ACC501 Official Handouts

ACC501 – Business Finance · Table of Contents · Lesson # · Topic · Page

Introduction ----------------------------------------------------------

The Firm and The Financial Markets ---------------------------- The Income Statement ---------------------------------------------- Depreciation as a Tax Shield --------------------------------------- The Statement of Cash Flows ------------------------------------- Common-Size Statements ------------------------------------------ Ratio Analysis -------------------------------------------------------- Ratio Analysis (Cont…) -------------------------------------------- The Du Pont Identity ----------------------------------------------- Using Financial Statements Information ------------------------- Future Value ---------------------------------------------------------- Evaluating Investments --------------------------------------------- Annuities -------------------------------------------------------------- Perpetuities ------------------------------------------------------------ Bonds ------------------------------------------------------------------ Valuing A Bond ------------------------------------------------------ Bond Pricing Theorems -------------------------------------------- The Bond Indenture ------------------------------------------------- Different Types of Bonds ------------------------------------------ Term Structure of Interest Rates ---------------------------------- Zero Growth Stocks ------------------------------------------------ Non-Constant Growth Stocks ------------------------------------- Preferred Stock Features ------------------------------------------- Using NPV ------------------------------------------------------------ Average Accounting Return --------------------------------------- Profitability Index ---------------------------------------------------- Making Capital Investment Decisions ---------------------------- Pro Forma Financial Statements ---------------------------------- Depreciation ---------------------------------------------------------- Returns ---------------------------------------------------------------- Variability of Returns ----------------------------------------------- Portfolio ---------------------------------------------------------------

Weighted Average Cost of Capital --------------------------------

M&M Propositions -------------------------------------------------- Bankruptcy Costs ---------------------------------------------------- Operating Cycle and Cash Cycle ---------------------------------- Short-Term Financial Policy --------------------------------------- Short-Term Borrowing --------------------------------------------- Float and Cash Management --------------------------------------- Credits And Receivables -------------------------------------------- Inventory Management ---------------------------------------------

LESSON 1 BUSINESS FINANCE

The Primary textbook for the course is:

Essentials of Corporate Finance, by Ross, Westerfield and Jordan, fourth edition, McGraw Hill Publishers, ISBN 0-07-121057-7

Reference books will be:

Introduction to Finance by Lawrence J. Gitman and Jeff Madura, Addison-Wesley Publishers Foundations of Financial Management by Stanley B. Block and Geoffrey A. Hirt, McGraw Hill Publishers

Course Contents

An overview of Financial Environment Financial Statements, Taxes and Cash Flows Time Value of Money and Discounted Cash Flow Valuation Valuation of Stocks and Bonds Net Present Value and other Investment Criteria Capital Investment Decision Risk and Return

Leverage and Capital Structure Raising Capital Working Capital Management Dividends

Finance: A Quick Look

Four Basic Areas o Business Finance o Investments o Financial Institutions o International Finance

Business Finance

Addresses the following three questions: What long-term investments should the firm engage in? How can the firm raise the money for the required investments? How much short-term cash flow does a company need to pay its bills?

Investments

Deals with financial assets such as stocks and bonds. It covers the following issues: o Pricing Financial Assets o Associated Risks and Rewards o Determining best mixture of financial investment Career opportunities in investment o Stock Brokerage

LESSON 2 WHY STUDY FINANCE?

Why Study Finance?

Marketing and Finance o Marketers have to work with budgets o Need to get greatest payoffs from marketing expenditures and programs o Cost and Benefit analysis of projects o So, finance is vital for: Marketing research Design of marketing and distributions channels Product pricing Accounting and Finance o Accountants are required to make financial decisions as well as understand the implications of new financial contracts o Financial analysts make extensive use of accounting information Management and Finance o Business Strategy is always disastrous if financial planning is not adhered to.

What is Business Finance?

In order to start any new business, the following issues become vital o What long-term investment should be taken on? o From where to get the long-term financing to pay for investment? Bring in other owners or borrow the money? o How to manage everyday financial activities?

The Financial Manager

To create value, the financial manager should: Try to make smart investment decisions. Try to make smart financing decisions.