About This Course xi
How to Take This Course xiii

1 Introduction to Finance 1
Overview
The Vocabulary of Finance
The Elements of Finance
   Bookkeeping
   Accounting
   Planning
   Cash Management
The Basic Financial Statements
   The Balance Sheet
   The Income Statement
   Statement of Cash Flows
   Statement of Retained Earnings
The Structure of Business and the Impact of Financial Statements
   Proprietorship
   Partnership
   Corporation
   Other Business Structures
Recap
Review Questions

2 Introduction to Accounting 21
Overview
The Purpose of Accounting
   The Accounting System
   Who Uses Accounting Information?
Basic Terminology
   Financial Statements
   The Chart of Accounts
The Accounting Cycle
   Using Journal Entries to Record Transactions
   Closing Procedures
More Financial Concepts
Preparing Financial Statements
   The Key Financial Statements
   Trial Balance
Recap
Review Questions

3 Financial Analysis: Using Ratios 43
Overview
Analysis of Financial Information
The Purpose of Business
Who Performs Financial Analysis?
The Power of Ratios
   Comparative Analysis
   Trend Analysis
Traditional Ratio Analysis
   Liquidity Ratios
   Activity Ratios
   Profitability Ratios
   Debt Management Ratios
   DuPont Analysis
   A Different Perspective
   Creating Other Ratios
   Conflicting Information
Recap
Review Questions

4 Managing Operating Performance 67
Overview
Making Your Information Useful
The Key Financial Statements
   Ratios That Help Tell the Company's Story
   Effect Ratios
   Crossover Indicators and Causal Ratios
Recap
Review Questions

5 Managing Short-Term Assets 89
Overview
The Management of Cash
   Reasons for Holding Cash
   Techniques for Managing Cash
The Management of Other Short-Term Assets
   Managing Marketable Securities
   Managing Accounts Receivable
   Managing Inventory
   Prepaid Expenses
   Other Current Assets
Recap
Review Questions

6 Relating Risk and Return, Valuation, and Time Value of Money 105
Overview
Risk
   Defining Risk
   Risk Aversion vs. Risk Taking
   Possibility of Loss
   The Determination of Interest Rates
Types of Risk
   Characteristics of Different Types of Risks
   Default Risk
   Inflation Risk
   Maturity Risk
   Liquidity Risk
Estimating Interest Rates
   Interest Rates and the Economy
   The Role of the Federal Reserve on Interest Rate Determination
   Capital Asset Pricing Model
   Relating Risk and Return
   Extending the Theory
Time Value of Money
Valuation
   An Illustrative Example
   Assessing Investments
   Valuing an Investment
Recap
Review Questions

7 Capital Investment Decision Making 125
Overview
Calculating the Cost of Capital
   The WACC Model
   Initial Exercise in Estimating Financing Requirements
   Calculating the Cost of Capital
Capital Budgeting
Types of Capital Investment Projects
   Applying Cost of Capital
   Determining Investment Cost
   Determining the Cash Flows of a Project
   Determining the Terminal Cash Flows
Evaluating Capital Investment Projects
   Payback Period
   Discounted Payback Period
   Net Present Value
   Internal Rate of Return (IRR)
   Modified Internal Rate of Return (MIRR)
   Time Value of Money Calculations Using Excel
Recap
Review Questions

8 Managing Long-Term Assets 149
Overview
Considering Asset Classification
The Investment in Fixed Assets
   Depreciation
   Fixed Asset Accounting
   Acquisition of Fixed Assets
   Other Long-Term Assets
Recap
Review Questions

9 Managing Liabilities 161
Overview
The Liabilities of the Business
Short-Term or Current Liabilities
   Accounts Payable
   Notes Payable
   Taxes Payable
   Accruals
   Long-Term Debt
   Access to Credit
   Choosing a Bank Lending Officer
The "C's" of Credit
   Character
   Capacity
   Capital
   Cash Flow
   Collateral
   Conditions
   Competition
   Credibility
   Competence
   Communications
   Covenants
   Coverage
Banking Relationships
   Defining Debt
   Bank Structure Dictates Loan Interest Rates
   The Cost of Bank Funds
   Operating Expenses
   Loan Losses
   Profit Criteria
Comparison to Traditional Business Cost Structure
   Bank Debt Pricing
   Loan Pricing Example
Recap
Review Questions

10 The Equity in the Business 191
Overview
Equity and Business Structure
   Preferred Stock
   Common Stock
   Additional Paid-In Capital
   Retained Earnings
   Stock Repurchase Plans
The Investment Marketplace
Accounting for Equity
Recap
Review Questions

11 Financial Planning 203
Overview
The Essence of Financial Planning
Business Planning–A Continuous Process
   Roles of the Key Players
   Overview of the Financial Planning Process
   Planning Sequence
The Business Planning Process
   Business Plan
   Strategic Plan
   The Operative Plan or Annual Budget
Projecting the Financial Future
   Estimating Financial Requirements
   Capital Budgets
   Cash Budgets
Recap
Review Questions

12 Corporate Governance 221
Overview
Defining Corporate Governance
The Major Corporate Scandals
   Enron
   WorldCom
   Tyco International
   Adelphia Communications
   Parmalat
   Global Crossing
   HealthSouth
   Scandal Summary
The Sarbanes-Oxley Act of 2002
   A Summary of the Act's Key Provisions
   Extended Application of Sarbanes-Oxley
The Broader Aspects of Corporate Governance
   EVA and MVA
   Executive Compensation
Recap
Review Questions

13 Relating Departmental Performance to the Big Picture 239
Overview
The Inverted Triangle: Finance from Broad to Specific
   The Company
   Subsidiary
   Division
   Department
   Group
   Individuals
The Relationship Between Budgets and Actuals
Recap
Review Questions

Appendix: Time Value of Money Tables 249
Glossary 255
The Final Exam 265
Index 275

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