The following content has been generated by giving all the slides of the FOUR topics to ChatGPT4-o and asking the model to make a decent and structured review material out of the 4 topics' slides.

Topic 1: Introducing Financial Management

Learning Goals:

1. Explain the importance of the financial manager’s role.
2. Define financial management and its major decision areas.
3. Identify the goal of the firm and the importance of shareholders’ wealth maximization.
4. Understand agency problems and corporate governance.
5. Describe the role of the board of directors.

Key Concepts:

• Financial Management:

  • Investment Decision: Involves decisions on capital budgeting and capital expenditure.
  • Financing Decision: Concerns sourcing and amount of financing (capital structure).

• Goal of the Firm:

  • Maximization of Shareholder Wealth: Achieving the highest possible value for shareholders’ equity.

• Corporate Governance:

  • Role of Management: Acts as agents for the shareholders.
  • Role of the Board of Directors: Advises, hires, and sets compensation for executives, and reviews strategy and investments.

• Examples and Cases:

  • Amazon’s financial decisions
  • Corporate Social Responsibility (CSR) example of Ele.me

Topic 2: Forms of Organization

Learning Goals:

1. Describe the four basic forms of business organization in the U.S.
2. Discuss the advantages and disadvantages of each form.

Key Concepts:

• Forms of Organization:

  • Sole Proprietorship: Single owner with unlimited liability.

    • Advantages: Low setup cost, single tax filing.
    • Disadvantages: Unlimited liability, difficult to raise capital.

  • Partnership: Business owned by two or more individuals.

    • Types: General (unlimited liability) and Limited (liability limited to investment).
    • Advantages: Low setup cost, limited liability for limited partners.
    • Disadvantages: Unlimited liability for general partners.

  • Corporation: Separate legal entity from its owners.

    • Advantages: Limited liability, easy ownership transfer, unlimited life, easier to raise capital.
    • Disadvantages: Double taxation, complex setup, agency problems.

  • Limited Liability Company (LLC): Combines limited liability with partnership tax benefits.

    • Advantages: Limited liability, eliminates double taxation, easier to raise capital.
    • Disadvantages: Transfer of ownership difficulties, dissolution upon a member’s death in some states.

Topic 3: The Time Value of Money

Learning Goals:

1. Understand the time value of money concept.
2. Learn to calculate present and future values.
3. Build an amortization schedule for loans.

Key Concepts:

• Time Value of Money:

  • Relationship between present value (PV) and future value (FV).
  • Types of Interest: Simple (interest on principal only) and Compound (interest on principal and accumulated interest).

• Financial Calculations:

  • Formulas:
    • Simple Interest: ( SI = P_0 \times i \times n )
    • Compound Interest: Uses financial calculator functions (PV, FV, PMT, I/Y, N).

• Annuities:

  • Ordinary Annuity: Payments at the end of each period.
  • Annuity Due: Payments at the beginning of each period.

Topic 4: Financial Analysis

Learning Goals:

1. Introduce basic financial statements.
2. Demonstrate financial statement analysis using ratio analysis.

Key Concepts:

• Basic Financial Statements:

  • Income Statement: Measures profitability.
  • Balance Sheet: Shows assets and financing through debt and equity.
  • Statement of Cash Flows: Summarizes cash inflows and outflows.

• Financial Ratios:

  • Liquidity Ratios: Ability to pay short-term obligations (e.g., Current Ratio, Quick Ratio).
  • Debt Utilization Ratios: Estimate overall debt position (e.g., Debt-to-Equity, Times Interest Earned).
  • Profitability Ratios: Measure firm’s ability to earn returns (e.g., Profit Margin, Return on Assets).
  • Asset Utilization Ratios: Efficiency in using assets (e.g., Inventory Turnover, Total Asset Turnover).

• Financial Statement Analysis:

  • Internal Comparisons: Comparing firm’s past performance.
  • External Comparisons: Comparing with industry averages.

• Examples:

  • Basket Wonders’ financial ratios and trend analysis.