1. An Introduction to Basic Finance
Herbert B. Mayo The College of New Jersey

2. The 3 Divisions of the Finance Discipline
Finance – the study of money and its management.
Financial Institutions
Investments
Corporate (business) finance

3. Assets = Liabilities + Equity
Sources of Finance
Balance Sheet – Financial statement that enumerates what an economic unit owns or owes and its net worth. A firms financial position
Assets = Liabilities + Equity
Assets - Items of property owned by a firm, household, or government and valued in monetary terms. An economic resource.
Liabilities - What an economic unit owes expressed in monetary terms
Equity - Owners investment in a firm (claim to the assets); a firms net worth or book value

4. Risk, Return, and Financial Leverage
Return - What is earned on an investment; the sum of income and capital gains generated by an investment
Risk - Possibility of a loss; the uncertainty that the anticipated return will not be achieved
Financial Leverage - Use of borrowed funds in return for agreeing to pay a fixed return; use of debt financing

5. Risk and Return Goal of management: maximize shareholder value
Valuation - Process of determining what an asset is currently worth
Goal of management: maximize shareholder value
Over time, the price of a company’s stock is indicative of management performance.