No fear finance : an introduction to finance and investment for the non-finance professional

No Fear Finance is an accessible guide to the essentials of the finance and investment sectors for individuals who may be approaching the subject for the first time, or who are coming to it from a non-finance background. Covering the fundamentals of finance - including an overview of business finance, the basics of accountancy, financial risk and investment vehicles - the book removes much of the fear experienced by many people when confronted with complex financial issues, and enables them to gain a clear understanding of the basic principles of finance, to which more complicated financial models can then be applied.Online supporting resources for this book include downloadable PDFs of supplemental figures Contents 6 01 Learning about finance 12 Introduction 12 Who will find this book useful? 12 What is ‘difficult’ about learning finance? 13 Finance and mathematics 14 Open and closed questions – concepts and calculations 15 Finance and reality 16 Problems with language 17 The approach this book will take 17 The numbers 18 Coping with formulae and calculations 18 The rest of the book 21 Notes 22 02 Types of business 24 Trading as a sole trader 24 Trading as a partnership 27 Trading as a company (corporation) 29 Other possibilities 31 03 How business is financed 34 Equity 34 Debt 38 The Miller Modigliani Theory 42 The Theory of the Efficient Firm 42 Notes 45 04 Accounting basics (1): the balance sheet 46 Financial accounting: the basics 46 Management accounts: the basics 47 Financial accounts 48 Balance sheet 50 Valuation 55 Auditing 56 Notes 58 05 Accounting basics (2): the profit and loss account 60 Turnover 61 Profit (or earnings) 61 Profit and cash-flow distinguished 65 Analysing the P&L 68 06 Working capital and further financial analysis 72 The current ratio 72 The acid test ratio 74 Long-term liquidity 74 Working capital 75 Notes 81 07 The time value of money 82 Looking down the time tunnel 82 Discounting 84 Finding the present value of a cash-flow due in more than one year 87 Compounding 92 08 Special uses of discounting 96 Annuities 96 Perpetuities 101 The Internal Rate of Return 103 Annuities and DC pension schemes 104 09 Risk 110 What do we mean by ‘risk’? 111 What does the world of finance mean by ‘risk’? 111 Risk 119 The Sharpe Ratio 119 10 Return 122 Periodic returns 123 What can constitute ‘return’? 123 Annualized returns 125 Compound returns 128 11 Bonds (1): basic principles 134 How can we classify bonds? 134 Bond returns 140 Notes 144 12 Bonds (2): discounting, redemption, pricing and valuation 146 The redemption yield 146 Bond pricing 149 Bond durations 156 13 Equities 162 Characteristics of equities: income 163 Characteristics of equities: capital 164 Measurement of equity returns 165 Equity risk 167 Measuring effective diversification 170 14 Alpha and beta: active and passive investment 174 What is beta? 175 What is alpha? 177 The arguments in favour of active investment 178 The arguments in favour of passive investment 180 Notes 182 15 Derivatives (1): futures and options 184 Futures 185 Options 188 Leverage 193 Capital at risk 194 Notes 195 16 Derivatives (2): swaps, futures, options and how to use them 196 OTC and exchange traded options 196 American and European options 197 The Black-Scholes Model 198 Swaps 201 Hedging 205 Notes 208 17 Capital markets and M&A transactions: events in the corporate life-cycle 210 Merger and acquisition 210 Flotation (IPO) 215 Capital raising: issue of new bonds or shares (stock) 216 Insolvency (bankruptcy) 217 Notes 220 18 Asset allocation 222 Regulation 223 The truth about bonds 224 Diversification 225 Correlation 227 The challenge: matching theory with reality 231 Notes 232 Appendix: key formulae 234 Glossary of financial terms 240 Index 258

Many people are too apprehensive of the perceived risk to invest and too intimidated by the complicated jargon to consider finance. No Fear Finance is an accessible guide to the essentials of finance and investment for students approaching the subject for the first time or professionals looking to gain new skills.

Guy Fraser-Sampson covers topics such as how people do business, how business is financed, accounting basics, financial accounting, working capital, capital transactions, the investment fundamentals of risk and return, the time value of money, investing in bonds and equity, asset classes, different types of funds, asset allocation, derivatives, behavioral finance and the future of business finance. Covering all of the basics needed to have a thorough understanding of finance, Fraser-Sampson provides general readers, entrepreneurs and new managers with the confidence to confront complex financial and investment concepts.

For anyone looking to grasp the underlying principles to modern finance and investment vehicles, No Fear Finance removes the potential uncertainty surrounding numbers and calculations and offers a clear, accessible and straightforward assessment of the terms, definitions and inter-relationships that support finance industries around the world. Financial miscellanea covering the fundamentals of finance including an overview of business finance, the basics of accountancy, financial risk and investment vehicles, and a full glossary of financial terms