2- Introduccion a Finanzas y Estrategia Basica

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Introduction to Finance andIntroduction to Finance and

Strategy conceptsStrategy concepts

Class 3Class 3


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Jaime R. Leon , v1.0 June 2006

Agenda:Agenda:

1- Business Session

1.1 Finance Basics

1.1.1 Stock Market

1.1.2 Financial Statements

1.1.3 Additional concepts and terminolgy

1.2 Strategy Basics

1.2.1 Porters model

1.2.2 Strategy definition: Fredrikson model.


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1.11.1 Finance BasicsFinance BasicsMandatory pre-class readings:

http://www.moneychimp.com/articles/financials/fundamentals.htm (how to read an annual report)http://en.wikipedia.org/wiki/Stock_market (Stock Market)

Some definit ions

Accounting: The process of gathering and preparing of financialinformation about a business or other organization in a form that

provides accurate and useful records and enables decisions to be

made. (www.bookkeeperlist.com/definitionsa.shtml)

Economy: The organization of production and distribution of goodsand services within a socioeconomic system.(www.elissetche.org/dico/E.htm)

Finance: Finance studies and addresses the ways in whichindividuals, businesses and organizations raise, allocate and use

monetary resources over time, taking into account the risks entailed intheir projects. (en.wikipedia.org/wiki/Finance )
http://www.moneychimp.com/articles/financials/fundamentals.htmhttp://en.wikipedia.org/wiki/Stock_markethttp://www.bookkeeperlist.com/definitionsa.shtmlhttp://www.elissetche.org/dico/E.htmhttp://www.google.com/url?sa=X&start=5&oi=define&ei=jNjDROXnOKKEqQKRpYCvCA&sig2=W3S75_sWgL3qcd-vgqWSlw&q=http://en.wikipedia.org/wiki/Financehttp://www.google.com/url?sa=X&start=5&oi=define&ei=jNjDROXnOKKEqQKRpYCvCA&sig2=W3S75_sWgL3qcd-vgqWSlw&q=http://en.wikipedia.org/wiki/Financehttp://www.elissetche.org/dico/E.htmhttp://www.bookkeeperlist.com/definitionsa.shtmlhttp://en.wikipedia.org/wiki/Stock_markethttp://www.moneychimp.com/articles/financials/fundamentals.htm


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Net

Earnings

Goods /

Services

Investments

In Producing

Assets

Debt

Financing

Equity

Financing

Reinvested

Dividends

Operating

Activi tiesFruit

Trunk /

Branches

Investing

Activi ties

Debt

PaymentsFinancing

Activi tiesRoots

Businesses are like fruit treesAdaptation of: Financial Accounting Jamie Pratt, 2003 John Wiley & Sons


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1.1.1 Stock Market

Key Concepts:

IPO, Equity, Shareholders,Financing (debt/equity).

SEC, FASB, GAAP, Market

Capitalization.

Stock and indexes: NASDAQ,

NYSE, LSE, Dow Jones, S&P.

Portfolio: Short/long positions

Stock and Options


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1.1.2 Financial Statements

Key Concepts:

Balance SheetFinancial report showing the status of a companies assets, liabilities and equity on a

given date(www.mines.edu/stu_life/organ/mic/glossary.htm)

Income StatementA financial statement that contains a summary of a business' financial operations for

a specific period of time. It shows the net profit or loss for the period by stating the

company's revenues and expenses. (www.ncbuy.com/credit/glossary.html)
http://www.mines.edu/stu_life/organ/mic/glossary.htmhttp://www.ncbuy.com/credit/glossary.htmlhttp://www.ncbuy.com/credit/glossary.htmlhttp://www.mines.edu/stu_life/organ/mic/glossary.htm


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Balance Sheet :

Assets = Liabililities + Equity

Contributed Capital

Retained Earnings

Current Assets

Cash

Short-Term investments

Account Receivable

Inventory

Pre-paid expense

Long-term Investments

Property, plant, and equipment

Intangible Assets

Goodwill

Patent/Trademark

Current Liabilities

Accounts Payable

Wages Payable

Short-term note

payable

Current maturities

of long-term debt

Long-term Liabilities

Long-term notes

payable

Bonds payable

Mortgage payable


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Balance

Sheet :


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Income

Statement :


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Review

Example :


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1.1.3 Additional Concepts and Terminology

Expense or capitalize? Decide in what period the

revenue is to be generated.

Overstating Operating performance: Revenue andexpense recognition.

Interest (simple and compound). Future Value.

Financial Ratios:

ROE = Net Income / Avg. Stockholder equity

ROS = (Net Income + Interest expense * tax shield ) / Net Sales

Debt-to-Equity = Avg. Total Liabilities / Avg. Stockholders equity

Earnings per share = Net Income / Avg. Number of CSO

P/E = Market price per Share / Earnings per share

Dividend Yield Ratio = Dividends per Share / Market price per Share


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Financial Ratios:

Documents

2- Introduccion a Finanzas y Estrategia Basica