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Finance 101 – Introduction to Finance

Jim Riggio reviewed Finance 101 with his daughter, Gabriella, who is a Sophmore at Boston University, Questrom School of Business.

1-Corporate Finance & the Financial Manager

Chapter 1: Corporate Finance & the Financial Manager: – Why Study Finance? – The Four Types of Firms – The Financial Manager – The Financial Manager’s Place in the Corporation – The Stock Market – Financial Institutions

2-Financial Statement Analysis

  • Know why the disclosure of financial information through financial statements is critical to investors
  • Understand the function of the balance sheet
    • Assets
    • Liabilities
    • Shareholders Equity (and Market Capitalization)
  • Understand how the income statement is used
    • Net Income
    • Earnings per Share
  • Understand the main purpose and aspects of the Sarbanes-Oxley (SOX) reforms following Enron and other financial scandals

3-Time Value of Money

  • Time Value of Money
  • Cost-Benefit Analysis
  • Market Price (one) and Value Principle
  • Interest Rate
  • Interest Rate Factor
  • Discount Rate
  • Discount Rate Factor
  • Valuing Cash Flow Rules:
    • Comparing and Combining Values (at same time)
    • Compounding (Present -> Future)
    • Discounting (Future -> Present)

3-Time Value of Money Excel Supplement Work Session

4-Time Value of Money: Valuing Cash Flow (1 of 2)

  • Value a series of many cash flows
  • Value a perpetual series of regular cash flows called a perpetuity
  • Value a common set of regular cash flows called an annuity
  • Value both perpetuities and annuities when the cash flows grow at a constant rate
  • Compute the number of periods, cash flow, or rate of return on a loan or investment

4-Time Value of Money: Valuing Cash Flow (2 of 2)

4-Time Value of Money Excel Supplement Work Session

5-Interest Rates

  • Understand the different ways interest rates are quoted
  • Use quoted rates to calculate loan payments and balances
  • Know how inflation, expectations, and risk combine to determine interest rates
  • See the link between interest rates in the market and a firm’s opportunity cost of capital

6-Bonds (1 of 2)

  • Understand bond terminology
  • Compute the price and yield to maturity of a zero-coupon bond
  • Compute the price and yield to maturity of a coupon bond
  • Analyze why bond prices change over time
  • Know how credit risk affects the expected return from holding a corporate bond

6-Bonds (2 of 2)

  • Understand bond terminology
  • Compute the price and yield to maturity of a zero-coupon bond
  • Compute the price and yield to maturity of a coupon bond
  • Analyze why bond prices change over time
  • Know how credit risk affects the expected return from holding a corporate bond

7-Stocks

  • Describe the basics of common stock, preferred stock, and stock quotes
  • Compare how trades are executed on the NYSE and NASDAQ
  • Value a stock as the present value of its expected future dividend
  • Understand the tradeoff between dividends and growth in stock valuation
  • Appreciate the limitations of valuing a stock based on expected dividends
  • Value a stock as the present value of the company’s total payout