Learning Accounting and Finance Learning Guide

 

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Learning Objects and Outcomes

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Assignments, Assessments

 

Learning Centres

 

Accounting and Finance

 

Rationale

 

 

Financial Accountancy (or financial accounting) is the branch of accountancy concerned with the preparation of financial statements for decision makers, such as stockholders, suppliers, banks, government agencies, owners, and other stakeholders. The fundamental need for financial accounting is to reduce principal-agent problem by measuring and monitoring agents' performance and reporting the results to interested users.

Financial Accountancy is used to prepare accounting information for people outside the organisation or not involved in the day to day running of the company. Managerial accounting provides accounting information to help managers make decisions to manage the business.

Financial Accountancy is governed by both local and international accounting standards.

 

See also

 

External links

 

 

Learning Objectives and Outcomes

This is a non-taught unit designed for self-directed study by those intending to enhance their professional or managerial competence, knowledge, understanding, and skills in business finance.

Knowledge

After completing the course, students will understand

1. the main concepts and principles of business management

2. the principles of corporate finance

3. the concepts and principles of valuation

4. the concepts of cost of capital, capital structures and dividend policies

5. financial statements

6. the principles of working capital management

7. the concepts and principles of international of financial management

 

Skills

After completing the course, students will be able to

1. make capital investment decisions

2. analyse and evaluate the financial performance of a business

3. make budgeting decisions

4. participate in financial analysis and planning processes

5. participate in intermediate and long-term financing decision making

 

 

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Learning Contents Tutorials and Lectures Assignments Recommended Texys Readings Learner Support Discussion Forums Workshops Web Cases Case Studies Resources Staff Development Subject Reviews

 

Business: What's It All About. Introduction to Financial Management

 

Financial Cycle

Lectures and Tutorials

 

Readings

 

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Manager redirects here. For use in sports, see Coach (sport), Manager (baseball) or Manager (professional wrestling).

Enterprise management redirects here. For use in computer networks, see Network management or Systems management

 

The term "Business Management" characterizes the process of and/or the personnel leading and directing all or part of an organization (often a business) through the deployment and manipulation of resources (human, financial, material, intellectual or intangible).

According to the Oxford English Dictionary, the word "manage" comes from the Italian maneggiare (to handle — especially a horse), which in turn derives from the Latin manus (hand). The French word mesnagement (later ménagement) influenced the development in meaning of the English word management in the 17th and 18th centuries.

Management has to do with power by position, whereas leadership involves power by influence. Compare stewardship.

 

 

See also

Business Management

 

Functional Areas

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Corporate finance is a specific area of finance dealing with the financial decisions corporations make and the tools as well as analysis used to make these decisions. The primary goal of Corporate finance is to enhance corporate value, without taking excessive financial risks.

The discipline may be divided among long-term and short-term decisions and techniques. Capital investment decisions comprise the long-term choices about which projects receive investment, whether to finance that investment with equity or debt, and when or whether to pay dividends to shareholders. Short-term corporate finance decisions are called working capital management and deal with the balance of current assets and current liabilities; the focus here is on managing cash, inventories, and short-term borrowing and lending (e.g., the credit terms extended to customers).

The time frames, and the goal of the discipline, are inter-related: value is enhanced when return on capital, a function of working capital management, exceeds cost of capital, a function of previous capital investment decisions.

Corporate finance is closely related to managerial finance, which is slightly broader in scope, describing the financial techniques available to all forms of business enterprise, corporate or not.

 

Corporate Finance

 

See also

 

External links and references

 

Workshops

 

 

Valuation

 

Debt free cash free is a pre-finance valuation

Lectures and Tutorials

 

Professionals

 

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Readings

Business valuation is a process and a set of procedures used to estimate the economic value of an owner’s interest in a business. Valuation is used by financial market participants to determine the price they are willing to pay or receive to perfect a sale of a business. In addition to estimating the selling price of a business, the same valuation tools are often used by business appraisers to resolve disputes related to estate and gift taxation, divorce litigation, allocate business purchase price among business assets, establish a formula for estimating the value of partners' ownership interest for buy-sell agreements, and many other business and legal purposes.

 

See also

 

 

Earned value management (EVM), or Earned value project/performance management (EVPM) is a project management technique for measuring project performance and progress in an objective manner.

 

Earned value management

Because EVM has the ability to combine measurements of :

 

in a single integrated system, Earned Value Management is able to provide accurate forecasts of project performance problems, which is an important contribution for project management.

Early EVM research showed that the areas of planning and control are significantly impacted by its use; and similarly, using the methodology improves both scope definition as well as the analysis of overall project performance. More recent research studies have shown that the principles of EVM are positive predictors of project success.[1] Popularity of EVM has grown significantly in recent years beyond government contracting, in which sector its importance continues to rise[2] (e.g., recent new DFAR rules[3]), in part because EVM can also surface in and help substantiate contract disputes.[4]

 

See also

 

External links

 

 

The Present Value of a future cash flow is the nominal amount of money to change hands at some future date, discounted to account for the time value of money. A given amount of money is always more valuable sooner than later since this enables one to take advantage of investment opportunities. Because of this present values are smaller than corresponding future values.

 

Present Value

 

The simplest model of the time value of money is compound interest, which is in fact much simpler than simple interest. To someone who has the opportunity to invest an amount of money C for t years at a rate of interest of i% compounded annually, the present value of the receipt of C, t years in the future, is:

C_t = C(1 + i/100)^{-t}.\,
 
 

 

The expression (1 + i/100)−t enters almost all calculations of present value. It represents the present value of 1. Many equations are expressed more concisely by making the substitution v = (1 + i/100)−1. Something worth 1 at time = t (years in the future) is worth vt at time = 0 (the present). If the interest rate is expected to change during the payback period it is common to use these different interest rate estimates for the future timeperiods. An investment over a two year period would then have PV (Present Value) of

\mathrm{PV} = C(1+i1/100)^{-1}\cdot(1+i2/100)^{-1}.\,

 

The interest rate used is the risk free interest rate (for example the rate of return on US treasury bonds). If there are no risks involved in the project, the expected rate of return from the project must equal or exceed this rate of return or it would be better to invest the capital in these risk free assets. If there are risks involved in an investment this can be reflected through the use of a risk premium. The risk premium required can be found by comparing the project with the rate of return required from other projects with similar risks. Thus it is possible for investors to take account of any uncertainty involved in various investments.

Present value is additive. The present value of a bundle of cash flows is the sum of each one's present value.

Many financial arrangements (including bonds, other loans, leases, salaries, membership dues, annuities, straight-line depreciation charges) stipulate structured payment schedules, which is to say payment of the same amount at regular time intervals. The term annuity is often used in to refer to any such arrangement when discussing calculation of present value, whether or not the arrangement is a retirement plan. The expressions for the present value of such payments amount to summations of geometric series.

A periodic amount receivable indefinitely is called a perpetuity and is of mostly theoretical interest. A perpetuity receivable starting at the present time is called a perpetuity due. If the frequency of payments equals the frequency of interest compounding, the present value of a perpetuity due with payments of 1, is given by d−1, where d = 1 − (1 + i)−1, and is called the rate of discount. In this case, i is the interest rate per period, not necessarily per year. If the first payment is 1 period in the future, the annuity is a perpetuity immediate, and the present value is i−1.

A finite number (n) of periodic payments, receivable at times 1 through n, is an annuity immediate. Again assuming payment size of 1, its present value differs from the present value of the corresponding perpetuity immediate by an amount that is the present value of all the payments numbered n + 1 and above. The latter has a value of i−1 at time n, and vni − 1 at time 0. The present value of the annuity immediate is i−1 − vni−1, or i−1(1 − vn). An annuity due receivable at times 0 through n − 1 has a present value of d−1(1 − vn).

This entire discussion thus far makes some enormous assumptions:

 

For these and many other reasons, we consider prediction of the future value to be an inexact science.

 

Present value formula

One hundred units 1 year from now at 5% interest rate is today worth:

{\rm Present\ value}=\frac{\rm future\ amount}{(1+{\rm interest\ rate})^{\rm term}}=\frac{100}{(1+.05)^1}=\ 95.23.

 

So the present value of 100 units 1 year from now at 5% is 95.23 units.

The above is in regard to a single lump sum amount. There is a separate formula to calculate PV of annuities. For present value of annuities, use this formula:

\mbox{PV annuity} = \frac{1-(1+r)^{-n}}{r}\cdot(\mbox{payment amount}).\,

 

Usually, the present value formula is written as

\mathrm{PV} = FV \cdot PVIF(r,n)\,

 

or as

PV = PMT \cdot PVIFA(r,n)

 

for annuities, where

n = number of periods
r = interest rate in the period
PV = present value at time 0
FV = future value at time n

 

This approach is more in line with the use of financial calculators and/or xls worksheets.

 

See also

 

Net Present Value

 

 

External links

 

 

Time Value of Money Net Present Value

 

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Capital Investment Decisions. Investment Appraisals

Lectures and Tutorials

 

How to Analyse Investment Projects

 

 

Investment Appraisal

 

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Readings

Investment or investing[1] is a term with several closely-related meanings in business management, finance and economics, related to saving or deferring consumption. An asset is usually purchased, or equivalently a deposit is made in a bank, in hopes of getting a future return or interest from it. Literally, the word means the "action of putting something in to somewhere else" (perhaps originally related to a person's garment or 'vestment').

 

 

See also

 

External links

Finance

 

 

Finance Overview
Capital
Investment
Cash flow
Credit
Debt
Funding
Hedging
Interest
Risk
Yield
Arbitrage

Types of Finance
Corporate finance
Personal finance
Public finance

Asset Types
Real Estate
Securities
Commodities
Futures

Financial Vehicles
Collective Investment Schemes
Trusts

See Also
Entrepreneur
Financial market
Insurance
Economy

 

 

The Cost of Capital, Capital Structure and Dividend Policy

Lectures and Tutorials

 

Readings

The Cost of Capital for a firm is a weighted sum of the cost of equity and the cost of debt (see the financing decision). Firms finance their operations by three mechanisms: issuing stock (equity), issuing debt (borrowing from a bank is equivalent for this purpose) (those two are external financing), and reinvesting prior earnings (internal financing).

 

Value of the Firm and Cost of Capital

 

See also

 

External links

 

 

 

Opportunity Cost & Profit

 

 

Analysis and Evaluation the Financial Performance of a Business

Lectures and Tutorials

 

 

Finance & Accounting

Larger Map

 

A financial ratio (or accounting ratio) is a relative magnitude of two selected numerical values taken from an enterprise's financial statements. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization. Financial ratios may be used by managers within a firm, by current and potential shareholders (owners) of a firm, and by a firm's creditors. Security analysts use financial ratios to compare the strengths and weaknesses in various companies.[1] If shares in a company are traded in a financial market, the market price of the shares is used in certain financial ratios.

Ratios can be expressed as a decimal value, such as 0.10, or given as an equivalent percent value, such as 10%. Some ratios are usually quoted as percentages, especially ratios that are usually or always less than 1, such as earnings yield, while others are usually quoted as decimal numbers, especially ratios that are usually more than 1, such as P/E ratio; these latter are also called multiples. Given any ratio, one can take its reciprocal; if the ratio was above 1, the reciprocal will be below 1, and conversely. The reciprocal expresses the same information, but may be more understandable: for instance, the earnings yield can be compared with bond yields, while the P/E ratio cannot be: for example, a P/E ratio of 20 corresponds to an earnings yield of 5%.

 

See also

 

External links

 

 

 

Financial Statement

Lectures and Tutorials

 

Readings

Financial statements (or financial reports) are a record of a business' financial flows (revenues/expenses) and levels (assets/liabilities).

 

Financial Statements: The System

 

 

Statement of Cash Flows

The big four statements are :

Balance sheet which describes a company's assets, liabilities and net equity at both a specific point of time and at the beginning of the period of time.

Income statement which describes a company's income, expenses and net income/loss over a period of time.

Cash flow statement which describes how much cash was used in corporate operating, investment, and financing activities over a period of time.

Statement of changes in shareholder equity which reconciles the difference between the equity at the two different points in time.

 

Because these statements are often complex an extensive set of Notes to the Financial Statements and management discussion and analysis is usually included. The notes will typically describe each item on the Balance Sheet, Income statement and Cash flow statement in further detail. In many cases the notes are much longer than the financial statement they are elucidating.

The reason financial statements are required by many statutes is to require management of the enterprise to report to the owners and government. Debt holders, suppliers and employees, as well as internal management are other users of the statements. The POV of the statements though, is for the owner's use. Accounting is the language of finance. Financial statement presentation rules are the grammar. The statements are necessary for owners to assets management and make rational economic decisions.

 

See also

 

External links

 

Investopedia

 

 

A Balance Sheet, in formal bookkeeping and accounting, is a statement of the book value of a business or other organization or person at a particular date, at the end of a period such as a "fiscal year," as distinct from an income statement, also known as a profit and loss account (P&L), which records revenue and expenses over a specified period of time.

 

Financial Statements: Revenue

 

A balance sheet is often described as a "snapshot" of the company's financial condition on a given date. Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time, instead of a period of time.

A simple business operating entirely in cash could measure its profits by simply withdrawing the entire bank balance at the end of the period, plus any cash in hand. However, real businesses are not paid immediately; they build up inventories of goods to sell and they acquire buildings and equipment. In other words: businesses have assets and so they could not, even if they wanted to, immediately turn these into cash at the end of each period. Real businesses also owe money to suppliers and to tax authorities, and the proprietors do not withdraw all their original capital and profits at the end of each period. In other words businesses also have liabilities.

 

Working Capital

 

A modern balance sheet usually has three parts: assets, liabilities and shareholders' equity. The main categories of assets are usually listed first and are followed by the liabilities. The difference between the assets and the liabilities is known as the 'net assets' or the 'net worth' of the company.

The net assets shown by the balance sheet equals the third part of the balance sheet, which is known as the shareholders' equity. This balance is not a coincidence. Records of the values of each account in the balance sheet are maintained using a system of accounting known as double-entry bookkeeping.

 

See also

 

External links

 

Income Statements for companies indicate how Net Revenue (money received from the sale of products and services before expenses are taken out, also known as the "top line") is transformed into Net Income (the result after all revenues and expenses have been accounted for, also known as the "bottom line"). The purpose of the income statement is to show managers and investors whether the company made or lost money during the period being reported.

 

Income Statement

 

Also called Profit and Loss Statement (P&L), outside the USA or in reference to charitable organizations Statement of Activities and Changes in Net Assets.

 

Financial Statements: Earnings

 

 

See also

 

External links

 

 

People and groups interested in Cash Flow Statements include:

 

Cash flow statements are particularly important for start-up companies with limited liquid assets. These companies are vulnerable to devastating cash shortages, even when Accounts Receivable balances point to long-term financial health.

 

Financial Statements: Cash Flow

 

 

See also

 

External links

Financial Statements: Cash Flow

 

 

Interpretation

Lectures and Tutorials

 

Readings

 

Interpreting Company Accounts

Larger Map

 

 

Activities

 

 

 

Tools of Financial Analysis and Planning. Budgeting Decisions

 

Lectures and Tutorials

 

Readings
Financial Forecast

 

 

Costs and Budgeting

Larger Map

 

 

 

 

OECD Journal on Budgeting

OECD Journal on Budgeting

The OECD Journal on Budgeting is a new and unique resource for policy-makers, officials and researchers in public sector budgeting.

 

 

 

Working Capital Management

 

Lectures and Tutorials
Working Capital Cycle

 

Intermediate and Long-term Financing

 

Activities

 

 

 

Special Areas of Financial Management

 

Mergers and Acquisitions: How Good Are They?

Lectures and Tutorials

 

 

 

Readings

In finance, a warrant is a security that entitles the holder to buy the underlying stock of the issuing company at a fixed exercise price until the expiry date.

Warrants and options are similar in that the two contractual financial instruments allow the holder special rights to buy securities. Both are discretionary and have expiration dates. The word warrant simply means to "endow with the right", which is only slightly different from the meaning of option.

Warrants are frequently attached to bonds or preferred stock as a sweetener, allowing the issuer to pay lower interest rates or dividends. They can be used to enhance the yield of the bond, and make them more attractive to potential buyers. Warrants can also be used in private equity deals. Frequently, these warrants are detachable, and can be sold independently of the bond or stock.

In the case of warrants issued with preferred stocks, stockholders may need to detach and sell the warrant before they can receive dividend payments. Thus, it is sometimes beneficial to detach and sell a warrant as soon as possible so the investor can earn dividends.

Warrants are actively traded in some financial markets such as Deutsche Börse and Hong Kong.[1] In Hong Kong Stock Exchange, warrants accounted for 11.7% of the turnover in the first quarter of 2009, just second to the callable bull/bear contract.[2]

See also

 

Investing in Convertible Securities

 

Convertible Price Behavior

External Links

 

 

Restructuring is the corporate management term for the act of reorganizing the legal, ownership, operational, or other structures of a company for the purpose of making it more profitable, or better organized for its present needs. Other reasons for restructuring include a change of ownership or ownership structure, de-merger, or a response to a crisis or major change in the business such as bankruptcy, repositioning, or buyout. Restructuring may also be described as corporate restructuring, debt restructuring and financial restructuring.

Executives involved in restructuring often hire financial and legal advisors to assist in the transaction details and negotiation. It may also be done by a new CEO hired specifically to make the difficult and controversial decisions required to save or reposition the company. It generally involves financing debt, selling portions of the company to investors, and reorganizing or reducing operations.

The basic nature of restructuring is a zero sum game. Strategic restructuring reduces financial losses, simultaneously reducing tensions between debt and equity holders to facilitate a prompt resolution of a distressed situation.

Steps:

 

 

See also

 Deloitte called in to help struggling Woolworths

 

External links

Infoworld - "HP to slash 14,500 jobs in major restructuring move"

CBC News - "Stelco unveils restructuring plan"

Web site of the TRACE Project, a large scale European trade union project that has created a mass of resources, training materials, etc about restructuring

Web site of the MIRE Project (Monitoring Innovative Restructuring in Europe) including thematic analysis and 30 case studies

European Restructuring Toolbox on Anticipedia web site of the European Commission

 

 

Mergers and acquisitions (abbreviated M&A) refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or new location, without creating a subsidiary, other child entity or using a joint venture. The distinction between a "merger" and an "acquisition" has become increasingly blurred in various respects (particularly in terms of the ultimate economic outcome), although it has not completely disappeared in all situations.

 

Mergers and Acquisitions Balanced Scorecard Metrics Template

 

 

See also

 Mergers

 

 

International aspects of financial management

Lectures and Tutorials

 

International finance (also referred to as international monetary economics or international macroeconomics) is the branch of financial economics broadly concerned with monetary and macroeconomic interrelations between two or more countries.[1][2] International finance examines the dynamics of the global financial system, international monetary systems, balance of payments, exchange rates, foreign direct investment, and how these topics relate to international trade.[1][2][3]

Sometimes referred to as multinational finance, international finance is additionally concerned with matters of international financial management. Investors and multinational corporations must assess and manage international risks such as political risk and exchange rate risk, including transaction exposure, economic exposure, and translation exposure.[4][5]

Some examples of key concepts within international finance are the Mundell–Fleming model, the optimum currency area theory,
purchasing power parity, interest rate parity, and the international Fisher effect. Whereas the study of international trade makes use of mostly microeconomic concepts, international finance research investigates predominantly macroeconomic concepts.

See also

 

 

International Finance Workshop

 

One International Finance Centre

 

Part One: Foundations of International Financial Management

 

Part Two: World Financial Markets and Institutions

 

Part Three: Foreign Exchange Exposure and Management

 

Part Four: Financial Management of the Multinational Firm

 

Assignments

 

 

Recommended Texts

 

Fundamentals of Financial Management - Chinese Version

The Economic Science Press in the Peoples Republic of China in partnership with Pearson Education publishes a Chinese-language version of

Fundamentals of Financial Management, 11/e, Prentice Hall, 2002, by Van Horne and Wachowicz (ISBN 7-5058-2911-4).

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Financial Analysis with Microsoft® Excel 2002

Financial Analysis with Microsoft® Excel 2002, 3e
Mayes, Timothy R.
Metropolitan State College of Denver
Shank, Todd M.
University of Portland

 

Check the availability and buy your books from our Bookshop.

 

Financial Statement Analysis: A Practitioner's Guide

Financial Statement Analysis: A Practitioner's Guide, Third Edition
Martin Fridson, Fernando Alvarez
ISBN: 0-471-40915-4
Hardcover
416 pages
March 2002

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Financial Accounting

Financial Accounting: Financial and Organisational Decision Making
1st edition
Carnegie, Jones, Norris, Wigg & Williams
ISBN 0.07.470655.1

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Financial Resources for International Study

Financial Resources for International Study

A Guide for US Nationals. US students and professionals often need financial assistance to cover costs of international study. To meet the need for a current information resource on grants and fellowships for study abroad, IIE Books offers this book. Grants range in value from $500 to tens of thousands of dollars. Key facts on amount of award and what award covers, eligibility and application, numbers of awards offered, purpose and duration, and complete contact information. Awards offered by governments, international and binational organizations and associations, foundations - and US colleges and universities. Based on a survey of 5,000 donor organizations worldwide.

Check the availability and buy your books from our Bookshop.

 

Principles of Corporate Finance

Principles of Corporate Finance, 8/e

Richard A. Brealey, London Business School
Stewart C. Myers, MIT Sloan School of Management
Franklin Allen, The Wharton School, University of Pennsylvania

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Multinational Business Finance

Multinational Business Finance,
Eiteman, Stonehill and Moffett

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International Financial Management

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Resources

 

 

 

 

 

Free Stuff

 

Case Studies

 

Nasdaq

NASDAQ (originally an acronym for National Association of Securities Dealers Automated Quotations system) is an American electronic stock exchange. It was founded in 1971 by the National Association of Securities Dealers (NASD), who divested it in a series of sales in 2000 and 2001. It is owned and operated by The Nasdaq Stock Market, Inc. (NASDAQ: NDAQ) the stock of which was listed on its own stock exchange in 2002. NASDAQ is the largest electronic screen-based equity securities market in the United States. With approximately 3,200 companies, it lists more companies and, on average, trades more shares per day than any other U.S. market. The current chief executive officer is Robert Greifeld.

 

NASDAQ in Times Square, New York City.

 

NASDAQ in Times Square, New York City.

 

 

External links

 

HSBC

HSBC Holdings plc (LSE: HSBA, SEHK: 005, NYSE: HBC, Euronext: HSBC, BSX: 1077223879) is one of the largest banking groups in the world, ranked the fifth-largest company and third-largest banking company in the world in Forbes Global 2000. Its head office is located in the HSBC Tower in London's Canary Wharf. The group is named after its founding member, the Hongkong and Shanghai Banking Corporation, a bank established by Thomas Sutherland, a Scot, to finance British trade in the Far East in 1865.

 

HSBC sign on a branch.

 

HSBC sign on a branch

 

The bank is the largest corporation in the world in terms of assets [1](As of Jun 30, $1.74 trillion while Citigroup reported $1.63 trillion).[2] It reports its results in United States dollars since 80% of its earnings originate from outside the United Kingdom. Nearly 22% of its earnings are from operations in Hong Kong, where it was headquartered until 1991. It is the largest bank in Hong Kong, and at the end of 2004 it was the third largest banking group in the world by Tier 1 capital[3] (behind Citigroup and JPMorgan Chase respectively).

The HSBC logo, known as the Hexagon, is derived from the Hongkong and Shanghai Banking Corporation’s 19th century house flag, itself derived from the Scottish flag which is the angular cross that Saint Andrew (the patron saint of Scotland) was crucified upon.

As of 2005 Michael Geoghegan, the company's CEO, was earning over £700,000.00 (over 1 million US dollars) per year, and the chairman Sir John Bond, who retired in 2006, was earning 1.8 million US dollars. HSBC made record profits in the 2004-2005 year earning over 12 billion GBP or more than 20 billion US dollars.

 

 

HSBC

See also