About This Chapter
Who's It For?
Anyone who needs help learning or mastering business capital and investments material will benefit from the lessons in this chapter. There is no faster or easier way to learn about business capital and investments. Among those who would benefit are:
- Students who have fallen behind in understanding the ideas behind business capital and investments
- Students who struggle with learning disabilities or learning differences, including autism and ADHD
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- Students who have missed class time and need to catch up
- Students who need an efficient way to learn about business capital and investments
- Students who struggle to understand their teachers
- Students who attend schools without extra finance learning resources
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- Find videos in our course that cover what you need to learn or review.
- Press play and watch the video lesson.
- Refer to the video transcripts to reinforce your learning.
- Test your understanding of each lesson with short quizzes.
- Verify you're ready by completing the business capital and investments chapter exam.
Why It Works:
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Students Will Review:
This chapter helps students review the concepts in a business capital and investments unit of a standard corporate finance course. Topics covered include:
- Process of financial planning for businesses
- Capital requirements
- Capital budgeting process and components
- The role of taxes in the capital budgeting process
- Time value of money calculations
- Net present cost and net present value
- Cost-benefit analysis
- Long-term and short-term financing sources
- Stocks, dividends and return of investment
1. The Financial Planning Process
Financial planning is essential for the success of any business. In this lesson, you'll learn about the financial planning process that businesses perform, including preparation of a master budget, capital budget and cash budget.
2. Present and Future Value: Calculating the Time Value of Money
A central concept in business and finance is the time value of money. We will use easy to follow examples and calculate the present and future value of both sums of money and annuities.
3. Investment Analysis Tools
The key objective of a corporate finance team is to find ways to optimize the company's resources, including how to invest cash. In this lesson, we'll discuss three important tools that can be used to analyze the potential of any given investment.
4. Cost-Benefit Analysis: Payback & Accounting Rate of Return
In business, there are a variety of methods used to calculate the expected return on an investment. In this lesson, we'll discuss two common methods: payback period and the accounting rate of return.
5. Sources of Short-Term Financing
Companies often need to utilize financing to cover shortfalls in cash flow. In this lesson, you'll learn about sources of short-term financing available to companies including trade credit, lines of credit, bank loans and credit cards.
6. Sources of Long-Term Financing
Some businesses require a large amount of capital to get off the ground or expand. In this lesson, you'll learn about sources of long-term financing, including commercial loans, selling equity and issuing debt.
7. Debt Capital Vs Equity Capital
Sufficient capital is essential for starting, maintaining and growing a business. In this lesson, you'll learn how a corporation can raise capital through equity and debt. You'll also learn about the advantages and disadvantages of each approach.
8. Selling Stock to Raise Capital
One method a business can use to raise funds is selling stock to potential investors. In this lesson, you'll learn about raising capital through the sale of stock, including its advantages and disadvantages.
9. What Are Dividends? - Investing in Stocks
Many people are interested in stock investment, and there are a few basic terms investors and business people should understand. This lesson explains dividends, common stock and preferred stock.
10. Economic Value Added: Definition, Formula & Examples
Firms and investors use a number of financial metrics to measure profitability, effectiveness, and efficiency. In this lesson, we'll discuss one of the more complicated metrics, known as economic value added, or EVA.
11. Securitization: Definition, Theory & Process
This lesson examines the meaning of securitization and its usefulness in financial markets. Securitization and the securitization process are defined and outlined.
12. What Is a Stop-Loss Order? - Definition & Examples
This lesson will provide an overview of the stop-loss order. Investors across the country use stop-loss orders when stock trading, so this lesson will explore this concept and provide examples of the order in action.
13. What Is Capital Budgeting? - Techniques, Analysis & Examples
Capital budgeting is important to the growth and development of a business. In this lesson, you will learn what capital budgeting is, why it is important, and how it is used.
14. Value of a Call Option & the Fifth Factor
This lesson will explore the factors that impact the value of a call option including the 'fifth factor', price volatility. You will learn the basics of call options pricing and come away with an understanding of volatility, time value and intrinsic value.
15. Equity Call Option: Risky & Risk-Free Debt
By understanding equity as a call option, equity holders own on a company with a strike price equal to the company's total debt, we can break down risk-free and risky debt held by debt holders and bond holders of a company. Using the Black-Scholes formula, all of these values can be calculated.
16. Options & Capital Budgeting: Timing, Strategy & Planning
This lesson explores the timing, strategy and planning for options in the context of business capital budgeting. You will develop a financing budget and plan, as if you were the CFO of a company planning for a million-dollar expansion project.
17. Trading Strategies Overview
In the financial markets, the average stock is held for 22 seconds - a far cry from the investment strategy of 'buy and hold.' This is due to computerized trading and short-term trading, some strategies of which we'll discuss in this lesson.
18. Cost of Capital: Flotation Cost, NPV & Internal Equity
How does a business figure out the true cost and best means of obtaining capital? In this lesson, we will explore the cost of capital, flotation cost, net present value, and internal equity to help answer that question.
19. What are the GIPS (Global Investment Performance Standards)?
In this lesson, you will learn what Global Investment Performance Standards are, how they impact you as an investor, and what that means for expectations from your investment manager.
20. Covered Call: Strategy & Examples
Let's take a closer look at one of the most frequently used option strategies, covered calls. Although it is relatively simple, understanding its benefits and drawbacks will help you determine if it's right for you!
21. What is a Credit Spread? - Definition & Strategy
A credit spread is the risk premium add-on to the base interest rate used when pricing corporate debt issues. It reflects the credit rating or risk rating of the company, the maturity of the issue, current market spread rates, as well as other components such as security and liquidity.
22. Fixed Charge Coverage Ratio: Definition & Examples
In this lesson, learn how to calculate the fixed-charge coverage ratio and where to find the required information to perform the calculation. Understand who uses this ratio, how it is used, and why it is important.
23. How to Calculate Peg Ratio: Definition & Example
In this lesson, we will look at the price/earnings to growth, or peg, ratio of a stock, and show how it can be used to evaluate stock investment opportunities.
24. What is Shadow Banking? - Definition & System
In this lesson, you will learn what shadow banking is, how it impacts the financial industry, what effect it has on the economy, and the risk that it carries.
25. Small, Mid & Large Cap Stocks
In this lesson we will examine the differences between small cap, mid cap, and large cap stocks. You'll also learn which ones are considered safer stocks to invest in.
26. VIX Futures & Options
The CBOE Volatility Index (VIX) is one of the most misunderstood financial products out there. Taking it a step further, derivatives of this index can be even more confusing. This lesson breaks down the basics of the VIX, VIX Futures and VIX Options.
27. Sovereign Wealth Funds (SWF): Definition & Types
In this lesson, we will discuss sovereign wealth funds (SWFs). We'll give their formal definition, we'll describe the different types of SWFs and give examples of each.
28. Annualized Rate of Return & Total Return
This lesson will introduce total rate of return and annualized rate of return. These concepts will be defined along with a formula for calculating each. Examples will then be used to illustrate each of these types of returns.
29. FCFF (Free Cash Flow for the Firm): Definition & Formula
In this lesson, we'll define free cash flow and how it is calculated. You'll learn what free cash flow says about your company's viability and how to use that information to make investing decisions.
30. Levered & Unlevered Free Cash Flow
Free cash flows can be a good indicator of a firm's financial health. Firms with or without debt are screened by investors to understand their capability of return on investments. In this lesson learn more about levered and unlevered free cash flows.
31. Value-Weighted Index: Definition, Calculation & Examples
A value-weighted index assigns a weight to each company in the index based on its value or market capitalization. Follow the example and you will learn how a value weighted index number is calculated.
32. What is Free Float Market Capitalization? - Method & Examples
This lesson will explain the difference between free float market capitalization and the traditional full market capitalization. A simple example will take you through the calculations for both of these and their impacts on stock indexes.
33. Excess Return: Definition & Formula
In this lesson, we will cover the importance of excess returns. Excess returns are returns an investment generates over and above a comparative measure, such as returns on U.S. government securities or industry standard benchmarks.
34. Shortfall in Finance: Definition & Examples
Financial shortfalls can occur in our personal lives as well as in business. A shortfall can be a short-term situation or a longer term problem, either unexpected or predicted. This lesson will define a shortfall, its consequences, and describe different means to manage shortfalls.
35. What is Fractional Reserve Banking? - Definition & History
Fractional reserve banking sounds pretty complicated, but it is a business banking model that is surprisingly easy to understand. It is a process by which a bank takes in, and lends out money while still maintaining sufficient funds in reserve available for depositors. As part of this system, central banks manage the way banks operate and limit how much of their funds can be loaned. In this lesson we will find out how this process works.
36. Margin Call: Definition & Examples
A margin call can be an intimidating event for an investor. In this lesson we will look at what exactly a margin call is. Additionally, we will look go over the potential outcomes of the margin call.
37. The Revenue Recognition Principle: Definition & Examples
A business earns its money by selling its goods and services, and it must decide when to record its earnings. In this lesson, you will learn about the revenue recognition principle.
38. Accelerated Share Repurchase: Examples & Program
In this lesson, we'll the look at an example of an accelerated share repurchase (ASR) program. We'll discuss the parties involved, the mechanics of the transaction, and the reasons why a company may embark on such a purchase.
39. Liability-Driven Investing: Definition & Strategy
In this lesson, you will learn about liability-driven investing. We will walk through a simple case study, set up a liability-driven investing strategy, then discuss some important things that must be considered for this type of investment.
40. Fixed Asset Roll Forward: Definition & Example
In this lesson, you will learn how accountants use fixed asset roll forwards to more accurately account for plant, property and equipment changes during the accounting period.
41. Money Management: Liquidity & Credit
Whether it's for your small business or your personal finances, liquidity and credit are two critical financial concepts you need to understand. In this lesson, we'll define these two terms and discuss what they mean to you.
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Other chapters within the Corporate Finance: Help & Review course
- Introduction to Corporations: Help & Review
- Stockholders & Stakeholders: Help & Review
- Raising Capital for Business: Help & Review
- Corporate Spending & Taxation: Help & Review
- Financial Accounting: Help & Review
- Financial Statements: Help & Review
- Analyzing Financial Statements: Help & Review
- Government-Business Relations: Help & Review
- Securities & Anti-Trust Laws: Help & Review
- Accounting Risk & Return: Help & Review
- Reform & Emerging Global Markets