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FIN 301

Introduction to Business Finance

Class Textbook: Fundamentals of Corporate Finance, 13th edition

Topics:

  • (CH 1) Introduction to Corporate Finance
  • (CH 2) Financial statements, taxes and cash flow
  • (CH 3) Working with financial statements
  • (CH 5) Time value of money
  • (CH 6) Discounted cash flow valuation
  • (CH 7) Interest rates and bond valuation
  • (CH 8) Stock valuation
  • (CH 12) Capital market history
  • (CH 12) Risk and return
  • (CH 9) NPV and IRR
  • (CH 10) Capital budgeting
  • (CH 14) Cost of capital
  • (CH 16) Capital structure

Chapter 1: Introduction to Corporate Finance

Finance is making decisions to maximize value to owners.

Value is driven by cash flows, not income.

Key equations

Chapter 2: Financial statements, taxes and cash flow

  • \[assets = {liabilities + shareholdersEquity}\]
  • \[income = revenues - expenses\]
  • \[cashFlowFromAssets = cashFlowToCreditors + cashFlowToStockholders\]
    • \[cashFlowFromAssets = operatingCashFlow (OCF) - netCapitalSpending - changeInNetWorkingCapital (NWC)\]
    • \[operatingCashFlow = EBIT + depreciation - taxes\]
    • \[netCapitalSpending = endingNetFixedAssets - beginningNetFixedAssets + depreciation\]
    • \[changeInNetWorkingCapital = endingNWC - beginningNWC\]
  • \[cashFlowToCreditors = interestPaid - netNewBorrowing\]
  • \[cashFlowToStockholders = dividendsPaid - netNewEquityRaised\]
  • The ratio of net working capital to total assets:
    • \[netWorkingCapitalToTotalAssets = {netWorkingCapital \over{totalAssets}}\]
  • The interval measure:
    • \[intervalMeasure = {currentAssets \over{averageDailyOperatingCosts}}\]
  • The total debt ratio:
    • \[totalDebtRatio = {totalAssets - totalEquity \over{totalAssets}}\]
  • The debt-equity ratio:
    • \[debtEquityRatio = {totalDebt \over{totalEquity}}\]
  • The equity multiplier:
    • \[equityMultiplier = {totalAssets \over{equityMultiplier}}\]
  • The long-term debt ratio:
    • \[longTermDebtRatio = {longTermDebt \over{longTermDebt + totalEquity}}\]
  • The times interest earned (TIE) ratio:
    • \[timesInterestEarnedRatio = {EBIT \over{interest}}\]
  • The cash coverage ratio:
    • \[cashCoverageRatio = {EBIT + deprecation \over{interest}}\]