Table of Contents

1 Learning about finance
Introduction
Who will find this book useful?
What is ‘difficult’ about learning finance?
Finance and mathematics
Open and closed questions-concepts and calculations
Finance and reality
Problems with language
The approach this book will take
The numbers
Coping with formulae and calculations
The rest of the book
2 Types of business
Trading as a sole trader
Trading as a partnership
Trading as a company (corporation)
Other possibilities
3 How business is financed
Equity
Debt
The Miller Modigliani Theory
The Theory of the Efficient Firm
4 Accounting basics (1): the balance sheet
Financial accounting: the basics
Management accounts: the basics
Financial accounts
Balance sheet
Valuation
Auditing
5 Accounting basics (2): the profit and loss account
Turnover
Profit (or earnings)
Profit and cash-flow distinguished
Analysing the P&L
6 Working capital and further financial analysis
The current ratio
The acid test ratio
Long-term liquidity
Working capital
7 The time value of money
Looking down the time tunnel
Discounting
Finding the present value of a cash-flow due in more than one year
Compounding
8 Special uses of discounting
Annuities
Perpetuities
The Internal Rate of Return
Annuities and DC pension schemes
9 Risk
What do we mean by ‘risk’?
What does the world of finance mean by ‘risk’?
Risk
The Sharpe ratio
10 Return
Periodic returns
What can constitute ‘return’?
Annualized returns
Compound returns
11 Bonds (1): basic principles
How can we classify bonds?
Bond returns
12 Bonds (2): discounting, redemption, pricing and valuation 
The redemption yield
Bond pricing
Bond durations
13 Equities
Characteristics of equities: income
Characteristics of equities: capital
Measurement of equity returns
Equity risk
Measuring effective diversification
14 Alpha and beta: active and passive investment
What is beta?
What is alpha?
The arguments in favour of active investment
The arguments in favour of passive investment
15 Derivatives (1): futures and options
Futures
Options
Leverage
Capital at risk
16 Derivatives (2): swaps, futures, options and how to use them
OTC and exchange traded options
American and European options
The Black-Scholes Model
Swaps
Hedging
17 Capital markets and M&A transactions: events in the corporate life-cycle
Merger and acquisition
Flotation (IPO)
Capital raising: issue of new bonds or shares (stock)
Insolvency (bankruptcy)
18 Asset allocation
Regulation
The truth about bonds
Diversification
Correlation
The challenge: matching theory with reality
Appendix: key formulae
Glossary of financial terms
Index