BUSINESS AND FINANCE SCOPE IN PAKISTAN

,Business Finance –ACC501

Business Finance
Contents
Lesson # Topic Page
1 Introduction ---------------------------------------------------------- 1
2 Why Study Finance? ------------------------------------------------- 3
3 The Corporate Firm ------------------------------------------------- 7
4 The Firm and The Financial Markets ---------------------------- 10
5 The Income Statement ---------------------------------------------- 15
6 Depreciation as a Tax Shield --------------------------------------- 20
7 The Statement of Cash Flows ------------------------------------- 25
8 Common-Size Statements ------------------------------------------ 30
9 Ratio Analysis -------------------------------------------------------- 36
10 Ratio Analysis (Cont…) -------------------------------------------- 40
11 The Du Pont Identity ----------------------------------------------- 44
12 Using Financial Statements Information ------------------------- 48
13 Future Value ---------------------------------------------------------- 53
14 Evaluating Investments --------------------------------------------- 56
15 Annuities -------------------------------------------------------------- 62
16 Perpetuities ------------------------------------------------------------ 66
17 Bonds ------------------------------------------------------------------ 70
18 Valuing A Bond ------------------------------------------------------ 72
19 Bond Pricing Theorems -------------------------------------------- 76
20 The Bond Indenture ------------------------------------------------- 78
21 Different Types of Bonds ------------------------------------------ 81
22 Term Structure of Interest Rates ---------------------------------- 84
23 Zero Growth Stocks ------------------------------------------------ 88
24 Non-Constant Growth Stocks ------------------------------------- 93
25 Preferred Stock Features ------------------------------------------- 99
26 Using NPV ------------------------------------------------------------ 102
27 Average Accounting Return --------------------------------------- 105
28 Profitability Index ---------------------------------------------------- 111
29 Making Capital Investment Decisions ---------------------------- 113
30 Pro Forma Financial Statements ---------------------------------- 117
31 Depreciation ---------------------------------------------------------- 121
32 Returns ---------------------------------------------------------------- 125
33 Variability of Returns ----------------------------------------------- 129
34 Portfolio --------------------------------------------------------------- 133
35 Cost of Capital ------------------------------------------------------- 136
36 Weighted Average Cost of Capital -------------------------------- 139
37 Capital Structure ----------------------------------------------------- 142
38 M&M Propositions -------------------------------------------------- 146
39 Bankruptcy Costs ---------------------------------------------------- 151
40 Operating Cycle and Cash Cycle ---------------------------------- 157
41 Short-Term Financial Policy --------------------------------------- 161
42 Short-Term Borrowing --------------------------------------------- 167
43 Float and Cash Management --------------------------------------- 169
44 Credits And Receivables -------------------------------------------- 174
45 Inventory Management --------------------------------------------- 178

,Business Finance –ACC501
LESSON 1
BUSINESS FINANCE

The Primary textbook for the course is:

 Essentials of Corporate Finance, by Ross, Westerfield and Jordan, fourth edition, McGraw
Hill Publishers, ISBN 0-07-121057-7

Reference books will be:

 Introduction to Finance by Lawrence J. Gitman and Jeff Madura, Addison-Wesley Publishers
 Foundations of Financial Management by Stanley B. Block and Geoffrey A. Hirt, McGraw
Hill Publishers

Course Contents

 An overview of Financial Environment
 Financial Statements, Taxes and Cash Flows
 Time Value of Money and Discounted Cash Flow Valuation
 Valuation of Stocks and Bonds
 Net Present Value and other Investment Criteria
 Capital Investment Decision
 Risk and Return
 Cost of Capital
 Leverage and Capital Structure
 Raising Capital
 Working Capital Management
 Dividends

Finance: A Quick Look

 Four Basic Areas
o Business Finance
o Investments
o Financial Institutions
o International Finance

Business Finance

Addresses the following three questions:
 What long-term investments should the firm engage in?
 How can the firm raise the money for the required investments?
 How much short-term cash flow does a company need to pay its bills?

Investments

 Deals with financial assets such as stocks and bonds.
 It covers the following issues:
o Pricing Financial Assets
o Associated Risks and Rewards
o Determining best mixture of financial investment
 Career opportunities in investment
o Stock Brokerage

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, Business Finance –ACC501
o Portfolio Management
o Security Analysis

Financial Institutions

 Businesses dealing in financial matters
o Banks and Insurance companies

International Finance

 Covers international aspects of corporate finance, investment and financial institutions.




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