E. J. Ourso College of Business www.bus.lsu.edu FIN 3715 Course Objectives Finance 3715 is an introduction to the finance function within the firm. The course objectives are to develop the financial and analytical skills, logical thought processes, and information literacy necessary to make and implement strategic corporate financial decisions in a global environment. The course stresses the impact of a global economy and legal, social, technological, and ethical considerations on efficient economic outcomes. Upon successful completion of this course, students will have developed an understanding of firm organization, principal-agent relationships, fundamental financial statement analysis, short-term working capital management, risk/return relationships, time-value-of-money, valuation, and capital budgeting, as they relate to the financial management of the firm and its interactions with the financial markets. Students will also obtain institutional knowledge of how financial markets function and their roles in a free market economy. Through assignments and in-class discussions, students will develop the effective written and oral communication skills required to implement financial decisions in the corporation. Since most business activities involve collaboration among various individuals, students will develop teamwork skills by engaging in group assignments and activities. Coverage and Learning Outcomes Each instructor puts his or her personal stamp on their sections of FIN 3715 through creative and innovative exercises, learning methods, etc. At the same time, however, all instructors will include the same minimum set of learning outcomes described below. These topics are arranged in the one possible order; your section may follow a different sequence. Working capital management and global finance are integrated throughout the course. In the learning objectives that follow, (WC) indicates a working capital objective and (G) indicates a global finance objective. By the end of the term, all students should be able to demonstrate competence in each of the learning outcomes. Overview ♦ Be familiar with the major organizational structures of businesses: proprietorship, partnership, and the corporation. ♦ Be able to describe the advantages and disadvantages of the publicly held corporation. ♦ Know the international equivalents of publicly held corporations: joint stock companies, public limited companies, limited liability companies, etc. (G). ♦ Be able to describe wealth maximization as the primary goal of the publicly held corporation and how financial managers contribute to the attainment of this goal. ♦ Be able to describe and distinguish the two types of agency conflicts that exist in the publicly held corporation. ♦ Understand the relationship between the firm and the capital markets including the globalization of the financial markets as capital flows across international boundaries (G). ♦ Be able to distinguish the difference between primary and secondary markets and identify major secondary markets around the world: NYSE, NASDAQ, London, Tokyo, etc. (G).Review of Financial Statements ♦ Understand and be able to distinguish between the three major financial statements: the balance sheet, the income statement, and the statement of cash flows. ♦ Be able to distinguish between accounting revenues and expenses and cash flow. ♦ Be able to find any major accounting item on a financial statement. For instance, they should know that inventory is an asset, payables are liabilities, and cost of goods sold is an income statement expense. ♦ Be able to compile an indirect statement of cash flows (sources and uses). Financial Statement Analysis ♦ Conduct financial statement analysis using the DuPont breakdown. ♦ Be able to analyze financial statements to assess the liquidity of a firm. ♦ Understand the uses and relationships between ratios, common size statements, and cash flows. ♦ Know how to conduct both trend analysis and industry comparisons. ♦ Students should understand the limitations of financial statement analysis. ♦ Be able to calculate and interpret the operating cycle and the cash cycle (WC). Financial Forecasting and Growth ♦ Be able to construct a pro forma income statement and balance sheet using a percent-of-sales forecasting technique. ♦ Know how to use the pro forma financial statements to estimate the financing needs of the firm. ♦ Understand the use of target ratios, trends, etc. as a means of customizing a percent-of-sales forecast to obtain better estimates. ♦ Be able to use the sustainable growth model to forecast sustainable growth rates for the firm and understand the influence of excess assets, particularly inventories and receivables, on sustainable growth. (WC). TVM and DCF Valuation ♦ Define an opportunity cost rate. ♦ Be able to illustrate any TVM problem with a time line. ♦ Be able to express any TVM problem mathematically. ♦ Know how to calculate (using a financial calculator and mathematically) present and future values for  Simple lump sums  Uneven cash flows  Annuities – ordinary, annuities due, and perpetuities. ♦ Be able to adjust for compounding periods and calculate an effective annual rate (EAR). ♦ Be able to apply TVM principles to amortize loans, plan for retirement, etc. and EAR to calculating the cost of trade discounts (WC). ♦ Be able to calculate present and future values for continuous compounding.Interest Rates and Bond Valuation ♦ Understand the general terminology and characteristics that describe bonds: debenture, indenture, the role of a trustee, call provisions, call protection, sinking fund, restrictive covenants, etc. ♦ Know the various types of bonds: debentures, mortgage bonds, indexed bonds, subordinated bonds, convertible bonds, income bonds, Eurobonds, foreign bonds, treasury bonds, and zero-coupon bonds. ♦ Be familiar with the growth of international capital markets, Eurobonds, and foreign bonds (G). ♦ Know the bond pricing parameters and be able to price a bond. ♦ Be able to calculate a yield to maturity and yield to call for any bond. ♦ Know how to decompose nominal interest rates into the real interest rate and the inflation component using the Fisher effect and understand the relationship between inflation, interest rates, and bond values. Stock Valuation ♦ Understand stock