Finance & Management

inance begins where accounting ended. We will use balance sheets, income statements, and ratios to determine how much money a firm needs to raise if it plans to increase its sales. This problem, known as “Additional Funds Needed (AFN) or External Funds Needed (EFN),” is the centerpiece for this course. Everything that we do in topics (2) through (7) will be related back to the AFN (EFN) problem to provide you with continuity throughout the course. While this material is in
If accounting is a distant memory, or if accounting took you (as opposed to you took accounting), you will need to read the first three Chapters of our text to get yourself “back up to speed.”

Money has a time value: this is perhaps the most important concept in finance. Many of the problems that we will solve (to learn how the math that underlies this concept works) are personal in nature (funding a child’s education, funding your education, funding your retirement, et al), and since the math that underlies personal finance is exactly the same as the math that underlies corporate finance, you will learn the math that underlies both personal and corporate financial planning. This is an added bonus of taking this class for which there is no extra charge.

Stocks and bonds are valued by applying the concept that money has a time value. When we did the AFN(EFN) problem, we determined how much funding was coming from stocks and bonds without worrying about (a) how to value those stocks and bonds and (b) what the cost to the corporation is when issuing those stocks and bonds. Since the valuation of stocks and bonds is important both to companies and to investors, we learn, in Chapters 7 and 8, how to value those financial instruments.
Capital budgeting is one of the most important financial functions that the finance department undertakes in a real world corporation, second only to working with investment bankers (to raise money to fund the corporation’s growth). We will examine the three principal ways that real world firms use to allocate money within the corporation: Net Present Value (NPV), Internal Rate of Return (IRR), and Payback. This material is in Chapters 10 and 11.

We examined the various potential investments to determine whether or not it made financial sense to invest in those potential investments. In the real world, money is not infinite; that is, the more money a corporation needs to raise in a short period of the time, the more expensive that money gets. This problem is referred to as a “Marginal Cost of Capital / Investment Opportunity Schedule” problem (MCC/IOS). The next real world step compares the cost of raising money to the expected rate of return that the company will earn on potential growth opportunities. In part (1), we simply assumed that the corporation was going to grow; in this section, we look specifically at the corporation’s growth opportunities.

About the Author

http://www.netmanaging.com.ar