Ignacio Lezaun

English edition
2021

Fundamentals of Finance
Introduction
Schedule

January - April 2021

Monday 12pm
Thursday 8am
Assessment

60% exam
20% attendance
20% class participation
A bit about me

◼Global Risk Advisory Deloitte Private Leader with more than 20 years
of experience in the Firm
◼Head of the Corporate Governance Center of Excellence for Madrid
◼He leads the Risk Advisory Business for Consumer Products and Retail
◼In charge of the implementation of the Global Risk Advisory Strategy in
relation to medium-sized companies
◼Has participated in three IPOs and as auditor of public and private
companies for more than 20 years
 Teaching assistant:
Sanhita Sapatnekar

◼ PhD student (macro-economics, monetary policy)

◼ 8 years postgraduate work experience across:

◼ United Nations (Geneva Headquarters)

◼ Ministry of Finance (Government of India)
◼ GIZ (Phnom Penh, Cambodia)

◼ Previous education:

◼ Master of Laws (LLM) in International Trade Law (University of Turin, Italy)

◼ Masters in International Cooperation and Development (Graduate School ASERI, Italy)
◼ BSc Mathematics (University of Bristol, UK)
 House rules

◼ Wear a mask!
◼ Maintain social distancing
◼ Be punctual – doors close once lecture starts
◼ Mobile phones to remain in bags – will be confiscated otherwise
Fundamentals of Finance
Motivation behind this course

Why is finance so important?

◼ It is the language of businesses
◼ Without understanding finance, you cannot conduct
business
Contents of the course

1. The role of the Chief Financial Officer

2. Statement of cash flows
3. Working capital management
4. Short-term finance instruments
5. The time value of money
6. Conclusions
 UNIT
1

1. Role of the Chief Financial

Officer (CFO)
OBJECTIVES UNIT
1

1. Background
2. CFO responsibilities
3. CFO and financial planning
4. Shift in role of CFO
5. Exercise
Background UNIT
1

◼ Financial markets are the framework within which financial assets (shares,
bonds, securities, etc.) are traded

◼ A firm’s financial manager acts as an intermediary, linking the firm to

financial markets

◼ Most medium to large firms have a CFO who performs the financing
function with the:
◼ Controller
◼ Treasurer

◼ The CFO oversees the Controller and Treasury in a firm, and together they
implement the firm’s financial planning

◼ CFO has thorough understanding of whole company

CFO responsibilities UNIT
1
◼ For a firm to create value, it must:
1. Buy assets that create more income than their cost
2. Finance them properly

◼ The CFO’s main task is to create value for the firm

◼ This means the CFO is responsible for setting the firm’s overall financial
policy:
◼ Decide which projects should be implemented and how they will be financed
◼ Develop the firm’s strategic planning
◼ Collaborate with other directors to achieve this
◼ The CFO is sometimes also a member of the steering committee or Board of
Directors
Example: Apple UNIT
1
CFO and financial planning UNIT
1

◼ The core activities of financial planning are overseen by the CFO and divided
between the Controller and Treasury

◼ The Controller’s function is to check that money is used efficiently

◼ The Treasury's role is to obtain and manage the firm’s cash

 Roles under the Controller UNIT
1

 Manage the information system to communicate the economic-financial situation of the company,
and control the financial situation of the company. Preparation of financial statements (year-end
audited closing and monthly/quarterly closings)
 Support the investment decision-making, analysing risks and returns of the investment
 Manage administrative processes to avoid delays and errors in operations, ensure robustness and do
so with productivity
 Apply the appropriate internal control procedures, such as the segregation of duties, authorisation
thresholds for key decisions.
 Comply with the applicable legislation, to avoid the occurrence of violations especially related to
taxes. 
 Optimise the tax efficiency of the company
 Support the company’s ESG strategy
 Advise general management in making corporate decisions such as the increase or reduction of share
capital, the distribution of dividends
 Support/lead M&A processes of the company  
 Support operational areas, so that financial criteria are incorporated into business, production
and supply. 
 Roles under the Treasury UNIT
1
• Design and implement a financing structure that balances its effects on the profitability of
shareholders and the financial risk of debt. 

• Anticipate and obtain the financing required by the operations and contract it with the appropriate
maturity consistent with the period of investment

• Manage the monetary flows and the bank accounts through which the funds flow, ensuring the
necessary liquidity to meet the payments and investing the cash surpluses to make them profitable
without putting them in danger

• Manage the global risk of the company, keeping the impact of fluctuations in activity and in interest
and currency exchange rates, among other aspects, within reasonable limits. Scenario analysis and
hedging instruments are examples of responses to risk.

• Preserve financial flexibility, understood as the possibility of varying the volume and structure of
financing without incurring excessive costs or delays. This requires maintaining funding and reserve,
which can be mobilized in case of need; alternative financing instruments; and adequate knowledge of
the financial market to anticipate problems and take advantage of opportunities that arise. 

• Analyse the credit risk of customers to authorize deferred payment

 Treasury plan UNIT 1

 Objective of financial management and responsibility of the financial director:

guarantee the liquidity of the company

 Thus it is essential and necessary to have a treasury plan (i.e. a budget)

 A treasury plan:
o Is a budget for collections and payments 
o Allows you to anticipate treasury problems
o Facilitates liquidity management
o Can be done weekly, bi-weekly, etc.

 A treasury plan is not:

o An income and expense budget
o A sales budget
o A cost estimate
o An investment budget
 Exercise: Treasury plan UNIT 1
• Company XYZ presents the following balance sheet as of
December 31, 2020:
ASSETS 31/12/20 Net Equity and Liabilities 31/12/20
Intangible Assets 60,000.00 € Share capital 120,000.00 €
Tangible Assets 120,000.00 € Reservas 45,000.00 €
No Current Assets 180,000.00 € Income of the Year 25,000.00 €
Inventories 145,000.00 € Net Equity 190,000.00 €
Trade and other receivables 56,000.00 € Long term debt 150,000.00 €
Cash 111,950.00 € Non Current Liabilities 150,000.00 €
Current Assets 312,950.00 € Short term debt 75,000.00 €
Accounts payable 45,000.00 €
Short-term payable Public Authorities 32,950.00 €
Current Liabilities 152,950.00 €
Total Assets 492,950.00 € Total Equity and Liabilities 492,950.00 €

• The details of the balance items are as follows:

Trade and other receivables   Short-term payable Public Authorities  
November sales 24,500.00 € VAT 15,000.00 €
December sales 31,500.00 € IRPF (Personal income tax) 7,500.00 €
Total Trade and other Corporation tax 6,250.00 €
receivables 56,000.00 € Social Security 4,200.00 €
Total Short-term payable Public Authorities 32,950.00 €
 Exercise: Treasury plan UNIT 1

The details of the obligations with the Public Administration are as follows:

• VAT and personal income tax are paid in the month following the end of the
settlement period (the company files quarterly returns).
• The Corporation Tax is paid in the month of July of the following year.
• Social Security is paid in the month following the settlement month.
The average collection period for the company is two months. The expected sales
(excluding VAT) for the year 2021 by months are the following:

• The VAT to be passed on by the company is 21%.

  January February March April May June July August September October November December
Sales 25,000.00 € 32,500.00 € 36,800.00 € 42,000.00 € 52,500.00 € 54,000.00 € 65,200.00 € 22,500.00 € 56,700.00 € 49,000.00 € 55,000.00 € 68,500.00 €
 Exercise: Treasury plan UNIT 1

• The average term of payment to commercial suppliers is one

month and the payment of supplies and other expenses is in cash. The
details of purchases, supplies and other expenses for months of the year
2021 are expected to be the following:

  January February March April May June July August September October November December
17,500.00 28,000.00 15,000.00 24,000.00 30,000.00 52,000.00 30,000.00 28,000.00 35,000.00 40,000.00 12,000.00
Purchases € € € € 25,000.00 € € € € € € € €
Supplies 1,400.00 € 1,400.00 € 1,400.00 € 1,400.00 € 1,400.00 € 1,400.00 € 1,400.00 € 1,400.00 € 1,400.00 € 1,400.00 € 1,400.00 € 1,400.00 €
Other expenses 500.00 € 500.00 € 500.00 € 500.00 € 500.00 € 500.00 € 500.00 € 500.00 € 500.00 € 500.00 € 500.00 € 500.00 €

• The input VAT borne by the company is 21%.

Exercise: Treasury plan UNIT 1
The details of the payroll to the workers are as follows:

• The total gross monthly payroll is € 10,000.-

• The number of payments paid by the company is 14 (extra payroll in June and
December).
• The personal income tax that is withheld from workers is 15%.
• The social security that corresponds to the workers is 6% (it is calculated on the total
of payments, but it does not accrue in the extras).
• The social security that corresponds to the company is 30% (it is calculated on the
total of payments, but does not accrue in the extras).

The amortization table of the short-term bank loan is as follows:

  January February March April May June July August September October November December
Installment 6,334.96 € 6,334.96 € 6,334.96 € 6,334.96 € 6,334.96 € 6,334.96 € 6,334.96 € 6,334.96 € 6,334.96 € 6,334.96 € 6,334.96 € 6,334.96 €
The loan instalments include both the return of principal and the payment of
interest.
 Exercise: Treasury plan UNIT 1
TASK: Prepare the monthly treasury
budget and profit and loss account
forecast for the year 2021 and draw
conclusions
2021 January February March April May June July August September October November December
Opening balance

Receipts                        

PL Forecast 2021 2021

Sales
Total receipts 0.00 € 0.00 € 0.00 € 0.00 € 0.00 € 0.00 € 0.00 € 0.00 € 0.00 € 0.00 €Purchases
0.00 € 0.00 €
Supplies and Other Expenses
Payroll
Payments                        
Social Security - Co.
Depreciation (*)  
Operational income
Interest  
Profit before taxes
Corporate tax  
Net Income