Fundamentals of Finance Tom C. Nelson, PhD 9/17/2018 CUBIC 2014 Section 1 Fundamentals of Finance Tom C. Nelson, PhD CUBIC Fundamentals of Finance

Fundamentals of Finance Topics What is Finance? The measurement and study of an organization’s cash flows in order to make business decisions related to its: Operations Investments Financing Activities: Budgeting, planning, valuation, decisions

Fundamentals of Finance Topics Course Objectives • a working knowledge of the terminology of finance and fundamental concepts and tools used in the business world; • an understanding of the interrelationships between accounting and finance; • an understanding of the interrelationships between business management and a firm's financial statements; • an introduction to financial markets, the time value of money, risk and return, and the valuation of assets and business projects.

Fundamentals of Finance Topics 1) Introduction to Financial Management Financial Decisions/Activities Careers in Finance Business Forms Financial Markets

Fundamentals of Finance Topics 2) Sources of capital funding for companies Retained profits Bonds and bank loans Stock

Fundamentals of Finance Topics 3) Financial Statements and Analysis Balance Sheet Income Statement Cash Flows Financial Analysis—Ratios Case #1: Financial Analysis: Vail Resorts

Fundamentals of Finance Topics 4) Capital Budgeting Introduction to Capital Budgeting Capital Budgeting Tools Determining Relevant Cash Flows Developing Cash Flow Projections Determining Cost of Capital Case #2: Business Start-up Decision: Naturally Wrapped Food Stand

What is your opinion of the field of finance? Clicker Question (1.1) What is your opinion of the field of finance? A. I may pursue a career in finance B. I want to understand finance to better myself C. I find finance more of a “necessary evil” D. I really don’t see myself needing/using finance E. My opinion of finance is still “up in the air”

1-0 Introduction to Financial Management Topics 1-1 Financial Decisions/Activities 1-2 Careers in Finance 1-3 Business Forms 1-4 Financial Markets

Financial activities and decisions can be divided into 3 areas: Introduction to Financial Management 1-1 Financial Decisions/Activities Financial activities and decisions can be divided into 3 areas: Operating: Day to day operations to create profit Managing the income statement

Introduction to Financial Management 1-1 Financial Decisions/Activities Financial activities and decisions can be divided into 3 areas: 2) Investing How is firm money spent on assets? Managing the left side of the Balance Sheet current assets--working capital management fixed assets--capital budgeting

Introduction to Financial Management 1-1 Financial Decisions/Activities Financial activities and decisions can be divided into 3 areas: 3) Financing Focus on the sources of the Firm’s capital (debt and equity) Managing the right side of the Balance Sheet Amount and type of debt and equity--capital structure

Introduction to Financial Management 1-1 Financial Decisions/Activities

Introduction to Financial Management 1-2 Careers in Finance Career Areas: Corporate Public and private companies, large and small Institutional Banks, insurance companies Investment Brokerage firms, investment banks Real estate International

Introduction to Financial Management 1-2 Careers in Finance Career Considerations: Structured AND creative Quantitative AND strategic Financial knowledge can be used in: General business OR specialized finance areas

Introduction to Financial Management 1-2 Careers in Finance Corporate finance careers—examples: Financial accountant Cash manager Credit manager Financial analyst Risk management Audit/fraud/compliance Budget director (budget, planning, and forecasting) Treasurer Director of finance Chief financial officer

Introduction to Financial Management 1-2 Careers in Finance Institutional finance careers—examples: Investment banking analyst Trust officer Commercial bank loan officer Audit officer Banking analyst Branch manager Vice president

Introduction to Financial Management 1-2 Careers in Finance Investment finance careers—examples: Financial advisor Stock broker Personal financial planning Financial analyst Security analyst Portfolio manager (mutual funds, hedge funds) Financial engineer

Introduction to Financial Management 1-2 Careers in Finance Real estate finance careers—examples: Real estate broker Mortgage banker Appraisal/valuation analyst Leasing analyst Commercial broker

Introduction to Financial Management 1-2 Careers in Finance International finance careers—examples: All of the previous careers outside the US Foreign exchange analyst International risk manager Finally: Financial Consulting Consulting on any of the above! On-line resource: www.careers-in-business.com

Clicker Question (1.3) Do you seriously think you might start your own business sometime in your career? A. Yes B. No

Introduction to Financial Management 1-3 Business Forms Sole Proprietorship Business owned by a single individual Partnership A business formed by two of more individuals or entities Corporation (“C” Corporation) A business created as a distinct legal entity owned by one or more individuals or entities.

Introduction to Financial Management 1-3 Business Forms “Hybrids” Generally, smaller entities which allow for the pass through of income (single tax event) and have limited liability. Examples: Sub S Corporation General/Limited Partnership Limited Liability Partnership (LLP) Limited Liability Corporation (LLC)

Introduction to Financial Management 1-3 Business Forms Item Sole Prop Partnership Corporation “Hybrids” Number Many Few Size Small Small-Medium Small-Large Liability Unlimited Limited Tax Pass Through Double taxed Owners Proprietor 2+ Partners Shareholders Partners or shareholders On-line resource: www.nolo.com

Introduction to Financial Management 1-4 Financial Markets Financial Intermediaries Connecting the producers of capital with the consumers of capital

Introduction to Financial Management 1-4 Financial Markets Primarily versus secondary markets Primary markets—original issuance of securities to the market Secondary markets—all subsequent trading of securities