The accounting equation:
Assets = Liabilities + stockholders’ Equity
Equity = contributed capital + Retained Earnings
Contributed capital = Par Value + additional Paid-In capital.
Statements:
 Balance sheet: financial position of a business on a certain date usually the end of the month or year.
 Income statement: revenues earned and expenses in cured by business over a period of time
 Statement of retained earnings
 Cash flow statement

Financial analysis covers: comparison of a firm to industry peer + Benchmarking ( ratio analysis) and analyzing a firm’s position over time ( trend analysis).
Ratio categories: liquidity, asset management, debt management, profitability and market value ratios.
Time Value of Money:
TVM: a dollar now is worth more than a dollar received in the future!
Capital Budgeting:
Capital Budgeting: “process of planning expenditures on assets whose cash flows are expected to extend beyond one year”.
Decision methods:
1. Payback Period (PB): “length of time required for an investment’s net revenues to cover its costs”.
2. Discounted Payback Period (DPB): “length of time required for an investment’s cash flows, discounted at the cost of capital, to cover its costs”.
3. Net present value (NPV): present value of future net cash flows, discounted at the marginal cash of capital.
4. Internal rate of return (IRR): “discount rate which forces the PV if a project’s inflows to equal the PV of its costs”.
5. Modified internal rate of return (MIRR): discount rate which the PV if a project’s costs is equal the PV of its terminal value, where the terminal value is found as the sum of the futures values of the cash inflows, compounded at the firm’s costs of