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