards the end
of the decade, interest in securities , especially common stocks , intensified, making the
investment banker a figure of special importance for the study of corporate finance of the
period .
We can mainly differentiate three periods in the history of finance, which are listed below:
 The descriptive view of business finance until the Second World War .
 From the mid-1940s to the foundation of modern business finance theory .
 Expansion and deepening of finance to the present day.

Apart from talking about finance and its history, we will explain corporate finance, its
importance, its different areas, what are the different types of software and applications that
can help us with them.

Financial planning and forecasting where the short and long-term economic-financial plan is
materialized in a whole set of different basic forecast financial statements (balance sheet,
income statement and statement of origin and application of funds) as well as other reports
or budgets that complete the information based on the time horizon of the planning; analysis
and presentation of the financial statements, the NIF, case methods among others.

The valuation of cash flows, how it interacts with the aforementioned topics and everything
that it entails is explained in this work.

Development

Finance
Simón Andrade defines the term finance in the following ways:

"Area of economic activity in which money is the basis of various achievements, be they
investments in the stock market, real estate, industrial companies, construction, agricultural
development, etc." and "Area of the economy in which it is studied the functioning of
capital markets and the supply and price of financial assets"

According to Bodie and Merton, finance "studies the way in which scarce resources are
allocated over time"

For Ferrel O. c. and Geoffrey Hirt, the term finance refers to "all activities related to
obtaining money and its effective use"

According to these definitions by different authors, finances are the numbers referring to
the money of the market movement in companies.

Corporate finance :

They are those that are related to the analysis and study of business variables that allow
shareholder value to be maximized.

To do this, economic decisions are made through different tools in order to create capital,
grow and acquire more businesses.

This area of study covers the valuation of assets and the decisions that are made for the
proper functioning of the company as well as its development.

Why are corporate finances important?

Corporate finance encompasses important investment decisions such as:

Dividend remuneration.

Own financing or external financing.

Level of debt and leverage.

Optimization of the risk-reward ratio, its level of liquidity.

Need for investment to be able to develop.

Evaluation of the opportunity cost of an investment, the financial model to adopt and the
amortization periods.

Cash flow efficiency.

Areas covered by corporate finance

Corporate finance encompasses the following activities within a company:

Mergers and Acquisitions that affect the company known as M&A (Mergers &
Acquisitions).

Project financing, known in English as “Project Finance”.

Capital structure, financial models and investment models.

Legal structure of the company.

Venture capital ("Private Equity" in English) and value creation and private investment
capital models.

Dividend policy and dividend discount.

Cost of capital, level of debt and financial leverage.

Investment banking development.

Share issuance policy.

Business restructuring.

Ethics and corporate social responsibility.

All these set of activities are very important for the management of a company. Your
success is based on making correct decisions around these variables and others that are
equally important. For example, the development of professional careers for employees and
the incentive or motivation policy so that work is carried out with attitude and efficiency,
which are the most important elements for the company to grow sustainably over time.

While it is true that strategic corporate movements are vital for the survival of the company,
such as the search for alliances, international expansion plans, acquisition of competing
companies and the search for information to develop the business more efficiently or the
degree of sophistication of the company.

Finance Timeline

'Ancient' finance and 'modern' finance

Robert C. Merton (1944– ) (In honor of Nobel laureate, Franco Modigliani, Journal of
Economic Perspectives, 1987) points out that 'finance', in the conception that it considers
'old' ('old finance'), until the 1960s, was “an essentially imprecise connection of beliefs
based on accounting practices, decision rules and anecdotes ”. He considers that 'modern'
theory is structured around financial economics, which is characterized by “rigorous
mathematical theories and carefully documented empirical studies.”

Robert A. Haugen (1942– ) comments illustratively, although perhaps exaggerating a

little, how finance was studied in his youth, in the early 1960s (The Inefficient Stock
Market, 1998): “My teachers, trained in 'old finance', were mainly experts in the fields of
accounting and law. Of all the books I studied in my master's degree, there are two that are
very clear in my mind. The first was Security Analysis, written by Benjamin Graham and
David Dodd [file

1934], and we used it to study financial investments. Graham and Dodd spent much of the
book showing the painful process of adjusting financial statements so that the profits and
assets of different companies could be compared. Which was pretty dry and not very
interesting.”

“The other book was The Financial Policy of Corporations, written by Arthur Stone
Dewing in two thick volumes [1919 file]. This book made Graham and Dodd's book seem
as entertaining as a Stephen King mystery novel. Because at Policy we learned, in great
detail, the legal issues of financial securities, the laws relating to mergers and acquisitions,
and those governing bankruptcies and reorganizations.”

The foundations of 'modern finance'

Merton's dichotomous description may seem oversimplified because it refers to a

'methodological cut', which originates in economic theory. In the 1940s, the formalized
economic approach began to expand, considering a world populated by individuals who
were rational utility maximizers. With this, rigorous mathematical theories can be
developed, which are abstracted from the real world of economic and financial activities,
and which allow logical relationships to be derived in individual decisions (and, from that,
in the determination of the price of securities).

The methodological cut is between an inductive and empirical approach ('ancient finance')
and an approach to financial market models. It is a cut between finances

Ricardo A. Fornero Photographic timeline of finances

The instruments, the concepts, the tools as a set of statements in everyday language and as a
theory formulated in academic language.
The statements of ancient finance are basically oriented towards decision-makers; its
language can be considered relatively imprecise by current standards; It is a more 'literary'
style that is based on examples and anecdotes, and that is understandable by the average
person.

Modern finance theory uses more precise language, but one that is primarily accessible to
members of the academic community. Hence, it raises the need for adaptations and
'translations' of the results of the theory for the use of decision-makers. It could be said that
it is an inverse process to that carried out by John Hicks and Paul Samuelson, when they
'translated' the concepts of Marshall and Keynes into the formal language of mathematics.

The study of investments in securities emerged at the end of the 19th century as an
eminently practical discipline, aimed at evaluating financial performance. And the study of
business finance, also at that time, was developed to describe and document financial
instruments and institutions, which were evolving rapidly.

Then, in the depressed economic environment of the 1930s, the processes of bankruptcy
and reorganization, and the consequences of government regulation and the separation of
ownership and control of companies, are studied in detail. This study of the means of
financing the company is what evokes the memory of Haugen, and also the reaction of
Pearson Hunt in the 1940s, against Dewing, of the need for finance “from the inside
looking out, rather than from the outside looking in” of the company.

Meanwhile, the theory of investment of the company, as part of the theory of capital, is
resolved by economics. The developments of Irving Fisher [file 1906] remain for a long
time as the American standard on the subject, leading to the investment theory of Friedrich
and Vera Lutz, whose European 'counterpart' is Erich Schneider.

What can be understood as 'modern finance' began in the 1950s, focusing on the cost of
capital as the link between the financing of the company and the evaluation of investments.
Joel Dean [file 1951] and David Durand [file 1952] open the study of this 'new' field, which
in that decade is broken down into the search for methodological precision for investment
decisions, and in the elucidation of the relationships between financing and the value of the
company. This incipient application of economic analysis to the financing of the company
leads to the proposal of Modigliani and Miller [file 1958].

Formalization of business finance theory based on financial theory

The economic analysis of the value of securities, and not just 'the rules and anecdotes' for
evaluating securities that could be suitable investments, has its origins in the study of John
Burr Williams [1938 file]. Already in the 1940s, the two methodologies spread, and not
only the approach of Graham and Dodd, which is part of Haugen's pleasant memory.

Harry Markowitz produces the methodological cut in the theory of financial investments,
explicitly including the dimension of risk. In the 1950s, the conditions were formed for the
elaboration of the theory of the securities market with the perspective of prices in
equilibrium; It is therefore no coincidence that in that intellectual 'climate' of the early
1960s, several versions of that first theory were produced [file 1963].

The 'efficient market hypothesis' is also outlined, as a satisfactory version of the 'perfect
markets assumption', and more congruent with 'modern' notions of the formation of
expectations of economic agents.

At that time, what can now be called 'theory of business finance' presents a double face. On
the one hand, a somewhat reductionist formalization that, from the securities valuation
model, derives the basic statements about the company's investment and financing policy.
On the other hand, a set of practical considerations that relativize the conclusions of the
theory.

The formal refinement of the bases of securities valuation, which ends up being expressed
in what Stephen Ross calls the 'fundamental theorem of financial economics' [file 1976],
accentuates the difference between the two sides: one based on the conditions 'Arrow -
Debreu' and the other looking at the environment in which decisions are made in
companies.

Jean Tirole (1953– ) summarizes (The Theory of Corporate Finance, 2006 ): “The
1970s came with the perspective that the ArrowDebreu general equilibrium model could be
a powerful tool to analyze the valuation of securities in financial markets.” , but that said
little about the financial decisions of the companies, and about their government. Since
security returns depend on the firm's investment decisions, these decisions, in the full
market of the Arrow-Debreu paradigm, are assumed to be contractable and not affected by
moral hazard.

Furthermore, it is assumed that investors agree about the distribution of returns, that is, that
financial markets are not infected by asymmetric information problems. Seen through the
Arrow-Debreu lens the central issue for financial economists is the allocation of risk among
investors and the arbitrage valuation of redundant securities.”

In that world, then, the hectic torrent of interactions of individuals as participants in

companies flows into the calm lagoon of equilibrium in the securities market, where mainly
there is the stylized representation of individuals as investors.

For business finance, it can be considered the 'modern' version of the 'ancient' approach that
Dewing was criticized in the 1940s [file 1919]: “from outside the company looking in.”
 The strategic approach in the theory of finance

The next stage of finance theory begins in the mid-1970s. In the 'financial theory' part (of
investment in financial markets) less restrictive conditions for the valuation of securities (in
a certain sense, more 'realistic' conditions) are formally included. Thus, relevant investment
portfolios are considered that are more limited in quantity and variety of securities, and also
broader in terms of reference markets: financial economics is formulated with limited
information, and covers international investment portfolios.

In the 'theory of business finance' part, strategic notions begin to be formally incorporated
into the decisions of financiers and managers. Strategic in the sense of game theory [1944
file], that each participant considers the actions of the other participants instrumentally for
their own purposes.

With the explanation of agency costs, Michael Jensen and William Meckling [file 1976]
redefine the notion of value to be 'distributed' among financiers, which will finally modify
the way of considering corporate governance and the role of 'non-financial participants'. ' of
the company.

The advance in the concepts of the 'information economy' allows another strategic aspect to
be formalized, asymmetric information situations and 'signals to the market', in a stylized
version of the 'Austrian' concept (via Friedrich von Hayek, 1889–1992 ) of the balance and
informational content of prices. The study of information disclosure (business finance) and
information acquisition decisions

(financial economics) moves between the aporias of information optimization and the
notion of 'equilibrium with noise'.

In the 1970s, the allocation of company resources continued to be considered from the
economic theory of investment, with the technical additions of the formal decision theory
(decision theory) for the consideration of uncertainty and for the quantitative treatment of
more 'complicated' situations (mathematical programming).

The strategic notion of asymmetric information expands the field of study of resource
allocation decisions, maintaining the links (given by financial economics) between
financial markets, financiers and companies.

In parallel, the notion of 'options that open a specific allocation of resources' (real options)
gives the possibility of considering, in the terms of financial theory, this dimension of the
company's investment decision. Dimension that was somewhat formally forgotten, and was
relegated to the 'techniques' for evaluating the flexibility of investments (decision tree). The
valuation of real options as if they were financial options [1985 file] shows the scope (and
the limit) of the formal linkage of the
 flexibility and market value.

The expansion of the formalized study of market structures (industrial organization,

'industrial organization', or 'sectoral' [1944 file]) and the development of the field of
'competitive strategy' in the 1980s opens the current stage of the theory of business
finances.

The formal consideration of competitive interactions and the formation of capabilities in

investment decisions once again accentuates the internal perspective in this part of the
theoretical field of business finance [1991 file]. It reflects, in a new light, the notion that
Miller and Modigliani proposed in 1961 [file 1977]. And it also returns to the field of
theory an echo of what Pierre Massé pointed out [file 1959]: “Each investment is, in a
certain sense, a process of fossilization; The passage of time is inseparable from risk. An
investment is not simply an allocation of funds; it's a bet."

The strategic approach to financing and resource allocation formally reintroduces the
instrumental conception of financial markets for the management of the company into the
theory of business finance. In short, it is the 'modern' version of "from inside the company
looking out."

Traditional division of finance

Finance is divided into three large areas:

a) Investments,

b) Financial institutions and markets,

c) Corporate finance or financial administration of companies.

Investments: Study how to make and manage an investment in financial assets and, in
particular, what to do with a surplus of money when you want to invest it in the financial
market. In this area we talk about two people or entities: those who own the surpluses, and
those who seek or suggest where to invest said surpluses and are called brokers, promoters
or investment analysts.

Institutions and financial markets

Financial institutions are companies that specialize in the sale, purchase and creation of
credit titles, which are financial assets for investors and liabilities for companies that take
the resources to finance themselves (for example, commercial or first-tier banks, brokerage
firms, savings and loan associations, insurance companies, financial leasing companies,
limited purpose financial companies and credit unions). Its job is to transform financial
assets from one form to another. For example, a bank transforms a deposit, in a savings
account, into capital plus interest for the investor through the process of granting loans to
companies or individuals that require financing. Financial markets are the spaces in which
financial institutions operate to buy and sell credit securities, such as shares, obligations or
commercial paper; This market is known as the stock market. In the traditional division of
Finance, institutions and financial markets are considered together, since institutions are the
most important participants in this market.

Financial institutions are mainly involved in the management of financial assets and this
differs from the work carried out by a manufacturing company. The Ford company, for
example, is in the car production business and must purchase steel and other inputs to
physically transform them into a finished product. This requires a huge investment in real
assets, such as machinery, equipment, tools, buildings, warehouses, among others.

Inputs and finished product are the main difference: physical assets are much less important
to financial institutions. Certainly, many banks have buildings in which their staff work, but
they do not have machinery or production equipment.

Both the bank and the manufacturing company seek a profit: a bank achieves it by
providing a service to its clients and transforming one type of financial asset into another,
while a manufacturing company transforms material goods into a finished product with
more value.

Many financial executives work for financial institutions, including banks, insurance
companies, brokerage firms, savings and loans, and credit unions; Their success in them
depends on their knowledge of the different factors by which interest rates increase or
decrease, the regulations to which financial institutions are subject, and the types of
financial instruments.

Corporate finance or financial administration of companies

The financial administration of companies studies three aspects: 1) investment in real assets
(property, equipment, inventories, etc.); investment in financial assets (accounts and notes
receivable) and investments of temporary cash surpluses; 2) obtaining the necessary funds
for investments in assets and 3) decisions related to the reinvestment of profits and the
distribution of dividends.

A company is an independent economic entity that has assets - cash, accounts receivable,
inventories, equipment that it has acquired thanks to the contributions of its owners, who
are the shareholders, and financing from creditors (for example, banks and landlords). The
word independent refers to the fact that, although it has owners, the company must have its
own accounting, independently of other properties that the owners own.

Structure of the finance organizational unit

The adequate structure and organization of the financial department constitutes a basic
requirement to be able to satisfactorily develop the financial function in the terms described
above.

These tasks must guarantee correct internal functioning of the department, as well as
appropriate coordination with the rest of the functional areas of the company. If the
financial information is not correct, it will be difficult to choose between different business
development alternatives. If financial data is missing or inadequate, it will be difficult to
detect problems in time and consequently the necessary corrective measures cannot be
applied.

The financial director

The fundamental missions of the financial director are the traditional one of directing his
subordinates in the department and acting as an advisor and functional instrument - in
financial matters - of the general director on whom he depends. Both responsibilities
require him to establish the financial policies and procedures that must be applied in the
company.

Basically, the finance function can be broken down into four areas of responsibility:

Control and planning functions, including the accounting information system, usually
identified with those of the company's controller.

Functions derived from the management, control and protection of the treasury and other
liquid assets, usually identified with those of the treasurer.

Diverse or atypical financial functions.

Functions derived from auxiliary services established under the responsibility of the
financial department.

The organization of the financial department

Figure 1 describes the basic units or areas of activity of a medium/large company as well as
the lines of hierarchical relationship and responsibility corresponding to the formal
organization of the financial department. It is important to keep in mind that the name of
the division, departments and positions may vary from one company to another,
maintaining, however, the function they perform, according to the basic organizational
principles and models, as introduced in the Unit. didactics 2. There is the possibility that
there may be a financing and investment committee, as a support and complementary unit
to the audit committee, which usually requires the best practices of "good corporate
governance" or of the company, as staff of the board of directors, with the objective of
guaranteeing economic control, transparency and veracity of financial information in the
defense of the interests of shareholders and socioeconomic interest groups.

Specifically, as appears in Figure 1, it is generally considered that the sections that make up
the financial department are: internal audit, financial control, tax, treasury and auxiliary
services. Activities, departments or sections discussed below.

Internal audit

Its main function is to provide information and elements of judgment to the company's
audit committee with the purpose of:

Improve the functioning of the organization by achieving incremental improvements in

benefits.

Complements the work of external auditors.

Control

The typical functions that depend on the controller are related to the management and
control of the company's assets. These are divided into:

Economic financial analysis:

– New investments.

– Profitability by profit centers or business units.

– Acquisition analysis.

– Operational research applications.

Budgets and planning:

– Formalization of budgets.

– Budget integration.

– Profit and cash forecasts.

– Allocation and distribution of general expenses.

– Analysis of deviations.

Accounting and costs:

– Internal.

– External.

Data processing:

- Applications.

– Analysis and programming (parametrization).

- Operation.

– Computer editing and reporting.

It is essential to draw attention to the data processing section or department, since this
corresponds specifically to financial data, although these may cover other areas. Now, there
are tools that affect or are related to other departments such as sales, production and human
resources that may have highly sensitive data and that can be assigned to the financial
department for two fundamental reasons:

Because finances are involved in all areas of the organization.

Because a large part of computer applications require, in addition to their interconnection,

extensive investment analysis.

The controller's responsibility is to evaluate the economic risk of the business, that is, the
possibility that the investments will not generate the expected surplus. Economic risk is
associated with the composition of assets.

Fiscal

This section is not always within the company, because it can be covered by expert advisors
in the field; Only from a certain dimension is the existence of one or more people who pay
specific attention to the tax issue justified. The functions range from calculating the taxes to
be paid to developing a tax plan that proactively takes advantage of the opportunities that
legislation offers.

Treasury

The treasury department is one of the most differentiated and easy to understand financial
functions found within the financial area. The functions of the treasurer can be classified as:

Financial relations:

– Fund forecast.

– Maintenance of relationships with funding sources.

– Policy with banks and other credit institutions and loan management.

Financial operations:

– Investment of cash funds or deferred payments.

- Portfolio management.

Credit analysis:

– Credit policy.

– Special credit authorizations.

Insurance:

– Contracting of insurance.

Box:

– Reception and custody of liquid assets.

The specific responsibility of the treasurer can be expressed as follows: control of the
company's financial risk, understanding financial risk as the possible inability to meet the
obligations it has contracted due to the debt it maintains in its liabilities. Financial risk is
therefore related to the financing structure.

Auxiliary and general services

Within the financial area, the entire range of functions complementary to the previous ones
is usually included and, depending on the type of company, it may or may not lead to more
extension of the department. Administrative and general services responsibilities tend to be
those of facility maintenance, general services, and property management, which have
historically been linked to the financial department, also known as administration and
finance.

Finance/Government Relationship

This is present in public finances

Public finance is the science that studies how the State's financial resources are managed.
This involves how the government distributes public spending, and how it obtains resources
through taxes, studying everything related to how to satisfy the needs demanded by the
community. These are exercised through the State's fiscal policies, which indicate what
taxes exist, who must pay them, what amount they amount to, among other details; and a
definition is also made of how the available budget will be distributed.
Currently, public finances acquire great importance: their scientific study and their form of
technical application constitute a factor for the stabilization and economic growth of the
country and its companies as economic centers for the generation of decent and fair
employment. For this reason, today public policies and finances must seek above all to
support sustainable business and labor development, that is, promote corporate and worker
social responsibility through effective supervision strategies, but without resorting to
intervention, coercion. or hindrance of the fundamental freedoms of the honest and
enterprising individual.

In general terms, public finances' main objective is to investigate, structure the systems and
the different ways in which the State or any other public power manages the material and
financial resources necessary for its operation, as well as the way in which the wealth will
be used. by the State, however said wealth should be distributed equitably to encourage the
business sector to produce and thus contribute to economic growth.

The constitutionalism of the States and the end of absolute monarchies (France: 1709).

The industrialization processes of the 18th and 19th centuries, which led to the formation of
workers' organizations and later the organization of said social class as a new force within
the State with its own rights.

The propaganda of progressive political parties regarding tax rates that respond to the new
concept of equity.? The enormous increase in the financial needs of the State derived from
the increase in its expenses.

The enormous complexity of social organization arising from a growing population, wars,
the increase in public debts as well as competitiveness in international markets and the
emergence of the inflationary phenomenon.

All this motivated governments to try to carry out the best optimization of their resources
and good control and productivity in public finances.

Regarding statistics on public finances, methodologies are used for the periodic monthly
and annual calculation of income, expenses and deficit of the federal public sector and are:

Calculation based on financial statistics.

The calculation from records of cash income and expenses.

Study in finance

Starting a project is not easy. Both entrepreneurs and companies that want to take on new
challenges must overcome a series of obstacles that will be different depending on the case.
However, there are elements that are always present in all projects, and that is what
happens with the financial study.
 What is a financial study?

It is the process through which the viability of a project is analyzed. Taking as a basis the
economic resources we have available and the total cost of the production process.

Its purpose is to allow us to see if the project we are interested in is viable in terms of
economic profitability.

Therefore, the financial study becomes a fundamental part of any investment project. It
doesn't matter if it is an entrepreneur with a business idea, a company that wants to create a
new business area or even an investor who is interested in putting his money in a company
in order to obtain profitability.

The financial study will be part of a subsequent market study. All the information collected
will allow us to carry out the risk analysis of a project and thoroughly evaluate its viability.

Where to get the data to do a financial study?

For this analysis to be as complete as possible, it is essential to do a good job of

documentation. The sources to consult will depend on whether we are dealing with a
company already in operation or if it is a mere theoretical project, in which we will have to
work with data that is more statistical than real.

In any case, to begin preparing a document of this type, it is important to analyze data such
as the tax structure of the State in which the business is going to be carried out, labor costs,
demand for the product, sources of financing and possible interests. associated with them
and sales estimates.

In order to develop the financial study well, we must handle financial and economic ratios
such as the financial autonomy ratio and similar. This way we can convert the information
into figures that are easier to analyze and compare.

It is essential to keep in mind that the ratios must be analyzed in comparison with data from
different periods or with respect to other companies in the sector. By themselves they are
not capable of indicating the viability of a project, hence the importance of comparing them
to see if the data obtained is really positive.

Components to take into account when preparing financial studies

To analyze the profitability of a project we must keep in mind, at least, the following data:

Income.

Costs.

Administration expenses.
Sales expenses.

Financial expenses.

Depreciations.

Amortization.

Investment plan.

Opening balance.

Cash budget.

Projected balance sheet.

Financial reasons.

Breakeven.

Net cash flow.

Capital cost.

Net present value.

Internal Rate of Return or Profitability.

All this information must be analyzed in detail and collected in the corresponding report.
This document will show the real benefit that can be obtained with the project in question.

In no case is a financial study a waste of time, it is an analysis that helps reduce the margin
of error and identify viable investments.

Entrepreneurs and companies must prepare this type of studies, so they need trained
professionals to do so. If you are interested in the finance sector, do not hesitate to find out
about our Master in Financial Advice and Asset Management.

Information Technology applied to Corporate Finance

There are different computer software capable of helping you control both your personal
finances and those of your business. These allow the management of activities within the
SME and also provide a series of tools that facilitate administrative tasks:

GnuCash
This personal finance system is considered by many to be the best Open Source software.
The program is used to keep personal or family accounting as well as small business
accounting.

AceMoney

It helps you organize and manage finances quickly, as it supports both functions for the
home and for small and medium-sized businesses.

Quicken

Available for Windows and Mac, this software allows you to effectively manage your
personal finances as well as those of your SME.

Admincontrol Plus

Thanks to this application you can control your quotes, orders, sales, suppliers, purchases,
accounts, banks, relationships with customers and suppliers, etc. It provides you with the
information and reports that will allow you to make the right decisions.

Aspel-SAE

This business administrative system controls the cycle of all the company's purchase and
sale operations in a safe, reliable manner and in accordance with current legislation.
Provides cutting-edge tools that enable efficient administration and marketing.

Tools

Having tools and knowledge to make a good analysis and diagnosis will help keep
corporate finances under control.

Below, I present tools to be able to make the right decisions for the good development of
the company:

Investment decision: Market studies can be carried out that will provide information about
the product in which you wish to invest.

Financing decision: Production channels must be reviewed to analyze the necessary capital.

Dividend decision: You have to think about the profits that have been achieved to make
specific decisions for the future of the company.

Management decisions: You must have the ability to bring partners to agreement with
objectives.

Applications
With all the new technologies that do not stop emerging, applications do not stop
experimenting and growing. Therefore, it is very important to be up to date, and apply new
applications in our daily lives and in our companies.

Below, I show you some of the most useful applications:

Coinbase

This application is considered one of the best apps for bitcoin trading. It works as an
investment platform where you can send bitcoins.

Robin Hood

It is an application that allows users to invest in financial assets. It does not serve as the
main investment platform but rather to understand how investments in financial products
work. Currently, it is only available for the US.

Investing

This application is well known for its website. They provide real information on thousands
of financial assets of various types with statistics, opinions, among others. It is
recommended to view and follow assets.

Biller

This application is ideal for independent professionals or small businesses that need to
immediately issue and send their receipts. This financial management application requires
iOS 8.0 or later. Among the actions that can be carried out, noteworthy are order
management, integration with systems and business intelligence, among others.

Easy currency converter

When setting up a business it is necessary not only to look at the local currency but also to
take into account the currencies of other countries. For this reason, a good currency
converter is necessary. This is one of the most downloaded conversion apps in the world.
One drawback, it is only available on Android although there is a similar one for iOS. This
converter allows you to see the evolution of a currency for up to 5 years. Includes more
than 180 world currencies with real-time updates. Convert up to 22 currencies
simultaneously. Live charts and rates, among many other things.

These are some of the tools and applications for corporate finance that are useful to use in
your daily life as well as in your company. Taking corporate finances into account is an
essential point to avoid losing.
 Financial Planning and Prevention

Financial planning states the way in which financial goals will be achieved.
Therefore, a financial plan is a statement of what is going to be done in the future. Most
decisions have long execution times, which means that their implementation takes a long
time. In an uncertain world, this requires that decisions be made well in advance of their
realization.

In simpler terms, it is about developing a financial plan, that is, a budget and/or an
expense plan that allows you to organize money management in an effective and
convenient way. This financial planning process must consider deadlines, costs and
objectives in a detailed, personalized and organized manner, for which it usually uses the
following stages:

 Establishment of objectives and their priority, expressed in financial terms.

 Definition of deadlines to achieve these objectives.
 Preparation of a financial budget that identifies the items (or segments of
money) necessary to meet the objectives.
 Measurement and control of financial decisions made and their comparison
with previous financial plans.
In this way, financial planning is usually carried out in advance, as a way of
organizing the financial future of the organization, usually at the hands of financial advisors
and expense planners, whether in-house or outsourced.

Objectives of Short and Long Term Financial Planning

The fundamental objective of financial planning is the development of a financial

plan, that is, a roadmap towards the proposed business objectives, with regard to the
management of finances and capital resources. That is, a financial horizon, a money
management strategy to get the most out of it in favor of the fundamental guidelines of the
organization. To achieve this, every financial planning exercise must include a rigorous and
detailed examination of the current financial state and the consequences, positive and
negative, that its specific management would entail in the short, medium and long term.

Based on its temporal scope, we can quickly distinguish two types of financial
planning, which are:

 Long-term financial planning: These are generally projections between 2

and 5 years in the future, so they are handled with a much greater range of
variables and uncertainty, which also requires more general approaches.
  Short-term financial planning: In this case, these are much closer
projections, generally equal to or less than a year, so they are considered
immediate and require a more specific, more limited and less general
approach.

Analysis and interpretation of financial statements

The analysis of financial statements is defined as the critical process aimed at

evaluating the financial position, present and past, and the results of operations of a
company or institution, with the primary objective of establishing the best possible
estimates and predictions about the conditions and future results. It is an indispensable
component for financing and investment at the business level, which facilitates decision
making.

Analyzing and interpreting financial data in the company is of utmost importance.

Through this activity, company executives, for example, are able to seek other sources of
financing for operations, define attention to new markets, know how to reach different
customer segments with differentiated actions and new proposals; They can focus on
solving problems and, even more importantly, focus on creating and taking advantage of
opportunities. Through the interpretation of the information presented in the financial
statements, those who make up the company know in detail the situation of the business
and its performance.

The importance of the analysis of financial statements lies in the fact that it allows
investors or third parties to obtain information and make decisions, since they provide
useful information to evaluate the current state of the company and at the same time
facilitate decision making in everything related to the course of the business. and financial
health.

Analysis of the Comprehensive Income Statement (IFRS)

In summary, the statement of comprehensive income records all accounts of

income, costs and expenses of a company in a given period, where it is recommended that
there should be a temporary account known as a summary of results where the expenses are
recorded in the have and thus allow them to close.

The statement of comprehensive income is one of the accounting strategies used at

the business level, this allows for a better evaluation of the manager and thus be able to
create greater profit, being able to effectively manage business assets. We can state that the
statement of comprehensive income specifically seeks to explain the economic situation of
the company.

In accordance with what is stated in NIF B-3, a reasonable presentation of the

financial information of a for-profit entity must include the income statement as a basic
financial statement, which is added to the balance sheet, the statement of changes in
stockholders' equity and the state of changes in the financial situation, will allow adequate
economic decision-making by the general user. Likewise, this standard establishes that the
information contained in the income statement, together with that of other basic financial
statements, is useful to the user to have elements of judgment regarding:

 Operational efficiency level

 Cost effectiveness
 Financial risk
 Solvency level
 Liquidity of the entity

Entities interested in the analysis

 Shareholders: Shareholders analyze and interpret financial data to evaluate

their current position, as well as the long-term position and productivity of
the companies' operations. They are interested in the entire capital structure
of the business.
 Investors: The position of investors will be favorable to the extent that there
is no excess of bonds in relation to equity capital and surplus.
 Employees: These are interested in the financial statements to determine the
company's progress and operating results of the business during the year and
the prospects for the years to come.
 Stock Exchanges: The main objective is to provide a complete and impartial
presentation of the financial data essential to evaluate the financial situation
and the value of the securities of the company. It is a requirement to obtain
the privilege of operating an Exchange or to list stocks and bonds on it.
 Chambers of Commerce and Industry: Chambers obtain financial statements
from their members, and after having calculated the financial ratios or ratios,
as well as comparative ratios for the industry, provide the data to the
members of the association.

Analysis methods
 Financial analysis methods are considered as the procedures used to simplify,
separate or reduce the descriptive and numerical data that make up the financial statements,
in order to measure the relationships in a single period and the changes presented in several
accounting years.

 The vertical method : The last two periods are compared, since in the current
period the accounting is compared against the budget.
1. Comprehensive percentage procedure: It consists of determining the percentage
composition of each Asset, Liability and Equity account, based on the value of the
total Asset and the percentage that each element of the Income Statement represents
based on Net Sales.
2. Simple ratio procedure: Allows you to obtain an unlimited number of ratios and
indices that serve to determine the liquidity, solvency, stability, solidity and
profitability in addition to the permanence of your inventories in storage, the
periods of customer collection and payment to suppliers and others. factors that
serve to broadly analyze the economic and financial situation of a company.
 The horizontal method: It refers to the use of the financial statements of a period
to know its situation or results, in other words, it consists of relating each account of
the Balance Sheet and the Statement of Income and Expenses (profits and losses)
with a base figure. of said financial statements.
Information Technology applied to Planning and Forecasting

Financial

Information Technologies (IT) are a great opportunity for companies, because

thanks to them they can obtain a comparative advantage and better use of their resources.
Likewise, they are of great help for the generation of information, including accounting and
financial information, which are essential for decision making. Therefore, having a reliable,
secure, accessible and simple system that supports business operations is an indispensable
part of an organization that seeks to adapt to the new economic environment.

Information, technology, its processes and incentives together form an

organizational performance management model that improves decision making. Because
today it is necessary to take a strategic role in a global, complex and changing world, for
which continuous adaptation is required.

Business applications are a software and hardware tool that must deliver reliable
results, through the creation of secure information structures, building reliable processes
around the applications and tools, not assuming that the application will do everything, but
will only do it. a part of work, since in reality the process is carried out by people, who
must be trustworthy. Finally, this leads us to build reliable organizations, where the
operational and information flow is correct, so that effectiveness is achieved. Therefore, the
way we think processes should be in a world with IT must be changed.

Organizations should expect their business applications to be able to operate in real

time, to be aligned with the organization's operational and business processes, and to be
flexible to adapt to changes; that the processes are synchronized, that the operation is
continuous, controlled and orderly; that there is ease in redoing operations, that investment
in accessory technology is zero; that the information is reliable and timely.

Despite the spectacular features of computers in terms of versatility, speed,

accuracy, presentation quality, etc., in fact, they are still a more or less complete work tool.
Therefore, a computer is not an information system in itself. To do this, it requires a series
of programs, data, memory devices, processes, communication, etc., that allow the capture
of valid information and, the most important element, the interaction with a user, whom it
serves.

The way companies design and use their information systems is closely related to
their own organizational philosophy. Companies usually prepare a Systems Plan whose
objective is to define the company's medium-term strategy on issues related to information
systems (hardware, software and communications) in accordance with its organizational
philosophy, otherwise, the failure of information systems are secured.

3. Valuation of cash flows (CASH)

3.1 Time value of money

It is an economic concept based on the premise that an investor prefers to receive a

payment of a fixed sum of money today, rather than receiving the same face value at a
certain future date. This preference is because, if the investor receives the money today, he
could reinvest the money to obtain a larger amount on a future date, due to the interest
generated by said investment.

Money changes value depending on the point in time at which it is received or paid. This is
known as the Time Value of Money. This is not just a mathematical concept that SMEs do
not need to pay attention to, but it is a small detail that if calculated incorrectly can strongly
affect the growth of a company. The time value of money is the fundamental concept of all
corporate finance, so every businessman, entrepreneur or person in charge of finances in a
company must understand it perfectly.

To understand the concept of the time value of money, it is important to always keep two
things in mind: inflation and interest rates:
Things are constantly increasing in price. This makes our money worth less and less. This
is known as inflation.

Money can be invested to generate more money at a certain interest rate. The interest rate is
what causes the time value of money to change in an equivalent way.

What causes amounts of money to change over time are interest rates. An interest rate is a
rate of return that reflects the relationship that an amount or flow of money has at different
dates.

3.2 Graphic Representation

The cash flow diagram is made up of a straight horizontal line that represents the time that
a financial operation lasts and each number on the axis indicates the end of the
corresponding period. The number zero indicates the moment in which the financial
operation begins, the present value par excellence. The number one indicates the end of the
first period of time, whether it is a day, a week, a month, a quarter, a period of 53 days, etc.

3.3 Cash flow assessment

The DFC is a valuation method based on the company's ability to generate wealth in the
future. That is, the company's ability to produce free cash flows. Understanding these as the
final result of the streams of income and expenses that are expected to be obtained
throughout the business life. Life that is expected to be unlimited.

In this sense, the valuation of a company is based on the expression that we indicate below,
and that we proceed to explain:

Rating = (CF1/(1+k)) + (CF2/(1+k)2 ) + … + ((CFn+VRn)/(1+k)n )

Where CF1 is Free Cash Flow for period 1; k is the update rate; VR is the Residual Value;
and n represents unlimited business life.
Thus, the value of a company by application of the DFC is the result of adding the
projected Cash Flows and the residual value. Cash flows that will have to be capitalized at
the present. We can summarize the calculation of this method in three variables that will
allow us to obtain an adequate valuation:

 Cash Flows (CF)

Cash flow is the amount of money that the company will obtain once the operational
and investment needs for the development of its activity are met. That is, the amount of
money that will remain in the company for the repayment of external debt and/or
shareholder remuneration.

 Time Horizon (Residual Value)

The time horizon marks the value of the company for a specific period of time.

 Discount rate (k, WACC)

The discount rate is also called the discount rate. This rate allows projected future cash
flows to be updated. Bring them to the current moment. An amount of money in 2017 is
not the same as in 2027. In order to compare them we have to update the amount
obtained in 2027 to the current moment, 2017.

3.4 Future value of a cash flow

It is the amount of money an investment will earn at some future date by earning
interest at some compound rate. The value that we calculate in any case depends on the
cash flows generated by the asset. That is, it depends on its size, time and risk. Also,
and very critically, the value depends on the opportunity cost, since to carry out a
valuation one must have the flows that occur at different opportunities in time, with
different risks, on a comparable basis.

Future Value is the cash flow to be received or given at a certain time in the future.

How can I calculate the future value of a certain amount?

In order to calculate and know the future value or final amount that an investment will
have on a certain date, we must know the following information to be able to perform
the calculations.

 M = amount we plan to invest to achieve our objectives

 i = interest that we will obtain for each period that we are going to invest our money
 N = Number of periods that our money will be invested (monthly, annual...)
  FV = Future Value
The formula to calculate the future value of an investment is as follows:
n
VF=VA ( 1+ i )

3.5 Present value of a cash flow

The Present Value must be calculated in order to know the viability of a business project by
estimating the cash flows (cash inflows and outflows) that the company has to face the
project it wants to carry out.

The current value is used to know which investments can be carried out and which cannot,
and to compare different investments and decide which is the best for a given business
project.

How can I calculate the present value of a certain quantity?

In order to calculate the present value that an investment will have on a certain date, we
must know the following information:

 VA = Present value
 FV = Future Value
 i = Interest rate
 n = investment term
The formula to calculate the present value of an investment is the following:

VF
VA =
( 1+i )n

3.6 Application of cash flow valuation to personal finances

The first step that must be taken to embark on the path towards financial education is to do
personal cash flow.

From the point of view of corporate finance, decisions are made by company managers
taking as reference the basic financial statements: Income Statement, Cash Flow and
Balance Sheet, the latter, currently called the Statement of changes in the financial
situation. The three financial statements just mentioned are the basis for decision making;
But cash flow is the most important from the point of view of company finances, as it is
considered the main tool for planning, control and financial evaluation.

Personal cash flow should be the tool for planning, monitoring and controlling personal
financial resources. That is, income and expenses.
The structure of personal cash flow - FCP, is very simple, you simply have to make a list of
income, total it and then do the same with expenses; The difference between total income
and expenses will result in available cash.

The importance of doing the FCP week by week, as it achieves greater control and correct
administration of personal financial resources. Well, one of the objectives is to ensure that
you always have a positive balance, otherwise expenses increase depending on the debt.

Theoretically, calculating a person's cash flow should not be difficult, as long as exact
income and expense figures are available. In practice, it is a more complex process because
more benefits and expenses are generated than are printed on invoices and checking
accounts; For example, the interest that our money, our investments, the expenses of said
investments, etc. give us. That is why keeping a portfolio of daily and updated income and
expenses will give the figures you are looking for at the end of the month. Calculating the
cash flow and obtaining the movement graph over long periods of time will give us a global
vision of where our money is generated and what it is destined for in the long term, when
are the times in which more expenses are generated and when more profits are generated.
The basic calculation formula would be:

Cash flow = Net profits + Amortizations + Provisions

3.7 Net Present Value (NPV) of a Cash Flow Stream

Net Present Value (NPV) is a method for valuing different investment options. It is about
updating the payments and collections of an operation.

To do this, it brings all cash flows to the present moment by discounting them at a certain
interest rate. The NPV will express a measure of the profitability of the project in net
absolute terms, that is, in number of monetary units.

The NPV serves to generate two types of decisions: firstly, to see if the investments are
appropriate and secondly, to see which investment is better than another in absolute terms.
The decision criteria will be the following:

 NPV > 0: The updated value of future collections and payments of the investment,
at the chosen discount rate, will generate benefits.
 NPV = 0: The investment project will generate neither profits nor losses, its
implementation being, in principle, indifferent.
 NPV < 0: The investment project will generate losses, so it must be rejected
The formula to calculate the Net Present Value is:
 n
Vt
VAN =∑ −I 0
t=1 ( 1+ k )t

Where:

 Vt represents the cash flows in each period t

 I0 is the value of the initial investment outlay
 n is the number of periods considered
 k is the discount rate
The value of k that causes the NPV to take a value equal to 0 is called the internal
rate of return (IRR) and is a measure of the profitability of an investment.

3.8 Case Study

A manufacturing company has the following data:

• sales projections: January: 85000, February: 88000, March: 90000, April:

92000.
• input purchase projections: January: 47,000, February: 51,000, March: 50,000,
April: 52,000.
• Sales are 40% in cash, and 60% within 30 days.
• Purchases are made in cash.
• A loan is obtained from the bank for 40,000, which must be paid in monthly
installments of 5,000.
• Administration and sales expenses are 20% of sales projections.
• tax payment projections: January: 3080, February: 2710, March: 3260, April:
2870.
Firstly, we prepare our accounts receivable budget (this is because the total sales are not
collected in the same month in which they are made, but rather 40% are collected in the
month in which they are made, and 60% in the month in which they are made, following
month, and when preparing a Cash Flow, as we have already mentioned, we must record
the cash that actually enters or leaves the company):

Accounts Receivable Budget

January February March April

Cash sales 34000 35200 36000 36800
(40%)
Credit sales 51000 52800 54000
within 30 days
(60%)
TOTAL 34000 86200 88800 90800
Projected Cash Flow (Cash Budget)

January February March April

CASH
INCOME
Accounts 34000 86200 88800 90800
receivable
Loans 40000
Total cash 74000 86200 88800 90800
income

January February March April

CASH
EXPENDITUR
E
Accounts 47000 51000 50000 52000
payable
Admin 17000 17600 18000 18400
expenses and
sales
Tax payment 3080 2710 3260 2870
Total cash 67080 71310 71260 73270
expenditure

It can be determined that the cash flow values for a company represent a possible
investment in it, checking that the income it receives in a certain period covers the expenses
it has, whether these are payments to suppliers, payroll, payment of taxes, loans and among
others that have a short or long term obligation. Each one can be determined with the
current net value and the future value of a company, to know which investments are best to
make in the company, finding opportunities for improvement in budget planning, to
strategically improve the company.

3.9 Information Technology applied to the Valuation of Cash Flows

For the application of cash flow valuation, the use of telecommunications equipment and
computers (computers) is used for the transmission, processing and storage of data, as well
as the use of systems such as Excel, Word and algorithms. calculation available.
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Conclusion

We can conclude that finance plays a fundamental role in the success and survival of the
State and private companies, since it is considered an instrument of planning, execution and
control that has an impact on the business and public economy, extending its effects to all
the spheres of production and consumption.

These represent a functional area with great importance in organizations. Simply due to the
fact that all companies require resources for their operation. Due to this, the analysis of
financial statements is an indispensable component of most decisions on loans, investments
and other related issues, by facilitating decision making for investors or third parties who
are interested in the economic and financial situation of the company. company.

Some reasons we have to be a little more interested in the important world of finance are: to
manage personal and social resources, to interact in the business world, to achieve
interesting and rewarding work opportunities, to make well-informed decisions such as
citizens, in public affairs, to know what happens in our country when the news tells us
about such an interesting topic as finance, and to enrich ourselves intellectually. Since
business companies are entities whose primary function is to produce goods and services,
and which of course require capital to achieve this.

The conclusion is reached that Financial Planning is an indispensable tool to guarantee

business achievement, which allows anticipating and showing future problems, taking stock
of the company's position and establishing a course to follow; as well as provide a
framework for determining the financial impact and effects of various corrective actions.

Cash flow is a very important tool for

evaluation of projects, their correct construction is basic for
find the logic and support of the investment, as opposed to the flow
of funds that presents limitations that must be taken into account.
account to avoid the most common mistakes in this field.