TRident fin301 module 1 (case+ slp + discussion) 2019

Module 1 - Background

INTRODUCTION TO FINANCIAL MANAGEMENT AND THE STOCK MARKET

Required Reading

Start out by viewing these two short videos that cover some introductory concepts about investing in stocks:

Valentine, W. (2012). What is the P/E ratio? The Wealth Academy. Retrieved from: https://www.youtube.com/watch?v=TKk1xdTbOK0

Smith, A. (2012). What's the difference between a growth stock and a value stock? The Motley Fool. Retrieved from: https://www.youtube.com/watch?v=z-s0yXoa5DQ

Now go into more depth in this topic with the following readings that follow-up on some of the concepts covered in the videos. This first reading is very general in nature and will give you a general overview. Pay special attention to the concepts of growth stocks, income stocks, value stocks, and the P/E ratio:

Editors of Kiplinger’s Personal Finance. (2008). The basics for investing in stocks. South Carolina Attorney General. Retrieved from: https://www.scag.gov/wp-content/uploads/2011/03/Stocks.pdf

This next reading is more comprehensive. Pay special attention to how the P/E ratio and similar ratios are used to find stocks with a good value:

EInvestingforBeginners.com. (2013). 7 Steps to Understanding the Stock Market. Retrieved from: http://einvestingforbeginners.com/wp-content/uploads/2013/04/7-Steps-to-Understanding-the-Stock-Market.pdf

The above materials all covered finance from the point of view of someone investing in a company. But what is it like to be on the other side – being a financial manager who needs to get investors in order to finance their company’s operations? Take a look at this overview of being a financial manager, which will be very important for your Case Assignment:

Brealey, R., Myers, S., & Marcus, A. (2009). Chapter 1: Goals and governance of the firm. Fundamentals of Corporate Finance. McGraw-Hill. Retrieved from http://dreamsupport.us/justin/Books%20&%20Textbooks/Business/Brealey,%20Myers,%20Marcus
%20-%20Fundamentals%20of%20Corporate%20Finance%20-%208th%20Edition.pdf

Finally, part of the SLP will involve entering some basic information into an Excel worksheet. For those of you who do not have much background with Microsoft Excel, take a look at these short but informative videos on the basics of Excel:

LinkedIn Learning Solutions. (2013). Data entry and editing techniques. Lynda.com. Retrieved from: https://www.youtube.com/watch?v=ou8wGTMLJiU

GCFLearnFree.org. (2016). Excel 2016: Introduction to formulas. Retrieved from: https://www.youtube.com/watch?v=xc14gFFyiTw

Optional Reading

Kay, K. (2013). How to enter data into Excel for beginners - Part I. Excel Tutorials Online. Retrieved from: https://www.youtube.com/watch?v=ayDoN5wP8bY

Technology for Teachers and Students. (2017). The beginner's guide to Excel - Excel basics 2017 tutorial. Retrieved from:

GCFLearnFree.org. (2016). Excel 2016: Functions. Retrieved from: https://www.youtube.com/watch?v=-9d4m79twdA

Penman, S. (2007). Chapter 1: Introduction to investing and valuation. Financial Statement Analysis and Security Valuation. McGraw-Hill. Retrieved from: http://novellaqalive2.mhhe.com/sites/dl/free/007000000x/484693/chap1.pdf

Bodie, Kane, & Marcus (2007). Chapter 3: Securities markets. Essentials of Investments. McGraw-Hill. Retrieved from: http://novellaqalive2.mhhe.com/sites/dl/free/007000000x/216465/chap3.pdf

 

 

Silly Finance Videos/Discussion

 

Previous Next 

Let’s start off this discussion on a light-hearted note. Finance is a dry and serious topic for most of you. So as an initial challenge, find a video on YouTube that illustrates some financial concepts from this module in a silly or entertaining manner. I’ll start off with a very old cartoon video that explains the financial world:

The Film Archives. (1957). The stock market explained simply: Finance and investing basics. Retrieved from: https://www.youtube.com/watch?v=CgM68Yf-C0Q&t=140s

See if you can find something even sillier. But remember the video still should have some educational value in terms of explaining some concepts for this class. You can also choose to find a silly video on how to use Microsoft Excel, as this is another tool you will use in this class.

Finally, before the end of the module, post the four stocks you chose for your SLP and the current stock prices of these companies. We will be having a contest to see whose imaginary portfolio performs the best this session, so let’s see where everyone is starting at with their imaginary $20,000 portfolio.

 

 

 

 

Module 1 - Case

INTRODUCTION TO FINANCIAL MANAGEMENT AND THE STOCK MARKET

Assignment Overview

This assignment will cover both the role of the financial manager as well as the introductory material on stock market investing.  Make sure to fully review all of the required reading material before you begin this assignment. Note that all of the questions are conceptual in nature and will not require any computations (you will do plenty of computations for your Modules 1-3 Cases).  But make sure to thoroughly explain your reasoning behind each answer, and to support your answer using references to the required background readings.

Case Assignment

Write a three- to five-page paper answering the following questions:

1. Suppose you own a small business. You have two choices on how to run the business. One is to manage the business yourself, the other is to hire a manager and spend your time vacationing in Hawaii most of the time. Which situation is more likely to induce agency costs, and what kind of ways could you use to deal with these agency costs? Explain your answer with references to the required background readings.
2. In your small business you have a finance department with a CFO, controller, and treasurer. For the following scenarios, explain which of these three financial executives would be the most likely to work on the issue based on the descriptions of the roles of the CFO, controller, and treasurer from Brealey, et al. (2009) in the background readings
   1. You suspect that a lower-level employee has embezzled around $50,000 over the last three years and you want to try to find out who based on past financial records. Who would be most likely person to look into this issue – the CFO, the treasurer, or the controller?
   2. Your chief marketing officer wants to take out a large loan to finance a major advertising campaign that he claims will bring in large sums of new profits over the next few years. However, your chief operating officer wants to take out a large loan to purchase some new equipment and machinery that she claims will save your company a lot of money over the next few years. You would like to see some estimates about which of the two projects will be most likely to increase profits enough to be able to pay back the loan. Who would be most likely person to look into this issue – the CFO, the treasurer, or the controller?
3. Explain whether the following assets are a real asset or a financial asset. Explain your reasoning using the definitions of real versus financial assets in Brealey, et al. (2009).
   1. A certificate of deposit at your local bank
   2. A two-bedroom house
   3. $50,000 worth of bonds from an airline company
   4. Ownership of a copyright to a hit song
4. Do some research on Facebook and General Motors using a web page such as investing.com for financial information. Based on their P/E ratios, dividend yields, and other information, compare and contrast these two stocks. How would you classify these stocks: growth stock, a value stock, or an income stock? Explain your reasoning using both concepts from the background readings as well as any information you find on these two companies. Your answer to this question should be 1 to 1-1/2 pages.

Assignment Expectations

Answer the assignment questions directly.

• Stay focused on the precise assignment questions. Do not go off on tangents or devote a lot of space to summarizing general background materials.
• For computational problems, make sure to show your work and explain your steps.
• For short answer/short essay questions, make sure to reference your sources of information with both a bibliography and in-text citations. See the Student Guide to Writing a High-Quality Academic Paper, including pages 11-14 on in-text citations. Another resource is the “Writing Style Guide,” which is found under “My Resources” in the TLC Portal.

 

Module 1 - SLP

INTRODUCTION TO FINANCIAL MANAGEMENT AND THE STOCK MARKET

For your SLP, you will be creating an imaginary investment portfolio of four companies of your choice. You will be investing a total of $20,000 in imaginary money, with $5,000 invested in each of these four companies. We will track the progress of your portfolio over Modules 1-4, and also take a closer look at various aspects of these four companies.

To start with, choose your four companies. Don’t worry, you don’t have to use any fancy methods to pick them. The only restrictions are A) they need to be publicly traded companies with data available on web pages such as Investing.com or Morningstar.com, and B) they need to be from four different industries – don’t pick four companies all from the same industry. Your choice of companies can be made based on a variety of factors. For example, you may want to invest in a company simply because you like its products and personally use them. You can also apply some of the criteria from the background readings such as the P/E ratio, or you can search the internet and see what different analysts are saying about this company.

In addition to choosing four companies, review the links on Microsoft Excel in the background readings if you are new to using Excel. To get full credit you need to submit some information in the form of an Excel spreadsheet. But if you are struggling with Excel you can submit the information in a Word table and get partial credit for this assignment.

Once you have chosen your four companies, complete the following two sections of this assignment:

1. 1. Write a short description of each of your four companies and why you chose it. Be specific for your reasons – is it based on research, your gut feelings, your own experience with the company, etc. Also, explain whether you think each is a growth stock, a value stock, or an income stock using the definitions of these types of stocks from the background readings as well as the information you find about each company. Have at least one paragraph for each company, and about one and a half pages total for this section of the assignment in a Word document.
   2. Go to a web page that has stock quotes and financial information about publicly traded stocks and find information about stock prices and P/E ratios for your four companies. There are many such webpages, such as Investing.com’s stock quote page. In an Excel file, create a table with the following items:
      1. The name of each company
      2. The current stock price
      3. The stock price one year ago
      4. The percentage change in stock price from one year ago (the capital gain). Use the tutorial in the background page on the use of formulas in Excel to calculate this for each company
      5. The P/E ratio for each company

If you are new to Excel, view an example of a spreadsheet with the above information on four fictional companies. You can use this as a template for your own spreadsheet for this assignment.  

SLP Assignment Expectations

 Answer the assignment questions directly.

• • Stay focused on the precise assignment questions. Do not go off on tangents or devote a lot of space to summarizing general background materials.
  • For computational problems, make sure to show your work and explain your steps.
  • For short answer/short essay questions, make sure to reference your sources of information with both a bibliography and in-text citations. See the Student Guide to Writing a High-Quality Academic Paper, including pages 11-14 on in-text citations. Another resource is the “Writing Style Guide,” which is found under “My Resources” in the TLC Portal.