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Introduction to business: finance
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Ted Major
February 23, 2016
Education
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Introduction to business: finance
CC-BY-SA
Ted Major
February 23, 2016
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Transcript
Finance: Acquiring & using funds cc licensed ( BY NC
ND ) flickr photo by photog63: http://flic.kr/p/GzRs8
Quiz • Closed book/closed notes • Phones & computers put
away • You may collaborate with your team • You are responsible for the answers on your quiz • You do not have to choose the same answers as your team
cc licensed ( BY NC ND ) flickr photo by
tomfs: http://flic.kr/p/8zGd2J
cc licensed ( BY NC ND ) flickr photo by
Eric E Johnson: http://flic.kr/p/5TCmBJ
cc licensed ( BY NC ND ) flickr photo by
wallyg: http://flic.kr/p/azCBRS
Pay for it?
Cash?
Loan! (debt)
cc licensed ( BY NC SD ) flickr photo by
axoplasm: http://flic.kr/p/6wWbD
cc licensed ( BY SD ) flickr photo by salisasaki:
http://flic.kr/p/6Gx11F
cc licensed ( BY NC SD ) flickr photo by
drewish: http://flic.kr/p/2UczJ
Pay for it?
Loan?
Cash! (equity)
Risk: probability of bad outcome creative commons licensed (BY-ND) flickr
photo by GavinLi: https://flic.kr/p/7C7QQV
risk-reward tradeoff • higher return? • higher risk • lower
return? • lower risk
Remember accounting? organizing, analyzing, and reporting financial information ratio analysis
Liquidity Ratios current ratio: current assets current liabilities
acid-test (quick) ratio: cash + marketable securities + receivables current liabilities
Debt (Leverage) debt to OE: total liabilities owners’ equity describes
capital structure
Capital structure • Balance between debt and equity • Generally
similar within industry • Not always! –BUD: 1.084 –MolsonCoors: .4171 –SABMiller: .5549 –Boston Beer: .0011 • ????
Profitability EPS: net income after taxes number of shares outstanding
return on sales: net income net sales return on equity: net income after tax owners’ equity
creative commons licensed (BY) flickr photo by StockMonkeys.com: https://flic.kr/p/dxpt8u
leverage creative commons licensed (BY-NC-ND) flickr photo by Martin Whitmore:
https://flic.kr/p/5LVn8X
Leverage, equal capital Eck-Witty Corp. • Equity: $1,000,000 • Debt:
$0 • Earnings: $120,000 • ROE: 12% Oze-Mor, Inc. • Equity: $200,000 • Debt: $800,000 • Earnings: $60,000 • ROE: 30%
leverage, equal investment Eck-Witty Corp. • Equity: $1,000,000 • Debt:
$0 • EBIT: $160,000 • Taxes: $40,000 • Earnings: $120,000 • ROE: 12% Oze-Mor, Inc. • Equity: $1,000,000 • Debt: $4,000,000 • EBIT: $800,000 • Interest: $400,000 • Taxes: $100,000 • Earnings: $300,000 • ROE: 30%
leverage, equal investment Eck-Witty Corp. • Equity: $1,000,000 • Debt:
$0 • EBIT: $80,000 • Taxes: $20,000 • Earnings: $60,000 • ROE: 6% Oze-Mor, Inc. • Equity: $1,000,000 • Debt: $4,000,000 • EBIT: $400,000 • Interest: $400,000 • Taxes: $0 • Earnings: $0 • ROE: 0%
current assets creative commons licensed (BY-NC-ND) flickr photo by County
of Dare: https://flic.kr/p/nMo3ui
accounts receivable?
creative commons licensed (BY-SA) flickr photo by 401(K) 2013: https://flic.kr/p/biaNt6
creative commons licensed (BY) flickr photo by Inha Leex Hale:
https://flic.kr/p/73x1km
Time Value of Money • Dollar today vs dollar tomorrow?
creative commons licensed (BY-NC-SA) flickr photo by Cathérine: https://flic.kr/p/4wjsVc