 Good morning everyone. Welcome to Cambridge and welcome to the actual programme. Okay, so this is now the second year that the programme is running. And I actually thought that I can't hear the part of the staff here as well. So there's a... my name is Peter Sillalli. I actually prepared a popular slide but it doesn't matter. Sorry, I'm guessing it's on the call sign. I'n fy nellaud. It's pronounced, C-D-A-D. It's a long iron, so people to support please call me Tila. Yes I'm a lecturer at a business school in finance and I have actually been involved in my 70 years teaching accounting at finance at a university, at a business school at the engineering faculty and now at the law faculty. Rydyn i dweud o'r hynny yn ei bod yn ddweud y cyffredinol, ac mae'n ddweud y cwrs ond rydyn yn neud eu chyfnodol. Felly, yna'r cyflwydfa mhagor yma, a maen nhw'n amser i'n meddwl y cyflwyfau ar gyfer eich cyfal iawn o fod yn cyflwyfiau, ac mae yna yn cyflwyfiau ar gyflwydfa mhagor yma, ac mae'n meddwl i'n meddwl i'r cyflwyfiau ar gyflwyfiau ar gyflwyfiau, I ac mae'r broses yn cwilio ar gyfer cael ei hollwch yn rhan o bobl, yn cael eu bobl i'n rhan o bobl i'r hollwch yn rhan o gobl. Yn y gallwn y dyfodol, yn ei wneud hynny i'w adrwysau ar gyfer Cymru, yn cyfaluio'r hollwch yn rhan o bobl i'w adrwysau ac yn cyfaluio'r hollwch yn rhan o bobl i'w adrwysau. The challenge we will try to achieve in the course is to understand how elements actually work, how representations and various parameters can actually be achieved. How many of you have done accounting or finance? Just two of you. So all the more important that we actually do this course. Y account is basically the collection processing and dissemination of financial information by companies, and with that there are two major areas of financial accounting and other accounting. Financial accounting basically collects and disseminates the information, and then four and disseminates information to all stakeholders involved with the company. that doesn't just include shallow loans and creditors, it also includes customers and supplies and most importantly the government, the tax service. Whereas E等 Y Llywodraeth neu Hanfeyd, which we're not actually looking at the official agenda of Hanfeyd, it basically is specifically related to the completion of the information for management or the implementation of the system to make decisions. y cwmhwyl yw'r duitondol yw y cyd-moedd yma d-gallu iawn, ychydw i ysgrifennu cael rawr o fwy o ddweud gael bwysig o'r cyfrifiadau bwysig n Mathiaspan yn ymddangos o'r cyfrifiadau bwysig yma. Mae'n gallu yw'r cyfrifiadau bwysig o dweud gael bwysig ymddangos o'r cyfrifiadau bwysig a feeio ar gyfer eu cyfrifiadau bwysig? Mae roeddwn i'n cyfrifiadau bwysig ar dweud. so byw, first, Laura, and body Third gave financial statements of the company are. Ha! What are they? Anyone? Joan chair who shows the company's financial positions, Clara statements show the company's performance ... and then the cash flow statement in shows the company's ability to generate cash. Now the cash flow statement arche wasn't But now it is because for a company to survive, they actually need cash, so no matter how profitable you are on payback, if you don't have cash, you just go bankrupt because you won't be able to cover your inner-file duties. Yes, in the three key financial statements, we will also learn how to construct from information that companies can have. You can imagine that TASCOS has billions of transactions a year, so it is actually quite a formidable task for the company to actually come up with the non-residential statement, so we will actually learn how to construct all of that. And then we will learn how to actually analyse the statements. We will look at various financial ratios related to, well, the specific five key areas that we will be looking at, so we can actually learn to process the information that the company provides us ourselves. I wonder about finance. I'm actually actually a finance at the business school, so as you can imagine I find this area much more exciting and hopefully you will find it the same. In particular, a lot of you will think, what am I doing in this spot? Well, I do actually like to look at current events, so I do actually like to start the evening of each lecture talking about what is going on in the financial markets and the financial world. Of course, since the global financial crisis hit, we have had a range of issues arising along the way, and you shouldn't be surprised if Hungary comes under the discussion. Hungary has been in the press quite a lot recently because we have a government that I'm not very happy with. So hopefully a few distinct examples from Hungary will also help you to help us hide certain issues in finance and financial markets. Okay, so what are we going to be looking at in finance? What is finance actually? Finance is basically the science of a valuation on the one hand. It is called asset pricing. It basically deals with the pricing of financial assets in particular. What are the P-financial assets? Corporate law. What are the P-financial assets in relation to the company? Financial assets. Yes, finance deals with the valuation of all assets in the economy, both financial and non-financial. This is actually really cool to understand how much the company actually works. In relation to companies, there are two key types of financial assets. These are actually two financial assets that the company has had, which are the companies and debts. Yes, debt and equity. Yes, debt and equity. So what is that? It is the money owed to the company's creditors and equity is what? The claims of the shareholders. The claims of the shareholders. How do you actually get the claims of the shareholders? This is actually very critical for the understanding of how companies actually work. On the one hand, the company has assets. On the other, it has liabilities, right? Yes. Then it has equity. Now equity is your so-called residual or shareholder's so-called residual claim. This is not necessarily money that they can take out of the company. Basically, the company has a certain amount of assets that it has a certain amount that it has to pay back and whatever is left goes to the shareholders, right? So this is actually a critical issue. The company has a certain amount of assets. It has a certain amount of liabilities to pay back and whatever is left goes to the shareholders. And fundamentally, the company's objective should be to increase the value of equity, the value of the crew to shareholders, right? And you will find that in the context of taxation, this actually has very serious implications. So the first thing we will do in finance is basically look at the valuation of assets in general, meaning the valuation of non-financial assets such as land, the valuation of debt, as well as the valuation of equity. You will find that these are actually priced quite differently because they tend to have very different cash flow streams. Now, does anyone know where the value of an asset comes from? Why does an asset have value? Why are you prepared to pay for a corporate bond or assets? So what is the benefit? It depends on the financial instrument. But what do you get? Future cash flows, right? So you will find that the fundamental idea of valuation in finance is that the reason why you are prepared to pay money for assets is because all those assets will impact the future future cash flows. So the current value of asset is basically the discounted present value of all the future cash flows. So this is actually very, very critical as you will find. And you will find that depending on the types or the patterns of the future cash flow streams, the valuation of assets can become very, very critical. So we will actually learn the very basics of valuation, of course. What will be then critical for us to discuss is basically the three key areas of corporate decision making, which are investment policy, financing policy and payout policy. Now, what is investment policy? Investment policy is basically the investment decision making process or capital policy process. The objective of the company is to generate wealth for shareholders. So the objective of management is basically to undertake investments then generate higher cash flows than the initial or higher wealth than the actual cost. And the context of corporate decision will be very important to understand that when the company makes investments, the investments themselves are not actually tax deductible, right? The capital, the expenditures that the company makes to invest in assets to generate future income is not actually tax deductible, but instead you will basically get depreciation or in the UK a capital allowance that allows you to account for the loss in the value of the investment that you have made. But the investments themselves are not tax deductible. And this, of course, has very critical implications for corporate behavior. Now, the second area is financing policy. By financing policy, I mean that the company is fundamentally fund themselves with debt collected from creditors and the equity, which is basically money put out by shareholders. The question is, is it important where the money comes from to fund the company itself? And you will actually find that it is in fact critical. For one, the money that you get from creditors, that is basically a fixed claim. So you know exactly how much you pay back. As in the case of equity, as we said, shareholders basically hold a residual claim. They just get whatever is left in the company. And this will actually create massive conflicts of interest between creditors and shareholders with respect to how the company's cash flows should be distributed. Another critical issue is that it's basically taxation. Whatever the company pays up to shareholders in the form of dividends or share purchases comes out of its net income. Which basically means that all of that is taxed. That's what Peter also discussed earlier. Whereas credit, the interest that the company pays on debt to creditors, that is actually tax deductible. And again, this completely, may I say, screw up, can actually completely screw up the incentives of companies with respect to financing themselves with debt and equity. And again, there's this massive conflicts of interest between creditors and shareholders that affect company behavior. So in terms of financing policy, we will look at the choice of debt versus equity. And how that actually impacts the company's financial performance, financial position. And how that actually potentially can affect the behavior of management, as well as all of the state that is involved in the company. At a third area, payout policy, I have just alluded to two critical issues here. On the one hand, the money that the company really distributes to shareholders is not tax deductible. There comes out of the company's net income and can basically take two forms. How can companies share their currency by shareholders? Does anyone know? There's dividends and... Which kind of capital? Capital gains? Capital gains? Capital gains? Yeah, and how do you trigger capital gains? Immediately payout policy. The company wants to distribute a certain amount of cash to the shareholders. How does it do? Share my debts, right? If the company pays dividends, that money will actually be taxed at the level of the shareholders, right? Because they will entertain you without cash. Now, what about share repurchases? How do share repurchases actually compensate shareholders? Well, you have a certain amount of equity, and if you actually reduce the number of shares that represent this amount of equity, then the share price, the price of the individual share has to go up. This is what we call capital gains or capital depreciation. The company is compensating its shareholders by increasing its own share price by repurchasing some of its shares from the market. And the critical issue here will be that obviously from the perspective of the individual shareholders, dividend tax and capital gains tax will be very, very different. And this will actually very much depend on the country and on the type of shareholder you're talking about, whether it's an individual shareholder financial institution or a non-financial fund, etc. So, you will see that in the context of corporate taxation, the relative taxation of dividends and capital gains will actually be very, very critical in influencing company behaviour as well. So, these are the three areas of finance that we will be able to look at in relation to us. So, what is this? So, we have 16 hours. So, what I will actually try to do is do six hours of counting. And we just know the basics so we know where the company information actually comes from, what the company actually looks like, and what each individual item means in the company's financial statements. And then we will spend eight hours of finance, where we will first look at valuation, then we will look at investment policy, and financing policy, and finally pay out policy. So, these are really just the very basics, but hopefully you will find that the course is actually instrumental in your understanding of corporate law basically. I understand that we will be meeting on Wednesdays between 1 and 3, but at some point we might actually have two letters to read at the request of the faculty. So, we will actually have one letter, I guess, later on. And we will have the exam on the 11th of December, which will actually be a global exam. And don't forget that obviously both accounting and finance are quantitative, so the question is really my congratulations. There will be basically four or five questions of which you will have to answer two. And one accounting and one finance, yes. And you will have, or maybe three questions out of five. But the bottom line is that you will have to do two hours to do it, and hopefully get it. And we will actually be preparing for the types of questions that you can get, because I will actually get you to give you basically homework practice questions that you can take on and that we can go through them together in class. And I will also give a lot of the answers to all the questions in the book that we will be using, which is a Roswell Cynthia Depp. What answers that? Any questions? There's always the issue about calculators. So, the university is very strange and about this. The university has a certain list of approved calculators. And as a general rule, they will only allow one of these calculators into the examination room. And you will actually come to go to the university centre and have a label stuck on your calculators. It has actually been approved by the university. So this is actually very critical. Obviously the idea being that you should use calculators that are too programmable. If we only equation them all together. Okay, I think I've run out of time. Any questions or anything? I hope that we are accommodated as you make the course interesting for you. We have a great passion for bias, so we don't talk about it currently. That is to put everything into context. And are we able to send you other course and ministry reports etc. As well as hopefully provide an understanding of how accounting and finance is relevant to corporate taxation. So thank you very much and I'll see you on Wednesday.