Principles of Finance - Open Textbook Library (2024)

(3 reviews)

Julie Dahlquist, Texas Christian University

Rainford Knight, Florida Atlantic University

Alan S. Adams, Dean College

ISBN 13:9781951693541

Publisher:OpenStax

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CC BY

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Reviewed by Kevin Flint, Instructor, James Madison University on 11/14/22

The book provides a comprehensive index, but I did not see a glossary. A list of key terms does appear at the beginning of each chapter. In looking at the contents, the text covers all of the appropriate areas of finance but does seem to sway...read more

Reviewed by Yijia Zhao, Associate Professor, University of Massachusetts Boston on 11/1/22

Comprehensiveread more

Reviewed by Randy Beavers, Associate Professor of Finance, Seattle Pacific University on 6/9/22

The textbook covers all the material necessary for students to take the finance section of the business ETS exam. This text goes beyond others, including Chapter 14: Regression Analysis in Finance along with using the programming language, R....read more

Preface
Chapter 1. Introduction to Finance
- Why it Matters
- 1.1What Is Finance?
- 1.2The Role of Finance in an Organization
- 1.3Importance of Data and Technology
- 1.4Careers in Finance
- 1.5Markets and Participants
- 1.6Microeconomic and Macroeconomic Matters
- 1.7Financial Instruments
- 1.8Concepts of Time and Value
- Summary
- Key Terms
- Multiple Choice
- Review Questions
- Video Activity
Chapter 2. Corporate Structure and Governance
- Why it Matters
- 2.1Business Structures
- 2.2Relationship between Shareholders and Company Management
- 2.3Role of the Board of Directors
- 2.4Agency Issues: Shareholders and Corporate Boards
- 2.5Interacting with Investors, Intermediaries, and Other Market Participants
- 2.6Companies in Domestic and Global Markets
- Summary
- Key Terms
- CFA Institute
- Multiple Choice
- Review Questions
- Video Activity
Chapter 3. Economic Foundations: Money and Rates
- Why It Matters
- 3.1Microeconomics
- 3.2Macroeconomics
- 3.3Business Cycles and Economic Activity
- 3.4Interest Rates
- 3.5Foreign Exchange Rates
- 3.6Sources and Characteristics of Economic Data
- Summary
- Key Terms
- CFA Institute
- Multiple Choice
- Review Questions
- Problems
- Video Activity
Chapter 4. Accrual Accounting Process
- Why It Matters
- 4.1Cash versus Accrual Accounting
- 4.2Economic Basis for Accrual Accounting
- 4.3How Does a Company Recognize a Sale and an Expense?
- 4.4When Should a Company Capitalize or Expense an Item?
- 4.5What Is “Profit” versus “Loss” for the Company?
- Summary
- Key Terms
- Multiple Choice
- Review Questions
- Problems
- Video Activity
Chapter 5. Financial Statements
- Why It Matters
- 5.1The Income Statement
- 5.2The Balance Sheet
- 5.3The Relationship between the Balance Sheet and the Income Statement
- 5.4The Statement of Owner’s Equity
- 5.5The Statement of Cash Flows
- 5.6Operating Cash Flow and Free Cash Flow to the Firm (FCFF)
- 5.7Common-Size Statements
- 5.8Reporting Financial Activity
- Summary
- Key Terms
- CFA Institute
- Multiple Choice
- Review Questions
- Problems
- Video Activity
Chapter 6. Measures of Financial Health
- Why It Matters
- 6.1Ratios: Condensing Information into Smaller Pieces
- 6.2Operating Efficiency Ratios
- 6.3Liquidity Ratios
- 6.4Solvency Ratios
- 6.5Market Value Ratios
- 6.6Profitability Ratios and the DuPont Method
- Summary
- Key Terms
- CFA Institute
- Multiple Choice
- Review Questions
- Problems
- Video Activity
Chapter 7. Time Value of Money I: Single Payment Value
- Why It Matters
- 7.1Now versus Later Concepts
- 7.2Time Value of Money (TVM) Basics
- 7.3Methods for Solving Time Value of Money Problems
- 7.4Applications of TVM in Finance
- Summary
- Key Terms
- CFA Institute
- Multiple Choice
- Review Questions
- Problems
- Video Activity
Chapter 8. Time Value of Money II: Equal Multiple Payments
- Why It Matters
- 8.1Perpetuities
- 8.2Annuities
- 8.3Loan Amortization
- 8.4Stated versus Effective Rates
- 8.5Equal Payments with a Financial Calculator and Excel
- Summary
- Key Terms
- CFA Institute
- Multiple Choice
- Problems
- Video Activity
Chapter 9. Time Value of Money III: Unequal Multiple Payments Values
- Why It Matters
- 9.1Timing of Cash Flows
- 9.2Unequal Payments Using a Financial Calculator or Microsoft Excel
- Summary
- Key Terms
- CFA Institute
- Multiple Choice
- Review Questions
- Problems
- Video Activity
Chapter 10. Bonds and Bond Valuation
- Why It Matters
- 10.1Characteristics of Bonds
- 10.2Bond Valuation
- 10.3Using the Yield Curve
- 10.4Risks of Interest Rates and Default
- 10.5Using Spreadsheets to Solve Bond Problems
- Summary
- Key Terms
- CFA Institute
- Multiple Choice
- Review Questions
- Problems
- Video Activity
Chapter 11. Stocks and Stock Valuation
- Why It Matters
- 11.1Multiple Approaches to Stock Valuation
- 11.2Dividend Discount Models (DDMs)
- 11.3Discounted Cash Flow (DCF) Model
- 11.4Preferred Stock
- 11.5Efficient Markets
- Summary
- Key Terms
- CFA Institute
- Multiple Choice
- Review Questions
- Problems
- Video Activity
Chapter 12. Historical Performance of US Markets
- Why It Matters
- 12.1Overview of US Financial Markets
- 12.2Historical Picture of Inflation
- 12.3Historical Picture of Returns to Bonds
- 12.4Historical Picture of Returns to Stocks
- Summary
- Key Terms
- Multiple Choice
- Review Questions
- Video Activity
Chapter 13. Statistical Analysis in Finance
- Why It Matters
- 13.1Measures of Center
- 13.2Measures of Spread
- 13.3Measures of Position
- 13.4Statistical Distributions
- 13.5Probability Distributions
- 13.6Data Visualization and Graphical Displays
- 13.7The R Statistical Analysis Tool
- Summary
- Key Terms
- CFA Institute
- Multiple Choice
- Review Questions
- Problems
- Video Activity
Chapter 14. Regression Analysis in Finance
- Why It Matters
- 14.1Correlation Analysis
- 14.2Linear Regression Analysis
- 14.3Best-Fit Linear Model
- 14.4Regression Applications in Finance
- 14.5Predictions and Prediction Intervals
- 14.6Use of R Statistical Analysis Tool for Regression Analysis
- Summary
- Key Terms
- Multiple Choice
- Review Questions
- Problems
- Video Activity
Chapter 15. How to Think about Investing
- Why It Matters
- 15.1Risk and Return to an Individual Asset
- 15.2Risk and Return to Multiple Assets
- 15.3The Capital Asset Pricing Model (CAPM)
- 15.4Applications in Performance Measurement
- 15.5Using Excel to Make Investment Decisions
- Summary
- Key Terms
- CFA Institute
- Multiple Choice
- Review Questions
- Problems
- Video Activity
Chapter 16. How Companies Think about Investing
- Why It Matters
- 16.1Payback Period Method
- 16.2Net Present Value (NPV) Method
- 16.3Internal Rate of Return (IRR) Method
- 16.4Alternative Methods
- 16.5Choosing between Projects
- 16.6Using Excel to Make Company Investment Decisions
- Summary
- Key Terms
- CFA Institute
- Multiple Choice
- Review Questions
- Problems
- Video Activity
Chapter 17. How Firms Raise Capital
- Why It Matters
- 17.1The Concept of Capital Structure
- 17.2The Costs of Debt and Equity Capital
- 17.3Calculating the Weighted Average Cost of Capital
- 17.4Capital Structure Choices
- 17.5Optimal Capital Structure
- 17.6Alternative Sources of Funds
- Summary
- Key Terms
- CFA Institute
- Multiple Choice
- Review Questions
- Problems
- Video Activity
Chapter 18. Financial Forecasting
- Why It Matters
- 18.1The Importance of Forecasting
- 18.2Forecasting Sales
- 18.3Pro Forma Financials
- 18.4Generating the Complete Forecast
- 18.5Forecasting Cash Flow and Assessing the Value of Growth
- 18.6Using Excel to Create the Long-Term Forecast
- Summary
- Key Terms
- Multiple Choice
- Review Questions
- Problems
- Video Activity
Chapter 19. The Importance of Trade Credit and Working Capital in Planning
- Why It Matters
- 19.1What Is Working Capital?
- 19.2What Is Trade Credit?
- 19.3Cash Management
- 19.4Receivables Management
- 19.5Inventory Management
- 19.6Using Excel to Create the Short-Term Plan
- Summary
- Key Terms
- Multiple Choice
- Review Questions
- Video Activity
Chapter 20. Risk management and the Financial Manager
- Why It Matters
- 20.1The Importance of Risk Management
- 20.2Commodity Price Risk
- 20.3Exchange Rates and Risk
- 20.4Interest Rate Risk
- Summary
- Key Terms
- CFA Institute
- Multiple Choice
- Review Questions
- Problems
- Video Activity
Index

Ancillary Material

OpenStax

About the Book

Designed to meet the scope and sequence of your course,Principles of Financeprovides a strong foundation in financial applications using an innovative use-case approach to explore their role in business decision-making. An array of financial calculator and downloadable Microsoft Excel data exercises also engage students in experiential learning throughout. With flexible integration of technical instruction and data, this title prepares students for current practice and continual evolution.

About the Contributors

Authors

Dr. Julie Dahlquist is a professor of professional practice in the Finance Department of the Neeley School of Business at Texas Christian University. She holds a PhD from Texas A&M University, an MA from St. Mary’s University, a BBA from the University of Louisiana at Monroe, and a Chartered Market Technician® (CMT) designation. Previously, she served on the finance faculties of the University of Texas at San Antonio and St. Mary’s University. She has extensive international experience teaching finance to undergraduate, graduate, and executive MBA students in programs in Mexico, Austria, Germany, Switzerland, Italy, Belgium, Greece, and South Korea. Dr. Dahlquist is president of the Technical Analysis Educational Foundation (TAEF), which works with universities to include technical analysis as an integral part of their finance curricula. She has coauthored Technical Analysis: The Complete Resource for Financial Market Technicians (with Charles Kirkpatrick, 3rd edition, FT Press, 2015) and has contributed to many other scholarly publications. Her research has appeared in Financial Analysts Journal, Managerial Finance, Applied Economics, Working Money, Financial Practices and Education, and the Journal of Financial Education. Dr. Dahlquist has served as editor of the Journal of Technical Analysis, a member of the editorial board of the Southwestern Business Administration Journal, and a reviewer for several other journals.

Dr. Rainford Knight is adjunct faculty in the Finance Department of the College of Business at Florida Atlantic University and the director of its Financial Analyst Program, which he founded in partnership with Bloomberg in 2011. He holds a BBA, an MBA, and a PhD in finance from Florida Atlantic University. Dr. Knight is a member of the CFA Institute and a former director of the CFA Society of South Florida. He has extensive experience teaching finance at the undergraduate, graduate, and executive levels. Previously, he served on the finance faculty of Fairleigh Dickinson University. Dr. Knight has coauthored articles on corporate sustainability, cost-benefit analyses, mutual fund returns, and CEO compensation. He also has significant private industry experience in corporate finance, investment management, and hedge funds. He has been an adviser to CEOs of small to midsize companies on a variety of issues, including restructurings, valuation, financing, and acquisitions. Internationally, he was part of the consulting team advising a sovereign government on the restructuring of its financial sector and has also made presentations regarding financial sector restructuring to central banks in Latin America. Since 2021, Dr. Knight has been CEO and cofounder of Transparency Invest, which supports accountability in organizations

Alan S. Adams, Dean College

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I am an expert in the field of finance and have a deep understanding of the concepts covered in the book you mentioned. I can provide you with information related to all the concepts used in the book. Here are the search results for your reference:

Introduction to Finance:
- Finance is the study of how individuals, businesses, and organizations manage money and make financial decisions.
- It plays a crucial role in an organization by ensuring the availability of funds for various activities.
- Data and technology are important in finance as they help in analyzing financial information and making informed decisions.
- Careers in finance include roles such as financial analysts, investment bankers, financial planners, and risk managers.
- Markets and participants in finance refer to the different financial markets (such as stock markets and bond markets) and the individuals and institutions involved in these markets.
- Microeconomics and macroeconomics are important concepts in finance as they help in understanding the behavior of individuals, firms, and the overall economy.
- Financial instruments are assets that can be traded, such as stocks, bonds, and derivatives.
- Concepts of time and value are fundamental in finance, as they help in evaluating the worth of money over time.
Corporate Structure and Governance:
- Business structures refer to the different legal forms that a business can take, such as sole proprietorship, partnership, and corporation.
- The relationship between shareholders and company management is important in corporate governance, as shareholders elect the board of directors to represent their interests.
- The board of directors plays a crucial role in overseeing the management of the company and making important decisions.
- Agency issues arise when there is a conflict of interest between shareholders and corporate boards.
- Interacting with investors, intermediaries, and other market participants is important for companies to raise capital and engage in business activities.
- Companies operate in both domestic and global markets, and understanding the dynamics of these markets is essential for success.
Economic Foundations: Money and Rates:
- Microeconomics is the study of individual economic behavior, while macroeconomics focuses on the behavior of the overall economy.
- Business cycles and economic activity refer to the fluctuations in economic output and employment over time.
- Interest rates and foreign exchange rates are important in finance, as they affect the cost of borrowing and the value of currencies.
- Economic data provides information about the state of the economy and is used for analysis and decision-making.
Accrual Accounting Process:
- Accrual accounting is a method of recording financial transactions based on when they occur, rather than when cash is exchanged.
- It provides a more accurate picture of a company's financial performance by matching revenues and expenses in the period they are earned or incurred.
- Companies recognize sales and expenses based on the revenue recognition principle and the matching principle.
- Capitalizing or expensing an item depends on whether it is a long-term asset or a short-term expense.
- Profit and loss represent the financial performance of a company over a specific period.
Financial Statements:
- Financial statements provide information about a company's financial position, performance, and cash flows.
- The income statement shows the revenues, expenses, and net income or loss of a company.
- The balance sheet presents the assets, liabilities, and shareholders' equity of a company at a specific point in time.
- The statement of owner's equity shows the changes in the owners' equity of a company over a period.
- The statement of cash flows provides information about the cash inflows and outflows of a company.
- Operating cash flow and free cash flow to the firm (FCFF) are important measures of a company's financial health.
- Common-size statements help in comparing the financial performance of companies of different sizes.
Measures of Financial Health:
- Ratios are used to condense financial information into smaller pieces and provide insights into a company's financial health.
- Operating efficiency ratios measure how efficiently a company utilizes its resources.
- Liquidity ratios assess a company's ability to meet its short-term obligations.
- Solvency ratios evaluate a company's long-term financial stability.
- Market value ratios reflect the market's perception of a company's value.
- Profitability ratios measure a company's ability to generate profits.
- The DuPont method is a framework for analyzing a company's return on equity.

These are just a few of the concepts covered in the book. If you have any specific questions or need more information on a particular topic, feel free to ask!