The purpose of this OER is to explain business finance concepts to students in a simplified manner without overwhelming them with too much materials. While this resource is written from the Australian perspective using Australian examples, the content of the resource is international in nature. Our students are from a wide range of countries and it is intended that the resource be useful in these environments. The content of the book is divided into ten topics.
The first topic discusses the three important decisions that managers in a typical business make. The decisions are in what type of asset they should invest, what are the potential sources of funds that can finance the assets and how much of the profit should be distributed among the owners of the business. In the first topic, we will cover the overview of the three important decisions, the financial and overall objective of the manager, and the fundamental concepts in finance. Further, we will cover financial mathematics which is necessary to understand financial concepts.
In the second and third topic, we will cover the topic of risk and return. In this topic, we will show how risk and return are related in the context of a business and how the return of an asset is determined. We will also discuss different types of risks that a business faces and how investors can diversify these risks when they are investing in the share market.
In topic four, we will discuss how to value bonds and how bond values and interest rates are related. How long does it take to get all the cash from the bond? How is this related to bond value.
In topic five, we will explain the valuation of shares using dividend discount and market based valuation models. What are the different methods that can be used to value a share? What is the difference between the value of a share and the price of a share? How can you value a share if it is not traded in the stock market?
In topics six and seven we will discuss different tools and methods that managers use to make investment decisions. What are the important expenditures that they need to take into account in order to make the investment decisions? What are the different risks that can affect these investment decisions?
In topics eight and nine we will discuss the different sources of funding available for a business. What are the cost and benefits of these sources of funding? How can a business optimise the mix of funding sources to maximise the value of a business? What is the role of life cycle in determining the mix of funding sources for the business? How to calculate the hurdle rate for the business?
In topic ten we will discuss how the manager decides how much of the profit should be distributed among the owners of the business. What are the different ways a manger can distribute profits to the shareholders? What is the effect on share price when profits are distributed among the owners of the business? How imputation tax system affects the decision to distribute profits among the shareholders. How a firms life cycle determines how much of the profit should be distributed among the owner of the business.
