Principles of Finance - Open Textbook Library (2024)

Principles of Finance - Open Textbook Library (1)

(3 reviews)

Principles of Finance - Open Textbook Library (2)Principles of Finance - Open Textbook Library (3)Principles of Finance - Open Textbook Library (4)Principles of Finance - Open Textbook Library (5)Principles of Finance - Open Textbook Library (6)

Julie Dahlquist, Texas Christian University

Rainford Knight, Florida Atlantic University

Alan S. Adams, Dean College

ISBN 13:9781951693541

Publisher:OpenStax

Language:English

Formats Available

  • Online
  • PDF
  • Hardcopy

Conditions of Use

Principles of Finance - Open Textbook Library (7)Attribution
CC BY

Reviews

Learn more about reviews.

Principles of Finance - Open Textbook Library (8)Principles of Finance - Open Textbook Library (9)Principles of Finance - Open Textbook Library (10)Principles of Finance - Open Textbook Library (11)Principles of Finance - Open Textbook Library (12)

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

Principles of Finance - Open Textbook Library (13)Principles of Finance - Open Textbook Library (14)Principles of Finance - Open Textbook Library (15)Principles of Finance - Open Textbook Library (16)Principles of Finance - Open Textbook Library (17)

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

Comprehensiveread more

Principles of Finance - Open Textbook Library (18)Principles of Finance - Open Textbook Library (19)Principles of Finance - Open Textbook Library (20)Principles of Finance - Open Textbook Library (21)Principles of Finance - Open Textbook Library (22)

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

Table of Contents

  • 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
  • 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

    Contribute to this Page

    Suggest an edit to this book record
    Principles of Finance - Open Textbook Library (2024)

    FAQs

    What is the principle of finance 1? ›

    Principles of Finance 1 provides a broad understanding of basic principles in the area of finance. The course introduces techniques for effective financial decision-making and helping managers to maximize shareholders' wealth.

    What is the principle of finance? ›

    A: The five major principles of finance are time value of money, risk and return, diversification, capital budgeting, and cost of capital. Understanding these principles is crucial for anyone working in finance or aspiring to do so.

    Are principles of business finance hard? ›

    While finance requires some mathematics training and some knowledge and skills in accounting and economics, it's not necessarily more difficult than any other field of study, particularly for people with an aptitude for math.

    What are the principles of financial accounting? ›

    The most notable principles include the revenue recognition principle, matching principle, materiality principle, and consistency principle. Completeness is ensured by the materiality principle, as all material transactions should be accounted for in the financial statements.

    What is principle 3 in finance? ›

    Principle 3: A budget must be based on a thorough analysis that includes: a clear identification of the budget's purpose to the unit's mission, goals and objectives, a comprehensive assessment of the unit's financial needs in order to fulfill its goals, and.

    What is the rule number 1 in finance? ›

    Rule 1: Never Lose Money

    This might seem like a no-brainer because what investor sets out with the intention of losing their hard-earned cash? But, in fact, events can transpire that can cause an investor to forget this rule. Buffett thereby swears by Rule 2.

    What are the three most important concepts of finance? ›

    3 Essential Financial Concepts You Should Understand
    • Budgeting. This concept is often misunderstood as a way of keep you from spending money on what you want. ...
    • Credit Score. ...
    • Interest vs. ...
    • The Importance of Financial Literacy.
    Apr 6, 2023

    What is the basic concept of finance? ›

    Finance encompasses banking, leverage or debt, credit, capital markets, money, investments, and the creation and oversight of financial systems. Basic financial concepts are based on microeconomic and macroeconomic theories.

    What is the first principle of finance? ›

    Principle 1: Money Has a Time Value

    Perhaps the most fundamental principle of finance is that money has a time value. A dollar received today is more valuable than a dollar received one year from now.

    What is the hardest job in finance? ›

    Roles such as Financial Analyst, Risk Manager, and Accountant are some of the hardest roles to fill in accounting and finance. These positions require a candidate with a blend of financial expertise, analytical thinking, and strategic foresight.

    What is the hardest problem in finance? ›

    “It was Nobel Prize winning economist William F. Sharpe who said that decumulation is the nastiest, hardest problem in finance,” Monteiro says. “It's a very complicated problem. You have to start by asking what your life is going to be like in retirement.

    What is the toughest course in finance? ›

    The CFA designation is the most prestigious and sought-after qualification. To become a charter holder, it's necessary to pass three exams and is an equivalent of a master's degree. The CFA designation is reputed to be the most difficult certification to obtain, which works to the benefit of those who succeed.

    What is the account golden rule? ›

    The three golden rules of accounting are (1) debit all expenses and losses, credit all incomes and gains, (2) debit the receiver, credit the giver, and (3) debit what comes in, credit what goes out. These rules are the basis of double-entry accounting, first attributed to Luca Pacioli.

    What are the four GAAP rules? ›

    What Are The 4 GAAP Principles?
    • The Cost Principle. The first principle of GAAP is 'cost'. ...
    • The Revenues Principle. The second principle of GAAP is 'revenues'. ...
    • The Matching Principle. The third principle of GAAP is 'matching'. ...
    • The Disclosure Principle. ...
    • Why are GAAP Principles important?
    Sep 10, 2021

    What are the 5 basic accounting principles? ›

    However, when accountants prepare financial statements, they generally adhere to these five principles.
    • The accrual principle. ...
    • The matching principle. ...
    • The historic cost principle. ...
    • The conservatism principle. ...
    • The principle of substance over form.

    What is taught in Financial Accounting 1? ›

    Introduction to Financial Accounting

    Financial accounting courses introduce students to the practical application of financial accounting principles. Students use real-world examples to prepare and evaluate financial statements. Topics include accounts receivable, financial ratios, debt, and inventory.

    What is financial accounting 1 theory? ›

    Financial accounting theory focuses on the “why” of accounting – the reasons why transactions are reported in certain ways. The majority of introductory accounting courses cover the “what” and “how” of accounting.

    Which describes personal finance 1 point? ›

    Personal finance is a term that covers managing your money as well as saving and investing. It encompasses budgeting, banking, insurance, mortgages, investments, and retirement, tax, and estate planning.

    Top Articles
    Latest Posts
    Recommended Articles
    Article information

    Author: Francesca Jacobs Ret

    Last Updated:

    Views: 5361

    Rating: 4.8 / 5 (68 voted)

    Reviews: 83% of readers found this page helpful

    Author information

    Name: Francesca Jacobs Ret

    Birthday: 1996-12-09

    Address: Apt. 141 1406 Mitch Summit, New Teganshire, UT 82655-0699

    Phone: +2296092334654

    Job: Technology Architect

    Hobby: Snowboarding, Scouting, Foreign language learning, Dowsing, Baton twirling, Sculpting, Cabaret

    Introduction: My name is Francesca Jacobs Ret, I am a innocent, super, beautiful, charming, lucky, gentle, clever person who loves writing and wants to share my knowledge and understanding with you.