Summary of Introduction to Marketing Management
Introduction to Marketing Management for Students
Introduction
Corporate Finance & Accounting covers how companies manage, finance, value, and account for their assets and liabilities. This guide focuses on depreciation methods, working capital and inventory valuation, capital structure, cost of capital, and rules for using debt vs equity. It explains core formulas, practical examples, and how these decisions affect liquidity and profitability.
Depreciation: Tax and Accounting Basics
Depreciation allocates the cost of long-term tangible assets over their useful lives. Two common tax-driven methods are linear (straight-line) depreciation and accelerated depreciation.
Definition: Depreciation is the systematic allocation of an asset's acquisition cost to expense over its useful life.
Linear (Straight-line) Depreciation
- The asset is assigned to one of six depreciation groups, each with a legislated useful life. Annual charge is usually constant except the first year.
- Formula (annual amount): $$O = a \cdot PC$$ where $O$ is the annual depreciation, $a$ is the depreciation rate as a decimal, and $PC$ is the purchase cost.
- First-year rules often specify a different (usually lower) rate.
Example: Purchase cost $PC = 120{,}000$, group rate $a = 0.10$. Annual depreciation is $O = 0.10 \cdot 120{,}000 = 12{,}000$.
Accelerated (Declining-balance / zrychlené) Depreciation
- Accelerated tax depreciation allows larger charges early in the asset's life.
- First-year accelerated rule (given): $$O_{1} = \frac{PC}{k}$$
- In subsequent years: $$O_{t} = 2 \cdot \frac{PC - \text{accumulated depreciation}}{k - n}$$ where $k$ is the statutory coefficient, and $n$ is number of years already depreciated.
- Special coefficients apply for increased residual value when accounting technical improvements.
Example: If $PC = 100{,}000$, $k = 10$, then $O_{1}=10{,}000$. After one year, accelerated formula for year 2 uses $n=1$.
💡 Věděli jste?Fun fact: Accelerated depreciation increases early tax deductions, improving near-term cash flow but lowering reported profit in early years.
Current Assets (Working Capital) and Inventory
Current (circulating) assets are those used up or converted into cash within one year. They include inventories, receivables, and cash.
Definition: Working capital (WC) is the current assets required to run day-to-day operations.
Forms of Current Assets
- Tangible forms: raw materials, work-in-progress, semi-finished products, finished goods, merchandise, animals.
- Monetary forms: cash, bank balances, short-term marketable securities, and receivables.
Circulation and Profitability
- Current assets cycle: material → production → receivables → cash. Faster turnover generally increases profitability.
- Key turnover metrics: inventory turnover period, receivables collection period, cash conversion cycle.
Valuation of Inventories and Cash
- Inventories may be valued using:
- Average cost: arithmetic mean of purchase prices across deliveries.
- FIFO (first in, first out): oldest inventory costs are expensed first.
- LIFO (last in, first out): newest inventory costs are expensed first.
- Receivables: recorded at nominal value at origin; if acquired for consideration they may be at acquisition cost.
- Cash and bank balances: nominal value.
- Marketable securities and equity holdings: acquisition cost (unless actively traded securities are revalued at market price).
Table: Inventory valuation comparison
| Method | Impact in rising prices | Typical use case |
|---|---|---|
| FIFO | Lower cost of goods sold, higher ending inventory value | Financial reporting when showing higher profit |
| LIFO | Higher cost of goods sold, lower ending inventory value | Tax-driven in some jurisdictions (not allowed everywhere) |
| Average cost | Smooths price volatility | Stable cost allocation when purchases vary |
💡 Věděli jste?Did you know that companies with rapidly rising input prices will report higher profits under FIFO than under LIFO?
Working Capital and It
Zaregistruj se pro celé shrnutíFlashcardsKnowledge testSummaryPodcastMindmap
Start for free Already have an account? Sign in
Corporate Finance Essentials
Klíčová slova: Organizational Leadership & Strategy — Management, Organizational Leadership & Strategy — Management Theory, Organizational Leadership & Strategy — Strategic Planning & Management, Organizational Leadership & Strategy — Human Resources & People Management, Organizational Leadership & Strategy — Organizational Structure & Design, Operations & Project Management: Project Management, Business Economics & Strategy, Public Policy & Economics - Taxation & Revenue, Public Policy & Economics - Fiscal Policy & Public Finance, Organizational Leadership & Strategy — Organizational Operations & Development, Organizational Leadership & Strategy — Strategy & Environmental Analysis, Organizational Leadership & Strategy — Decision Making & Governance, Marketing & Communication: Communications & Messaging, Marketing & Communication: Interpersonal & Models, Marketing & Communication: Segmentation & Targeting, Marketing & Communication: Customer Behavior & B2B, Marketing & Communication: Foundations & Orientation, Marketing & Communication: Strategy & Planning, Marketing & Communication: Research & Insights, Marketing & Communication: Product & Go-to-Market, Marketing & Communication: Pricing & Monetization, Marketing & Communication: Sales & Field Channels, Microeconomics: Markets & Pricing, Marketing & Communication: Digital & Media, Financial Statements & Reporting, Corporate Finance & Accounting, Operations & Project Management: Investment & Capital Budgeting, Taxes, Payroll & Compliance, Organizational Leadership & Strategy — Organizational Leadership & Strategy — Management, Legal, Risk & Governance, Financial Analysis & Ratios, Cost Accounting & Costing Methods, Corporate Finance Metrics & Performance, Operations & Project Management: Production & Inventory Planning, Market Structure & Competition, Market Failure & Public Intervention, Public Policy & Economics - Macroeconomic Policy & Monetary Policy, Macroeconomic Policy & Cycles, Public Policy & Economics - Policy Effectiveness
Klíčové pojmy: Depreciation: linear uses constant charge $O=a\cdot PC$, accelerated uses statutory coefficient $k$, First-year accelerated depreciation: $O_{1}=\frac{PC}{k}$, later years use $O_{t}=2\cdot\frac{PC-\text{accum. dep}}{k-n}$, Working capital: $\text{NWC}=\text{current assets}-\text{short-term liabilities}$, Non-financial WC: $\text{NCWC}=\text{inventories}+\text{receivables}$, Inventory valuation methods: FIFO, LIFO, average cost — choose by reporting or tax needs, Cost of debt after tax: $\text{NCK}=i\cdot(1-t)$, Cost of equity (Gordon): $\text{NVK}=\frac{\text{div}}{\text{TCA}}+g$, WACC: $\text{WACC}=\text{NCK}\cdot\frac{CK}{K}+\text{NVK}\cdot\frac{VK}{K}$, Optimal leverage when $\left(\frac{EBIT}{K}\right)(1-t)\ge i(1-t)$, Golden rule: match maturities — long-term assets with long-term capital, Tax shield helps only if firm is profitable (saves taxes via interest), Equity book value differs from market value (market cap = price × shares)
## Introduction
Corporate Finance & Accounting covers how companies manage, finance, value, and account for their assets and liabilities. This guide focuses on depreciation methods, working capital and inventory valuation, capital structure, cost of capital, and rules for using debt vs equity. It explains core formulas, practical examples, and how these decisions affect liquidity and profitability.
## Depreciation: Tax and Accounting Basics
Depreciation allocates the cost of long-term tangible assets over their useful lives. Two common tax-driven methods are linear (straight-line) depreciation and accelerated depreciation.
> Definition: Depreciation is the systematic allocation of an asset's acquisition cost to expense over its useful life.
### Linear (Straight-line) Depreciation
- The asset is assigned to one of six depreciation groups, each with a legislated useful life. Annual charge is usually constant except the first year.
- Formula (annual amount):
$$O = a \cdot PC$$
where $O$ is the annual depreciation, $a$ is the depreciation rate as a decimal, and $PC$ is the purchase cost.
- First-year rules often specify a different (usually lower) rate.
Example: Purchase cost $PC = 120{,}000$, group rate $a = 0.10$. Annual depreciation is $O = 0.10 \cdot 120{,}000 = 12{,}000$.
### Accelerated (Declining-balance / zrychlené) Depreciation
- Accelerated tax depreciation allows larger charges early in the asset's life.
- First-year accelerated rule (given):
$$O_{1} = \frac{PC}{k}$$
- In subsequent years:
$$O_{t} = 2 \cdot \frac{PC - \text{accumulated depreciation}}{k - n}$$
where $k$ is the statutory coefficient, and $n$ is number of years already depreciated.
- Special coefficients apply for increased residual value when accounting technical improvements.
Example: If $PC = 100{,}000$, $k = 10$, then $O_{1}=10{,}000$. After one year, accelerated formula for year 2 uses $n=1$.
Fun fact: Accelerated depreciation increases early tax deductions, improving near-term cash flow but lowering reported profit in early years.
## Current Assets (Working Capital) and Inventory
Current (circulating) assets are those used up or converted into cash within one year. They include inventories, receivables, and cash.
> Definition: Working capital (WC) is the current assets required to run day-to-day operations.
### Forms of Current Assets
- Tangible forms: raw materials, work-in-progress, semi-finished products, finished goods, merchandise, animals.
- Monetary forms: cash, bank balances, short-term marketable securities, and receivables.
### Circulation and Profitability
- Current assets cycle: material → production → receivables → cash. Faster turnover generally increases profitability.
- Key turnover metrics: inventory turnover period, receivables collection period, cash conversion cycle.
### Valuation of Inventories and Cash
- Inventories may be valued using:
- Average cost: arithmetic mean of purchase prices across deliveries.
- FIFO (first in, first out): oldest inventory costs are expensed first.
- LIFO (last in, first out): newest inventory costs are expensed first.
- Receivables: recorded at nominal value at origin; if acquired for consideration they may be at acquisition cost.
- Cash and bank balances: nominal value.
- Marketable securities and equity holdings: acquisition cost (unless actively traded securities are revalued at market price).
Table: Inventory valuation comparison
| Method | Impact in rising prices | Typical use case |
|---|---:|---|
| FIFO | Lower cost of goods sold, higher ending inventory value | Financial reporting when showing higher profit |
| LIFO | Higher cost of goods sold, lower ending inventory value | Tax-driven in some jurisdictions (not allowed everywhere) |
| Average cost | Smooths price volatility | Stable cost allocation when purchases vary |
Did you know that companies with rapidly rising input prices will report higher profits under FIFO than under LIFO?
## Working Capital and It