This course is designed for accountants who must have financial knowledge but have not had formal training in finance. Topics include: the Sarbanes-Oxley Act financial reporting requirements, uses and analysis of financial statements, financial forecasting and cash budgeting, risk and return, valuation of stocks and bonds, time value of money, investing and financing, leverage, optimal capital structure, portfolio selection, management of financial resources, and international finance. This course will help you understand the fundamentals of financial decision making and strategy that can be applied in the day-to-day jobs of accountants and managers. Examples and illustrations emphasize the practical application of financial concepts, tools, and methodology.
Upon successful completion of this course, participants will be able to:
- Discuss managerial finance objectives, distinguish between profit maximization and stockholder wealth maximization, and explain how agency problems may interfere with the goal of stockholder wealth maximization
- Describe the scope and role of finance, key finance terms, and the relationship between accounting and finance
- Explain the role of financial managers, and the financial and operating environment in which they operate
- Compare the various legal forms of business organization
- Read and interpret basic financial statements, including how the balance sheet portrays a company's financial position, and how the income statement reveals the entity's operating performance
- Outline the many types of accounts that may exist in the accounting system and determine/assess a company's cash inflows and cash outflows
- Explain what the annual report is and read and list its components, including the financial statements, footnotes, review of operations, auditor's report, and supplementary schedules
- Describe what management's discussion and analysis (MD&A) involves
- Summarize how the Sarbanes-Oxley 404 reporting differs from traditional reporting
- Explain what financial statement analysis is and why it is important
- Compare horizontal analysis and vertical analysis
- List and discuss the basic components of ratio analysis including limitations
- Distinguish between trend analysis and industry comparison
- Calculate a comprehensive set of financial ratios and interpret them
- Discuss ROI, identifying the basic components of the Du Pont formula and explaining how it can be used for profit improvement
- Analyze how financial leverage affects the stockholder's return
- Apply the percent-of-sales method to determine the amount of external financing needed
- Diagram the firm's budgetary system, including the cash budget and the forecasted (pro forma) income statement and balance sheet
- Calculate a firm's sustainable rate of growth
- Formulate the master budget, step by step
- Discuss why budgeting is used for profit planning and 'what-if' analysis
- Outline the concept of future value, with both annual and intrayear compounding
- Distinguish between future value and present value concepts
- Calculate the future value of a single payment and an annuity, and the present value of a single payment and an annuity
- Compare and contrast future value and present value tables
- Determine important financial variables such as a sinking fund amount, the monthly payment of an amortized loan, and annual percentage rate (APR)
- Define return, describe how it is measured, and distinguish between arithmetic return and geometric return
- Calculate and state risk statistics: the variance, standard deviation, and coefficient of variation
- Identify the types of risk
- Explain the nature of diversification and how it reduces risk
- Calculate portfolio return and portfolio risk
- Compare the Capital Asset Pricing Model (CAPM) and the Arbitrage Pricing Model (APM)
- Calculate a beta value and describe its use in designing a portfolio
- Outline the key inputs and concepts underlying the security valuation process
- Determine the value of bonds, identify and calculate various yields on a bond, and distinguish between preferred stock and common stock
- Describe the various methods of common stock valuation, and determine the investor's expected rate of return on preferred stock and common stock
- Compute individual costs of financing including long-term debt, bonds, preferred stock, common stock, and retained earnings
- Determine the overall cost of capital
- Discuss the various weighting schemes, and explain how the weighted marginal cost of capital can be used with the investment opportunity schedule to find the optimal capital budget
- Describe the types and special features of capital budgeting decisions
- Calculate, interpret, and evaluate five capital budgeting techniques
- Select the best mix of projects with a limited capital spending budget
- Discuss how income tax factors affect investment decisions
- Explain the types of depreciation methods
- Discuss the effect of Modified Accelerated Cost Recovery System (MACRS) on capital budgeting decisions
- Discuss the basics of break-even analysis and operating leverage and how they relate to each other
- Measure operating leverage and financial leverage and distinguish between them
- Apply the EBIT-EPS approach to evaluate alternative financing plans
- Explain how to determine the best capital structure
- Accelerate cash receipts, delay cash payments, and determine an optimal cash balance
- Identify the types of marketable securities
- Explain how to manage accounts receivable
- Describe what credit and discount policies may be advisable
- Outline ways to manage inventory, compute the carrying cost and ordering cost of inventory, and determine how much inventory to order and when to order
- Explain the different short term financing instruments and when each one is most appropriate
- List the advantages of trade credit
- Identify the types of bank loans and how they work
- Compute interest
- Outline the attributes of commercial paper financing
- Finance using receivables and inventory as collateral
- Distinguish between short term and long term financing
- List the advantages and disadvantages of leasing
- Identify the types of bonds that can be issued
- Outline the advantages of using bonds for long term financing
- Discuss how bond interest is calculated and paid
- Decide if a bond issue should be refunded before maturity
- Outline the advantages and disadvantages of the different kinds of stock and other equity securities
- List the characteristics of the different classes of stock
- Describe the role of the investment banker
- Explain the importance of making wise capital structure decisions
- Distinguish difference between a private and public placement of securities
- Outline the key features of the financial management of a multinational corporation (MNC) and describe popular financial goals of MNCs
- Distinguish between spot and forward foreign exchange rate
- Explain ways to control currency risk
- Outline three different types of foreign exchange exposure
- Explain long versus short position
- List some key questions to ask that help to identify foreign exchange risk
- Identify the ways to forecast foreign exchange rates
- Analyze foreign investments
- Measure political risk and deal with political risk
- Identify various international sources of financing
Table of Contents
Chapter 1 – An Overview of Financial Management
Objectives of Managerial Finance
Profit Maximization vs. Stockholder Wealth Maximization
Shareholders vs. Managers
Creditors vs. Shareholders
Finance Decisions and Risk-Return Trade-Off
Portfolio Risk and Return
Time Value of Money
Importance of Finance
Scope and Role of Finance
The Language and Decision Making of Finance
Why and What of Finance
What Do Financial Managers Do?
Controller vs. Treasurer
Relationship between Accounting and Finance
Financial and Operating Environment
Financial Institutions and Markets
Subchapter S Corporation
Chapter 1 Review Questions
Chapter 2 – Financial Statements and Cash Flow
What and Why of Financial Statements
More on the Income Statement
Classified Financial Statements
Classified Income Statement
Classified Balance Sheet
Liabilities and Stockholders' Equity
Statement of Cash Flows
Contents of the Statement of Cash Flows
Cash Flow Analysis
Preparing and Analyzing the Statement of Cash Flows
Statement of Cash Flows and Corporate Planning
Other Sections of the Annual Report
Review of Operations
Notes to the Financial Statements (Footnotes)
Supplementary Schedules and Tables
History of Market Price
How to Read a Quarterly Report
SEC Reporting Requirements-Integrated Disclosure System
Management's Discussion and Analysis (MD&A)
The Sarbanes-Oxley Act
Chapter 2 Review Questions
Chapter 3 – Evaluating a Firm's Financial Performance
What and Why of Financial Statement Analysis
Activity (Asset Utilization, Turnover) Ratios
Solvency (Leverage, Debt Service, Long-Term Debt) Ratios
Market Value Ratios
Is Ratio Analysis a Panacea?
Chapter 3 Review Questions
Chapter 4 – Improving Financial Performance
What is Return on Investment (ROI)?
Is there an Optimal Combination?
How to Use the Du Pont Formula for Profit Improvement
How to Improve Return to Stockholders through Financial Leverage
A Word of Caution
Chapter 4 Review Questions
Chapter 5 – Budgeting, Planning, and Financial Forecasting
How Does the Percent-of-Sales Method Work?
The Sustainable Rate of Growth
Calculating the Sustainable Rate of Growth
How to Prepare a Budget
The Sales Budget
The Production Budget
The Direct Material Budget
The Direct Labor Budget
The Factory Overhead Budget
The Ending Inventory Budget
The Selling and Administrative Expense Budget
The Cash Budget
The Budgeted Income Statement
The Budgeted Balance Sheet
Some Financial Ratio Calculations
Chapter 5 Review Questions
Chapter 6 – The Time Value of Money
How to Calculate Future Values
Future Value of an Annuity
What Is Present Value—How Much Money Is Worth Now?
Present Value of an Annuity
The Applications of Future Values and Present Values
Deposits to Accumulate a Future Sum (or Sinking Fund)
How to Develop Loan Amortization Schedule
Annual Percentage Rate (APR)
Rates of Growth
Chapter 6 Review Questions
Chapter 7 – The Meaning and Measurement of Risk and Rates of Return
Return on Investment
How is Return Measured?
Arithmetic Average Return vs. Geometric Average Return
What is Expected Rate of Return?
What is the Risk and the Risk-Return Trade-Off?
How is Risk Measured?
Word of Caution
Types of Risk
How to Reduce Risk: Diversify
What is Beta?
How to Read Beta
Betas for some selected corporations
The Arbitrage Pricing Model (APM)
Chapter 7 Review Questions
Chapter 8 – Valuation of Stocks and Bonds
How to Value a Security
What is a Bond?
How to Value Bonds
How Do You Calculate Yield (Effective Rate of Return) on a Bond?
What is Preferred Stock?
How to Value Preferred Stock
What is Common Stock?
How to Value Common Stock
Single Holding Period
Multiple Holding Period
What is the Expected Return on Common Stock?
Chapter 8 Review Questions
Chapter 9 – The Cost of Capital
Computing Individual Costs of Capital
Cost of Debt
Cost of Equity Capital
Cost of Retained Earnings
Measuring the Overall Cost of Capital
Level of Financing and the Marginal Cost of Capital (MCC)
Chapter 9 Review Questions
Chapter 10 – Capital Budgeting: Techniques and Practice
What are the Types of Investment Projects?
What are the Features of Investment Projects?
How Do You Measure Investment Worth?
Accounting Rate of Return
Internal Rate of Return
Net Present Value
Can a Computer Help?
How to Select the Best Mix of Projects with a Limited Budget
How to Handle Mutually Exclusive Investments
How Does Income Taxes Affect Investment Decisions?
Types of Depreciation Methods
Sum-of-the-Years-Digits (SYD) Method
Double-Declining-Balance (DDB) Method
How Does MACRS Affect Investment Decisions?
Chapter 10 Review Questions
Chapter 11 – Determining the Financing Mix
Break-Even Analysis, Operating Leverage, and Financial Leverage
Cash Break-Even Point
Tools of Capital Structure Management
EBIT-EPS Approach to Capital Structure Decisions
A Word of Caution
Analysis of Corporate Cash Flows
Capital Structure Decisions in Practice
Chapter 11 Review Questions
Chapter 12 – Managing Liquid Assets
Evaluating Working Capital
Acceleration of Cash Inflow
Delay of Cash Outlay
Delay Frequency of Paying Employees
Investing in Marketable Securities
Management of Accounts Receivable
Determining the Investment in Accounts Receivable
Changing Credit Policy
Investment in Inventory
Determining Carrying and Ordering Costs
The Reorder Point
Using the ABC Inventory Control Method
Supply Chain Management
Chapter 12 Review Questions
Chapter 13 – Short-Term Financing
Using Trade Credit
Dealing with the Banker
Commercial Finance Loans
Using Receivables for Financing
Using Inventories for Financing
Financing with Other Assets
Intermediate-Term Financing: Term Loans and Leasing
Insurance Company Term Loans
Advantages of Leasing
Chapter 13 Review Questions
Chapter 14 – Debt Financing
Types of Long-Term Debt
Advantages and Disadvantages to Debt Refinancing.
Chapter 14 Review Questions
Chapter 15 – Equity Financing
Issuing Equity Securities
Common Stock Issues
Selecting a Financing Method
Public vs. Private Placement
Chapter 15 Review Questions
Chapter 16 – International Finance
What is unique about the financial management of a multinational corporation (MNC)?
What are popular financial goals of MNCs?
What types of foreign operations are right for you?
What are some popular international strategies?
The Foreign Exchange Market
What is the foreign exchange market?
What are spot and forward foreign exchange rates?
What are cross rates?
How do you control foreign exchange risk?
What are three different types of foreign exchange exposure?
What is long vs. short position?
What is your monetary position?
What are some ways to neutralize foreign exchange risk?
What are some key questions to ask that help to identify foreign exchange risk?
Impacts of Changes in Foreign Exchange Rates
Can you forecast foreign exchange rates?
How do you analyze foreign investments?
Examples of Political Risks
What are the methods for dealing with political risk?
What are international sources of financing?
Chapter 16 Review Questions
Review Question Answers and Rationales
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