Fundamentals of Finance

FIN-201
Dr Zubair Ahmed Naseem
• Assistant Professor, Entrepreneur, Researcher, Self Development Writer

• PhD from the National University of Malaysia (UKM),

• MBA Finance and Supply Chain Management
• B. Com (Karachi University)

• Shahadah tul Almiah (Equal to MA Arabic & Islamic Studies by HEC Pakistan)
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• Specialization in Islamic Finance, Islamic Fiqh Academy Pakistan
Relevant Portion from the Course Outline
Week/ Contents Activities (Critical Thinking) Case studies, Role Learning
Session plays, Movie clips, Assignments, Research papers, Objectives
Addressed
Presentations

1 Discussion on Vision and Mission • Vision, Mission

• Course Outline, Sequence of Course • Ice Breaker/ Open Discussion
Conduct and Assessment / Evaluation • Instructor Introduction
System. • Students Goals & Aims
INTRODUCTION TO FINANCE AND • Subject related Discussion (course outline,
FINANCIAL MANAGEMENT grading scheme)
• Finance – Orientation, definition, role of • Lecture/Discussion
finance in business, organizational chart. • Discussion on role of finance in an organization
• Areas of Finance - Financial Management, and the economy.
Investments & Asset Management. • Discussion on key areas of finance.
• Goal of the Firm. • Post-Class Assignment
• Modern Corporation - Business Ethics, • Reading Reference: Textbook Chapter 1
Agency Theory, Social Responsibility. • Read Case Study: Striking the Right Balance on
• Forms of Business Organizations. pg. 2-3.
• Read articles on Financial Assets and Financial
Markets for discussion next week.
• Read about money market functioning –
Globally and locally.
• Read about financial and regulatory institutions.

2
 Discussion on Vision and Mission
BU
• Vision
• Mission

BBS
• Vision
• Mission

• Students Goals & Aims (Your Vision and Mission)

3
 The Famous Harvard (or Yale) Goals
Research Study
• In 1953, Harvard conducted a study on goal-setting which has since been
quoted and referenced in countless articles and books. The study found
that people who wrote down their goals were more likely to earn more
income than those who didn't. This became known as the 'Harvard Study
on Goals'.
• Here is the gist of the study's results. A 1953 graduating class of Harvard
MBA students was asked about whether, or not, they had goals. The
following were the responses:
• 3% said they had clear, written goals.
• 13% had goals, just not written down.
• 84% did not have goals at all.
• Ten years later, it was discovered that the 13% who had non-written goals
earned on average twice as much as the 84% who did not have goals at all.
The 3% who had written goals outperformed everyone altogether by
earning ten times as much as all of the other 97% combined.
For further details: https
://www.linkedin.com/pulse/surprising-truth-famous-goals-research-study-jerry-dugan/
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 Activity
• Have you clear, written goals.
• Yes, well and good
• No, Start thinking and making and writing your initial goals
• Have goals, just not written down.
• Start writing your goals

• Don’t forget the life hereafter, while making goals

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 Introduction

Students’ Introduction
• Name
• Your Goals, if you want to share
• Program and Semester
• Prior Knowledge of the subject?
• Any experience related to the subject?
• Any longer-term interest/plan related to the subject
• If yes, so what are the details?
 Instructor Introduction
Dr Zubair Ahmed Naseem
• B. Com (Karachi University)
• MBA Finance and Supply Chain Management
• PhD from the National University of Malaysia (UKM),

• Shahadah tul Almiah (Equal to MA Arabic & Islamic Studies by HEC Pakistan)
• Specialization in Islamic Finance, Islamic Fiqh Academy Pakistan

• Practical Experience and Exposure

• Assistant Professor:
• Bahria University (Since Spring 2024),
• IUGC (Spring, Summer and Fall 2023-24),
• IU Main Fall 2023-24
• HEC PhD Scholar at UKM (2019-2023)
• BankIslami Pakistan Limited (2014-2019)
• Entrepreneur

7
 Course Outline, Sequence of Course
Conduct and Assessment /
Evaluation System.
• Course Outline,
• Sequence of Course
• Conduct and
• Assessment / Evaluation System.

8
 INTRODUCTION TO FINANCE
AND FINANCIAL MANAGEMENT
• Finance –
o Orientation, definition,
o role of finance in business,
o organizational chart. (and Finance)

9
 INTRODUCTION TO FINANCE
AND FINANCIAL MANAGEMENT
• Areas of Finance –
• Financial Management,
• Investments &
• Asset Management.
• Goal of the Firm
• Modern Corporation –
• Business Ethics,
• Agency Theory,
• Social Responsibility.
• Forms of Business Organizations.

10
 Post-Class Assignment / Activities
• Reading Reference: Textbook Chapter 1
• Read Case Study: Striking the Right Balance on pg. 2-3.
• Read articles on Financial Assets and Financial Markets for
discussion next week.
• Read about money market functioning – Globally and locally.
• Read about financial and regulatory institutions

11
12
Residual Time: How to search and SQ3R
• Text Books as per the outline
1. Eugene Brigham and Joel Houston “Fundamentals of Financial Management”,
15th Edition, Cenage.
• Online Avilablity Links (Just searched by the browsing):
https://archive.org/details/fundamentalsoffi00euge_6

2. Van Horne: Fundamentals of Financial Management, 13th Edition

• Reference Book:
• Arthur Keown, John Martin, J. Petty “Foundations of Finance – Global
Edition”, 8th Edition, Pearson.
• Raymond Brooks “Financial Management – Core Concepts, Global Edition”,
3rd Edition, Pearson.

• Google Scholar etc

• SQ3R method by Google

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 Fundamentals of Finance
Bahria University

Business Studies Department, BUKC

 •Course Description
The course aims to develop the
understanding of
basic finance concepts and theory
Walkthrough along with its application to
of Course decision- making.
Outline Also prepare students for
advanced courses in finance and
for careers in which financial
knowledge is important.

Business Studies Department, BUKC

 Learning Outcomes
• Conduct time value analysis.
• Estimate cost of capital components and
composite cost of capital.
• Determine Discount/ Hurdle Rates.
• Evaluate investments in Working Capital
Walkthrough and Long Term Assets.
• Demonstrate proficiency in Valuation
of Course techniques both Discounted Cash Flow and
Non Discounted Cash Flows.
Outline
 What Is Finance

The system that includes the circulation of money, the granting of

credit, the making of investments, and the provision of banking
facilities.

The circulation of money

Granting of credit
Making of investments
The provision of banking facilities

Business Studies Department, BUKC

 What Is Finance

Business Studies Department, BUKC

 Depending on the type of entity involved:
Individual level
Personal finance
Household finance

Organization level
Corporate/business finance
Non-profit finance

Government level
Public finance

Business Studies Department, BUKC

Areas of Finance
1. Financial management
2. Investments
3. Capital markets

Business Studies Department, BUKC

 Financial Management
(Corporate finance)
FM focuses on decisions relating to how much and what
types of assets to acquire, how to raise the capital
needed to purchase assets, and how to run the firm so
as to maximize its value
Decision about
 How much assets to acquire?
 What type of asset to acquire?
 How to raise funds needed for asset purchase? (source of capital)

Business Studies Department, BUKC

 Investments
Relate to decisions concerning stocks and bonds
1. Security analysis (finding the proper values of individual securities )
2. Portfolio theory (the best way to structure portfolios)
3. Market analysis (stock and bond markets at any given time )
4. behavioral finance (investor psychology is examined )

Business Studies Department, BUKC

 Capital markets
Relate to the markets where interest rates, along with stock
and bond prices, are determined the financial institutions
that supply capital to businesses
Banks, investment banks, stockbrokers, mutual funds,
insurance companies,
Bring together “savers” who have money to invest and
businesses, individuals etc
It involves State Bank (SB), which regulates and controls the
supply of money to businesses.
The SEC, which regulates trading of bonds and stocks in the
public markets.

Business Studies Department, BUKC 23

Inter-connection of the three
areas
Although we separate these three areas, they are closely
interconnected.
Banking is studied under capital markets
Bank lending officer evaluating a business’ loan request
must understand corporate finance
Financial decisions of all types depend on the level of
interest rates; so all people in corporate finance,
investments, and banking must know something about
interest rates and the way they are determined

Business Studies Department, BUKC

 Finance Within
an Organization
Most businesses and not-for-profit organizations have an
organization chart

Business Studies Department, BUKC

 Finance Within
an Organization
Sarbanes-Oxley Act
A law passed (2002) by Congress that requires the CEO
and CFO to certify that their firm’s financial statements
are accurate.
Corporate scandals (Homework)
Nikola’s roll
Wirecard’s collapse
Luckin Coffee’s frothy finances
Twitter’s security slip
Tesla’s lockdown defiance

Business Studies Department, BUKC

 Finance Versus Economics
and Accounting
Economists developed the notion that an asset’s value is
based on the future cash flows the asset will provide
Accountants provided information regarding the likely
size of those cash flows.
People who work in finance need knowledge of both
economics and accounting

Business Studies Department, BUKC

 Jobs in Finance

https://www.allbusinessschools.com/finance/job-description/

Business Studies Department, BUKC

 Four main forms of business organizations

(1) Proprietorships
(2) Partnerships
(3) Corporations
(4) Limited liability companies (LLCs) and limited
liability partnerships (LLPs).

Business Studies Department, BUKC

 Proprietorships
An unincorporated business owned by one individual
Going into business as a sole proprietor is easy---a person begins business
operations
Important advantages:
They are easy and inexpensive to form.
They are subject to few government regulations.
They are subject to lower income taxes than are corporations
Important limitations:
Unlimited personal liability
The life of the business is limited
Difficulty obtaining large sums of capital

Business Studies Department, BUKC

 Partnership
An unincorporated business owned by two or more
persons.
A partnership is a legal arrangement between two or more
people who decide to do business together.

Partnerships are similar to proprietorships in that

They can be established relatively easily and inexpensively.
Moreover, the firm’s income is allocated on a pro rata basis
to the partners and is taxed on an individual basis.

Business Studies Department, BUKC

 Partnership

Partners are generally subject to unlimited personal

liability
Unlimited liability makes it difficult for partnerships to
raise large amounts of capital

Business Studies Department, BUKC

 Corporation
A legal entity created by a state, separate and distinct from
its owners and managers, having unlimited life, easy
transferability of ownership, and limited liability.

Limited liability
Easy transfer shares
Easy rise of capital
Double taxation

Business Studies Department, BUKC

 S Corporations
A special designation that allows small businesses that
meet qualifications to be taxed as if they were a
proprietorship or a partnership rather than a corporation.

To qualify for S corporation status, a firm can have no more

than 100 stockholders
Larger corporations are known as C corporations
Small corporations elect S status and retain that status
until they decide to sell stock to the public, at which time
they become C corporations

Business Studies Department, BUKC

 limited liability
company (LLC)
A popular type of organization that is a hybrid between a
partnership and a corporation.
LLCs and LLPs provide limited liability protection, but they
are taxed as partnerships.
Unlike limited partnerships, where the general partner has
full control of the business the investors in an LLC or LLP
have votes in proportion to their ownership interest.

Business Studies Department, BUKC

 Limited Liability
Partnership (LLP)
Similar to an LLC but used for professional firms in the
fields of accounting, law, and architecture.
It provides personal asset protection from business debts
and liabilities but is taxed as a partnership.

Business Studies Department, BUKC

 The Main Financial Goal: Creating
Value for Investors
Managers and employees work on behalf of the
shareholders who own the business.
To pursue policies that promote stockholder value
Focus on maximizing a broad range of financial
objectives
Growth, earnings per share, and market share
(which is to create value for investors)

Business Studies Department, BUKC

 Perceived” means what investors
expect,
given the limited information they
have.
Determinants OF Value

By “true,” we mean the cash flows and risk that

investors would expect if they had all of the
information that existed about a company
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 Determinants
Intrinsic Value
OF Value
An estimate of a stock’s “true” value based on accurate risk and
return data. The intrinsic value can be estimated, but not measured
precisely.
Market Price
The stock value based on perceived but possibly incorrect
information as seen by the marginal investor
Marginal Investor: An investor whose views determine the actual
stock price
Equilibrium
The situation in which the actual market price equals the intrinsic
value, so investors are indifferent between buying and selling a
stock.

Business Studies Department, BUKC

 Business
Ethics
Ethics is defined as “standards of conduct or moral behavior.”
Business ethics can be thought of as a company’s attitude and
conduct toward its employees, customers, community,
and stockholders.
To inform students about proper versus improper business actions.
Business ethics can be measured by
Tendency of its employees
Adhere to laws regulations
Moral standards relating to product safety and quality
Fair employment practices
Fair marketing and selling practices
The use of confidential information for personal gain

Business Studies Department, BUKC

 Agency
Relationships
An agency relationship exists whenever a principal hires an agent to act on
their behalf.
Within a corporation, agency relationships exist between:
Shareholders and managers
Shareholders and creditors

Business Studies Department, BUKC

 Shareholders
versus
Managers
Managers are naturally inclined to act in their own best interests.
But the following factors affect managerial behavior:

Managerial compensation plans

Direct intervention by shareholders
The threat of firing
The threat of takeover

Business Studies Department, BUKC

 Shareholders versus Creditors

Shareholders (through managers) could take risky actions to maximize

stock price, but are detrimental to creditors.
In the long run, such actions will raise the cost of debt and ultimately lower
stock price.

Business Studies Department, BUKC

 Does profit maximization equal
stock price maximization?

No, there is generally a high correlation between EPS, cash flow, and
stock price, but today’s stock price relies not only on current
earnings, but future earnings and cash flows.
Some actions may increase earnings, yet cause stock price to
decrease (and vice versa).

Does a Pakistani investor lose OR win

Business Studies Department, BUKC

Does profit maximization equal
stock price maximization?
 Reference readings & Assignments

Reference Reading
 Brigham, E. F., & Houston, J. F. (2018). Fundamentals of
Financial Management. 15th Edition, Cengage.
Chapter 1: An Overview of Financial Management
Post-Class Readings
 Read Case Study: Striking the Right Balance on pg. 2-3.
 Read about money market functioning – Globally and locally.
Post-Class Assignments
 Read relevant topics from chapter 1 & 2.

Business Studies Department, BUKC

‫کیا آپ خوش قسمت بننا چاہتے ہی‬
‫ں؟‬
Do you want to be lucky?
‫ مگر کیسے؟‬،‫تنازعات کا حل‬
Conflict resolution, but how?
‫کامیابی قربانی مانگتی ہے‬
Success demands sacrifice
‫ آخر کیوں؟‬،‫سسرالی تنازعات‬
In-law conflicts, why?
‫آئینہ حقیقت‬
Actual Reality
‫امتحان میں کامیابی‬
Exam success
Further Soon can be available on
‫کلیاِت زبیر احمد نسیم‬

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