Finance Management (FINA 3000) Financial expert FULL online course 4 weeks

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Module1Summer2021.pptx

Module 1

Maymester 2021

FINA 3000

Course Introduction: FINA 3000

Goal: The field of finance is very broad, covering investments, corporate financial policy, security markets, banking and other intermediaries, the role of government and the international sector, and personal finance. In FINA 3000, we survey several of these key components of the financial system. The goal is for finance majors to have a strong background for their major courses, and for non-finance majors, the goal is to develop a set of finance tools that will be useful in future employment and daily life.

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My Background

UNC-Chapel Hill BA Economics (2013)

UNC-Chapel Hill Masters in Accounting (2014)

Worked in external audit for 3 years with Deloitte in NC

NC CPA License

4th year Finance PhD Student

Taught FINA 3000E 3 times, ACCT at UNC, and been Dr. Pope’s TA for the last 4 years

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Syllabus

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Areas of Finance

Module 1

Objectives:

Identify traditional areas of finance

Describe the “guiding principles of finance”

Compare and contrast different types of business organizations

Describe the role of the financial manager

Define debt and equity

Compare and Contrast debt and equity

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Areas of Finance

Money and Banking

Bringing together lenders and borrowers

Investments

Managing and valuing assets

Financial Management

Financial planning and strategy within a firm

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Guiding Principles of Finance

Maximization of Wealth

Time value of Money

Risk/Return tradeoff

Leverage

Diversification

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Maximization of Wealth

What is a firm’s job?

Traditionally: maximize shareholder wealth/maximize profits

Recently: Environmental/Social/Governance initiatives have come into focus

Maybe job of the firm is to maximize welfare of all stakeholders?

What about Non-Profits?

In this class, we assume that firms maximize wealth with the resources that they have.

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Time value of Money

How do we compare cash flows today with cash flows in the future?

Key concept: Opportunity Cost of Capital as compensation for time and risk

If I lend money my money out today, I can’t spend it on something I want right now (delayed consumption)

If I invest all my money in BTC, I can’t then go lend it to my rich uncle (compensation for risk)

This is the most important concept in this class!

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In general, investors are going to require greater returns for taking on greater risks.

Risk/Return Tradeoff

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Definition: Leverage is the percentage of debt that a firm has in its capital structure

Increasing debt increases risk and returns

Leverage

Firm Equity Debt Leverage % (D/E) Income Net Income ROE
A 2 million 0 0% 5 million 5 million 2.5
B 2 million 1M @ 10% 50% 5 million 4.9M (5-1*.1) 2.45
C 2 million 1M @ 10% 50% 4 million 3.9M (4-1*.1) 1.95
D 2 million 1M @ 10% 50% 6 million 5.9 (6-1*.1) 2.95

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“Do not put all your eggs in one basket”

Protection against one really bad event taking us all the way bankrupt

Diversification

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Sole Proprietorship

Corporation

Partnership

Types of Businesses

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Sole Proprietorship

Owned by a single individual

Advantages:

Single Taxation

Autonomy

Easily formed

Disadvantages

Unlimited personal liability

Difficulty raising outside capital for growth

Life of the business – usually ends with owner’s death

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Partnership

Owned by a group of individuals

Advantages generally same as the Sole Proprietors

Disadvantages:

General Partner vs. Limited Partner

General Partner unlimited liability

Limited partner liability capped at initial investment

Cant make any managerial decisions though

Difficult to raise outside money

Business success somewhat dependent on relationship dynamics of partnership

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Quick note on LLCs

Very popular company structure for entrepreneurs

Liability capped as long as personal and business transactions kept separate

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Corporations

Considered by law to be living entity and separate from its owners

Advantage:

Limited Liability

Easy to raise capital

Easy to transfer ownership

Disadvantages:

Less Autonomy/ more regulation

Double taxation

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Module 2

Financial Statements and Accounting Ratios

Quick Overview of the Financial Statements

Should be a review of Accounting courses

Balance sheet:

Provides a snapshot of firms position at a point in time

Accounting Identity: Assets=Liabilities + Shareholder Equity

Income Statement

Provides a report of firm activity over an accounting period

Statement of Cash Flows

Follows cash through the entity’s operations

Way to reconcile balance sheet and income statement activities

Bonus: Statement of Changes in Equity

Breaks down the changes in stockholder’s equity from one period to the next

Important because changes in equity could be caused by net income or some other factors

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GME 2020 Balance Sheet

GME 2020 Income Statement

GME 2020 Statement of Cash Flows

3/23 is the date that the GMA annual report was released

GME Stock Chart

Or

Free cash flow is the cash that is created for investors by running the business

Cash after investment in NWC and equipment

We do not account for interest or dividends here

Free Cash Flow

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Enterprise Value

Enterprise value measures the total market value of the firms assets:

Generally, we assume that the market value of debt is the carrying value of debt on the balance sheet

Same is not true for MV of equity:

Market Cap=# Shares outstanding*Price per share

Accounting Equity measures what has occurred in the past

Finance Equity measures expectation of future growth and performance

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How do we Use Financial Statements

We can use the financial statements of the firm to analyze performance and compare companies.

Financial Ratios allow us to answer some performance questions and evaluate the financial standing of the firm

Have to be careful though:

Financial statements are all based on accounting data

Sometimes, not that accurate

Always backwards looking

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Context of Financial Ratios

Often ratios based on only current financial statements are lacking context

Useful to compare to time series, industry peers

Also need to analyze the footnotes of the financial statements and metrics that are ”outside of the numbers”

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Liquidity Ratios

Liquidity: how easily an asset can be converted to cash

Key Ratios:

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GME 2020 Balance Sheet

Liquidity Ratios

GME Current Ratio:

GME Quick Ratio:

GME Cash Ratio:

What makes a good liquidity ratio?

Tradeoff between high liquid reserves and efficient allocations of capital

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Working Capital Ratios

Turnover: How many times does a company cycle through a working capital account per year (on average)

Higher turnover generally indicates higher efficiency

These ratios use both the balance sheet and the income statement

Key Ratios:

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GME 2020 Income Statement

GME 2020 Balance Sheet

Working Capital Ratios

GME AR Turnover:

GME Inventory Turnover:

GME AP Turnover:

What do these numbers even mean?

Cycle through these accounts 10 times a year? Why is that important?

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Working Capital Ratios

Better measure may be to see how long it takes company to collect on sales, sell inventory, or pay their debts

Related to turnover but we can figure out the average number of days

Operating Cycle

Measures how quickly a company can sell inventory and collect on the sale (product life cycle)

Working Capital Ratios

GME Days Sales Outstanding:

GME Days Held in Inventory:

GME AP Turnover:

GME Net operating Cycle:

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Profitability Ratios: Income Statement

Using the income statement, we can measure dollar of income created per dollar of sales

Gross Profit Margin:

Operating Profit Margin:

Net profit Margin:

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GME 2020 Income Statement

Profitability Ratios

Gross Profit Margin:

Operating Profit Margin: -.05

Net profit Margin:

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Profitability Ratios: Balance Sheet

Probably two of the most commonly quoted and used ratios

Measures dollars of net income generated for every dollar of invested capital

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GME 2020 Balance Sheet

Profitability Ratios: Balance Sheet

Be careful with negative ROA or ROE

Not always a bad thing but if consistent – sign of trouble

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Debt Ratios

Debt ratios measure companies’ capital structures and ability to service their debt

High ratios generally are not good for equity shareholders

Key Ratios:

Debt-to-Assets: Total Debt/Total Assets

Debt-to-Equity: Long Term Debt/Shareholder Equity

Times interest earned (TIE Ratio): EBIT/Interest Expense

Careful when examining these ratios - lots of different conventions

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GME 2020 Balance Sheet

GME 2020 Income Statement

Debt Ratios

For GME:

Debt to Assets=2036/2473=.82

Debt to Equity (including lease obligations)=(216+457)/437=1.53

Debt to Equity (Excluding Lease Obligations)= (216)/437=.49

Times Interest Earned=-238/34=-7

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Market Ratios

All of the ratios that we have used to this point are backwards looking

What if we want to analyze future prospects

Can use market data

Market to Book = MV of Equity/BV of Equity

Price to Earnings= Price per share/Earnings per Share

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GME 2020 Balance Sheet

GME 2020 Income Statement

3/23 is the date that the GMA annual report was released

GME Stock Chart

Market Ratios

GME Market to Book:

GME MKT CAP=$181.75*65.3 million shares out=$11,868 million

GME Book Equity= 437.8

GME MB Ratio=11868/437.8=27.11

GME Price to Earnings:

GME Earnings per share -3.30

Price is 181.75

GME PE Ratio=181.75/-3.3=55.1

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What do all these numbers even mean?

GME Firm X
Current Ratio 1.15 1
Quick Ratio 0.32 .3
AR Turnover 41.2 87.3
Inventory Turnover 5.25 9.4
Net Operating Cycle 43.7 1.3
Gross Margin .25 .248
Net Profit Margin -.04 .02
ROA -.09 .07
ROE -.49 .162
D/E 1.53 .667
TIE -7 11.6
P/E -55.1 29.6
Price on 3/23 181.75 133.94

What do all these numbers even mean?

GME WMT
Current Ratio 1.15 1
Quick Ratio 0.32 .3
AR Turnover 41.2 87.3
Inventory Turnover 5.25 9.4
Net Operating Cycle 43.7 1.3
Gross Margin .25 .248
Net Profit Margin -.04 .02
ROA -.09 .07
ROE -.49 .162
D/E 1.53 .667
TIE -7 11.6
P/E -55.1 29.6
Price on 3/23 181.75 133.94

What’s going on in class tomorrow?

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Homework due on 5/24

Start on Time Value of Money

SUMMER 2021

FINA 3000: Financial Management

Syllabus

Daily 9:00-11:45 am; Orkin D007

“I will be academically honest in all of my academic work and will not tolerate academic dishonesty of others."

· UGA Student Honor Code http://www.uga.edu/honesty/

Instructor : Will Bost

B358 Amos Hall

[email protected]

Office Hours: Monday and Wednesday, 1:00-2:00

The course syllabus is a general plan for the course; deviations announced to the class announced by the instructor may be necessary.

This course will be delivered in a face-to-face format. Office hours will be held face-to-face or via Zoom. Attendance is not a graded component of this course but will likely improve your understanding of the material and performance in class.

Master Syllabus Elements:

a) FINA 3000: Financial Management

b) Course Description: The basic concepts and analytical tools of finance in both corporate finance and investments. Topics include risk and return, financial institutions, efficient markets, valuation theory, capital budgeting, portfolio theory, cost of capital, and international finance.

c) Prerequisites, corequisites, and cross-listings for the course:

ACCT 2101 and (MIST 2090 or CSCI 1100-1100L)

d) Course objectives or expected learning outcomes:

The goal is for finance majors to have a strong foundation for their major courses, and for non-finance majors, the goal is to develop a set of finance tools that will be useful in future employment and daily life.

e) Topical outline:

1. Interpreting & Forecasting Financial Statements
2. Time Value of Money
3. Capital Budgeting
4. Principles of Asset Valuation
5. Overview of Risk Management
6. Hedging, Insuring, & Diversifying
7. Risk & Reward
8. Forward & Future Prices
9. Options & Contingent Claims
10. Corporate Finance: Financing Decisions

Specific Course Information:

a) Course Delivery: The course will be taught using a face to face format. During class time, we will use discuss current events, elaborate on lecture material, and work HW problems to enforce course concepts. The delivery method may change as need warrants.

b) Instructional Method: Course content will be available through the eLC framework. Class time will be used to go over lecture material, work applied HW problems and discuss current events. Office hours will be held by the professor. We will use a combination of face to face office hours and Zoom office hours.

c) Principal course assignments: The field of finance is very broad, covering investments, corporate financial policy, security markets, banking and other intermediaries, the role of government and the international sector, and personal finance. In FINA 3000, we survey several of these key components of the financial system. The goal is for finance majors to have a strong background for their major courses, and for non-finance majors, the goal is to develop a set of finance tools that will be useful in future employment and daily life.

Course Outline:

Table  Description automatically generated

d) Specific course requirements for grading purposes:

OPTION I

OPTION II

2 Tests (100 points each)

200 points

1 out of 2 Test (100 each)

100 points

Daily CSePUB Check

25 points

Daily CSePUB Check

25 points

CSePUB HW

75 points

CSePUB HW

75 points

Final Exam

0 points

Final Exam

100 points

TOTAL POINTS

300 points

TOTAL POINTS

300 points

TESTS:

The tests will be in-class and last 2 hours. The tests will be administered through ELC so please bring your laptops or tablets with you to class. Tests will not be cumulative, but the course builds on itself so be aware. If you are happy with your test scores, you may exempt the final exam. If you take the final, you will be graded under OPTION II. The final is cumulative.

Daily CSePub Check:

Each day, we will work example problems on CSePUB throughout lecture. These problems will serve as participation grades for Maymester. So, bring a laptop, Ipad, or smartphone to class each day. This grade component will count 6.25% of your total grade. Because attendance is not required, these problems will remain online and accessible until noon each day.

CSePUB HW

75 points out of the total 300 will come from assignments on the CSePUB website (see back of syllabus for registration information).

e) Grading policy

The final grade will be based on the total points earned on the material listed above, weighted as indicated. All students will be ranked by points earned and the final grade will be based on that ranking. Without any curves, the grades will be distributed as follows:

Points Required for Each Grade:

A

279 points

C+

231 points

A-

269 points

C

219 points

B+

261points

C-

208 points

B

249 points

D

178 points

B-

238 points

F

<178 points

Cutoffs may be lowered for different grades. They will not be raised. The amount that a cutoff is lowered will not be UNIFORM across all grades. For example, the cutoff for a D could be lowered while all the other cutoffs remain.

f) Attendance Policy

Attendance is not required for FINA 3000. The material in class builds from the first week, so missing class is not a good idea.

g) Required course material

· Course Bundle from CSePUB: Contents of the bundle include:

(1) Caspian Sea Drinks: A Narrative Introduction to Corporate Finance

(2) Introduction to Financial Management (e-text)

(3) Online Course Homework

· Financial or programmable calculator

h) Policy for make-up of examinations

There will be NO MAKEUP TESTS FOR ANY REASON. The weight from a missed test will be transferred to the final exam PROVIDING the absence is due to a serious illness, a family emergency or SOME university-sponsored events. If you expect to miss an exam for an approved reason, let me know as soon as possible prior to the exam. You must provide me with a formal written note regarding the situation – preferably before the exam – plus a phone call or note from a physician or other relevant person within one week following the missed exam.

i) DRC Testing Policy: Students who have accommodations registered with the DRC (Disability Resource Center) must provide verification to me at least one week prior to the first test. It is the responsibility of the student to make sure I receive this information in a timely manner. I will work with individual students to satisfy their verified accommodation needs.

j) Withdrawal Policy:

Students may withdraw from a course for any reason. The withdrawal period lasts from the day after drop and add until the withdrawal deadline. The exact dates for withdrawal can be seen on the parts of term page https://reg.uga.edu/general-information/calendars/parts-of-term/ . Once a withdrawal is processed for a course, the grade of W will be automatically assigned.

Contact Information:

Will Bost

[email protected]

Amos Hall B358

k) Communication and Website

Students are welcome to stop by my office during office hours or by appointment. I also respond to e-mail questions as quickly as possible. We have an eLC website for the course. The website will include the powerpoint slides that accompany the lectures, important notices, answers to problems discussed in class, and identification of materials of interest to the class. You are responsible for all information announced in class or posted on the website, including changes to the course syllabus and schedule.

INSTRUCTIONS FOR ACCESSING COURSE MATERIALS:

1. Visit www.csepub.com

2. Enter your class access code in the class access field. The code for our class this semester is 2d3d48a5.

3. Click “Apply Code.”

4. Click checkout and complete your purchase. Make sure you enter your UGA 810# where directed.

Other Useful Resources

News Sources provided to UGA students free of charge: 

Wall Street Journal:  

https://education.wsj.com/search-students/ 

 

Barron’s 

https://partner.barrons.com/p/p_bie/enter-redemption-code/UOGT2rg5nd78  

REQUIRED STATEMENTS FOR SYLLABUS

( https://curriculumsystems.uga.edu/curriculum/courses/syllabus/ )

UGA Student Honor Code: "I will be academically honest in all of my academic work and will not tolerate academic dishonesty of others." A Culture of Honesty, the University's policy and procedures for handling cases of suspected dishonesty, can be found at www.uga.edu/ovpi .

Lack of knowledge of the academic honesty policy is not a reasonable explanation for a violation. Questions related to course assignments and the academic honesty policy should be directed to the instructor.

My expectation with respect to what constitutes academic dishonesty is outlined in UGA’s Academic Honesty Policy:

https://honesty.uga.edu/_resources/documents/academic_honesty_policy_2017.pdf

The course syllabus is a general plan for the course; deviations announced to the class by the instructor may be necessary.

Mental Health and Wellness Resources:

· If you or someone you know needs assistance, you are encouraged to contact Student Care and Outreach in the Division of Student Affairs at 706-542-7774 or visit https://sco.uga.edu . They will help you navigate any difficult circumstances you may be facing by connecting you with the appropriate resources or services. 

· UGA has several resources for a student seeking mental health services ( https://www.uhs.uga.edu/bewelluga/bewelluga ) or crisis support ( https://www.uhs.uga.edu/info/emergencies ). 

· If you need help managing stress anxiety, relationships, etc., please visit BeWellUGA ( https://www.uhs.uga.edu/bewelluga/bewelluga ) for a list of FREE workshops, classes, mentoring, and health coaching led by licensed clinicians and health educators in the University Health Center.

· Additional resources can be accessed through the UGA App.

COVID Related Statements:

· If you are experiencing any symptoms associated with COVID, do not attend the f2f component of this class.

What do I do if I have symptoms - Students showing symptoms should self-isolate and schedule an appointment with the University Health Center by calling 706-542-1162 (Monday-Friday, 8 a.m.-5 p.m.). Please DO NOT walk-in. For emergencies and after-hours care, see https://www.uhs.uga.edu/info/emergencies.

What do I do if I am notified that I have been exposed? Students who learn they have been directly exposed to COVID-19 but are not showing symptoms should self-quarantine for 14 days consistent with Department of Public Health (DPH) and Centers for Disease Control and Prevention (CDC) guidelines. Please correspond with your instructor via email, with a cc: to Student Care & Outreach at [email protected], to coordinate continuing your coursework while self-quarantined. If you develop symptoms, you should contact the University Health Center to make an appointment to be tested. You should continue to monitor your symptoms daily on DawgCheck.

How do I get a test? Students who are demonstrating symptoms of COVID-19 should call the University Health Center. UHC is offering testing by appointment for students; appointments may be booked by calling 706-542-1162.

UGA will also be recruiting asymptomatic students to participate in surveillance tests. Students living in residence halls, Greek housing and off-campus apartment complexes are encouraged to participate.

What do I do if I test positive? Any student with a positive COVID-19 test is  required  to report the test in DawgCheck and should self-isolate immediately. Students should not attend classes in-person until the isolation period is completed. Once you report the positive test through DawgCheck, UGA Student Care and Outreach will follow up with you.

· Effective July 15, 2020, the University of Georgia—along with all University System of Georgia (USG) institutions—requires all faculty, staff, students and visitors to wear an appropriate face covering while inside campus facilities/buildings where six feet social distancing may not always be possible. Face covering use is in addition to and is not a substitute for social distancing. Anyone not using a face covering when required will be asked to wear one or must leave the area. Reasonable accommodations may be made for those who are unable to wear a face covering for documented health reasons. Students seeking an accommodation related to face coverings should contact Disability Services at https://drc.uga.edu/.

· COVID-19 Syllabus DawgCheck Statement - Please perform a quick symptom check each weekday on DawgCheck—on the UGA app or website—whether you feel sick or not. It will help health providers monitor the health situation on campus: https://dawgcheck.uga.edu/