1. Fundamentals of Finance Bob Donchez
CUBIC 2012 Section 1
Fundamentals of Finance
Bob Donchez

2. Bob Donchez Senior Instructor of Finance
Teaching: MBA Finance, Senior Valuation Research Course, Corporate Finance, Financial Markets & Institutions, Introductory Finance, and Business of Sports since 1999
Degree: MBA Fordham University - NY,NY 1988
(303) (office); (303) (cell)
Koelbel, Room 423
Professional Experience
Partner, Echo Brewing Company; – present
Managing Partner, Real Estate Investment Group; 2005-present
Financial Analyst, Salomon Brothers, NY;
Accounting Analyst, IBM World Trade

3. 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

4. Describe your level of knowledge of finance…
Question (1.0)
Describe your level of knowledge of finance…
A. Very low!
B. Low—very little knowledge
C. Medium—some knowledge
D. High—know quite a bit
E. Very high!

5. 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.

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

7. Fundamentals of Finance Topics
2) Financial Statements and Analysis
Balance Sheet
Income Statement
Cash Flows
Financial Analysis—Ratios
Case #1: Financial Analysis: Chipotle Mexican Grill

8. Fundamentals of Finance Topics
3) Valuation of Financial Assets
Time Value of Money
Interest Rates and Bond Valuation
Stocks and Stock Valuation
Relationship between Risk and Return

9. 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

10. Fundamentals of Finance Topics
Methods of student involvement
Soliciting and addressing individual student questions, problems, and situations--questions always welcome.
Clicker questions—feel free to work together on them
Introduce topics and concepts
Solicit opinions for discussion
To work simple problems
Team cases that highlight key topics and concepts
On-line resources

11. What is your opinion of the field of finance?
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”

12. 1-0 Introduction to Financial Management
Topics
1-1 Financial Decisions/Activities
1-2 Careers in Finance
1-3 Business Forms
1-4 Financial Management Goals
1-5 Financial Markets

13. 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

14. 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

15. 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

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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:

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

26. 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.

27. 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)

28. Introduction to Financial Management 1-3 Business Forms
Basis of comparison:
Size
Number in existence
Owners
Liability
Taxes

29. 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:

30. Question (1.4)
What is your opinion of this statement: “The primary goal of any firm is to maximize its share price”.
A. Correct and appropriate
B. Not correct and inappropriate
C. Partially correct, but other issues

31. Introduction to Financial Management 1-4 Financial Management Goals
“Maximize share price”
Issues
Short versus long run
Managing firm risks
Managing interest of all stakeholders
Sustainability
“Triple bottom line” -- profits, people, planet

32. Introduction to Financial Management 1-5 Financial Markets
Financial Intermediaries
Connecting the producers of capital with the consumers of capital

33. Introduction to Financial Management 1-5 Financial Markets
Primarily versus secondary markets
Primary markets—original issuance of securities to the market
Secondary markets—all subsequent trading of securities

34. Introduction to Financial Management 1-5 Financial Markets
Securities markets
Physical, auction markets: NYSE
Dealer, “over the counter”, computer network: NASDAQ
Electronic Communication Networks (ECNs), “SUPERDOT”
Markets versus indexes: NYSE vs. S&P 500 or Dow Jones Industrials

36. Introduction to Financial Management 1-5 Financial Markets
On-line resources:
(derivatives)

37. Which response applies to you?
Question (1.5)
Which response applies to you?
A. I have traded stocks and/or bonds
B. I have bought or sold mutual funds
C. I have not traded on the securities markets

38. Introduction to Financial Management 1-5 Financial Markets
Securities markets—securities traded
Publicly traded common stock
Bonds—corporate and government
Exchange traded funds (ETFs)
Commodities
Metals--gold, silver
Agricultural—orange juice, beef
Currencies—dollars, euros, yen
Energy—gas, oil
Derivatives
Options and futures on the above securities