latrobe.edu.

au

Fundamentals of Finance
Topic 1
Introduction to Finance

La Trobe University CRICOS Provider Code Number 00115M

 latrobe.edu.au

Topic 1: Intended Learning Outcomes

1. Describe the primary functions of a share market
2. Interpret a company’s share price information
3. Identify the key differences between three major legal
forms of business organisations
4. Understand the role of the financial manager

Slide 2 | Version 2
 latrobe.edu.au

Share markets
Activity
Which of the following describes a market in which shares are
1 sold by
the issuing company to investors for the first time?
Which of the following describes a market in which shares are traded
between investors after they are issued by a company?
a) Broker’s market
b) Floating market
c) Primary market
d) Secondary market
e) Tertiary market
What are the three methods used to issue new shares?

Slide 3 | Version 2
 latrobe.edu.au

Share markets
Activity
Which of the following describes a market in which shares are
1 sold by
the issuing company to investors for the first time?
Which of the following describes a market in which shares are traded
between investors after they are issued by a company?
a) Broker’s market
b) Floating market
c) Primary market
d) Secondary market
e) Tertiary market
What are the three methods used to issue new shares?
a) Public Offer
b) Private Placement
c) Rights Issue
Slide 4 | Version 2
 latrobe.edu.au

Capital Raising Methods

Activity
Which statements are true about each capital raising method?
2
Public Offer Placement Rights Issue

a) Usually raises the most capital

b) Likely causes dilution of share ownership
c) Requires a prospectus
d) Cheapest and quickest method
e) Right to buy shares can be traded to others
f) Most costly and time consuming method

Slide 5 | Version 2
 latrobe.edu.au

Capital Raising Methods

Activity
Which statements are true about each capital raising method?
2
Public Offer Placement Rights Issue

a) Usually raises the most capital

b) Likely causes dilution of share ownership
c) Requires a prospectus
d) Cheapest and quickest method
e) Right to buy shares can be traded to others
f) Most costly and time consuming method

Slide 6 | Version 2
 latrobe.edu.au

Stock Market Indices

Stock Market Index: An index calculated to measure

the performance of a stock market or sub-group of stocks.
Slide 7 | Version 2
 latrobe.edu.au

Stock Market Indices

Activity
Match the Index with the 3
Stock Exchange.
a) ASX Nikkei 225
b) NYSE CAC 40

c) NASDAQ Sensex
d) UK SZSE Composite Index

e) France S&P/ASX 200

f) Germany Hang Seng

g) Japan DAX

h) Hong Kong Nifty

i) Bombay SE SSE Composite Index

j) National SE of India Dow Jones

k) Shanghai SE FTSE

l) Shenzhen SE Nasdaq
Slide 8 | Version 2
 latrobe.edu.au

Stock Market Indices

Activity
Match the Index with the 3
Stock Exchange.
a) ASX Nikkei 225 g

b) NYSE CAC 40 e
Sensex i
c) NASDAQ
d) UK SZSE Composite Index l
S&P/ASX 200 a
e) France
f) Germany Hang Seng h

g) Japan DAX f

h) Hong Kong Nifty j

i) Bombay SE SSE Composite Index k
j) National SE of India Dow Jones b

k) Shanghai SE FTSE d
l) Shenzhen SE Nasdaq c
Slide 9 | Version 2
 latrobe.edu.au

Stock Quotes

Stock: The shares or equity securities of a listed corporation.

Stock Code: The alpha code of the stock, with the two alpha stock exchange code.
Slide 10 | Version 2
 latrobe.edu.au

Stock Quotes

Previous Close: The price of the last trade on the previous trading day.

Slide 11 | Version 2
 latrobe.edu.au

Stock Quotes

Open: The price of the first trade today.

Slide 12 | Version 2
 latrobe.edu.au

Stock Quotes

Last: The price at which the stock was last traded, today.

Slide 13 | Version 2
 latrobe.edu.au

Stock Quotes

Change: The change from the closing price of the previous trading day.
Last minus Prev. Close = $44.66 – $44.23 = +$0.43
Slide 14 | Version 2
 latrobe.edu.au

Stock Quotes

Change: The percentage change from the closing price of the previous trading day.
Change divided by Prev. Close = +$0.43/$44.23 = 0.97%
Slide 15 | Version 2
 latrobe.edu.au

Stock Quotes

Bid: The current highest price bid to buy the stock, hence the highest
price at which you can currently sell the stock. $44.66
Slide 16 | Version 2
 latrobe.edu.au

Stock Quotes

Ask: The current lowest price offered to sell the stock, hence the lowest
price at which you can currently buy the stock. $44.67
Slide 17 | Version 2
 latrobe.edu.au

Stock Quotes

VWAP: The Volume Weighted Average Price at which the stock has
traded today.
Slide 18 | Version 2
 latrobe.edu.au

Stock Quotes

Turnover: The value of shares traded today. A$72.26 million

Slide 19 | Version 2
 latrobe.edu.au

Stock Quotes

Volume: The number of shares traded today.

Slide 20 | Version 2
 latrobe.edu.au

Stock Quotes

YTD: The percentage change in stock price since beginning of the year.

Slide 21 | Version 2
 latrobe.edu.au

Stock Quotes

Beta: A measure of the volatility of the stock price compared with the
volatility of the market. Less than 1, so less volatile than the market.
Slide 22 | Version 2
 latrobe.edu.au

Stock Quotes

Market Capitalisation: The current market value of the company,

equals the number of shares on issue multiplied by last price.
Slide 23 | Version 2
 latrobe.edu.au

Stock Quotes
Activity
4

— What was the price of the most recent trade in JB HiFi shares?

— What is the percentage change in JB HiFi shares today?

— What is the best price you can currently buy JB HiFi shares?

— What is the best price you can sell JB HiFi shares?

— What is the market value of JB HiFi?

Slide 24 | Version 2
 latrobe.edu.au

Stock Quotes
Activity
4

— What was the price of the most recent trade in JB HiFi shares? $59.15

— What is the percentage change in JB HiFi shares today?

— What is the best price you can currently buy JB HiFi shares?

— What is the best price you can sell JB HiFi shares?

— What is the market value of JB HiFi?

Slide 25 | Version 2
 latrobe.edu.au

Stock Quotes
Activity
4

— What was the price of the most recent trade in JB HiFi shares? $59.15

— What is the percentage change in JB HiFi shares today? (59.15– 59.83)/59.83

= -1.1%

— What is the best price you can currently buy JB HiFi shares?

— What is the best price you can sell JB HiFi shares?

— What is the market value of JB HiFi?

Slide 26 | Version 2
 latrobe.edu.au

Stock Quotes
Activity
4

— What was the price of the most recent trade in JB HiFi shares? $59.15

— What is the percentage change in JB HiFi shares today? (59.15– 59.83)/59.83

= -1.1%

— What is the best price you can currently buy JB HiFi shares? $59.17

— What is the best price you can sell JB HiFi shares?

— What is the market value of JB HiFi?

Slide 27 | Version 2
 latrobe.edu.au

Stock Quotes
Activity
4

— What was the price of the most recent trade in JB HiFi shares? $59.15

— What is the percentage change in JB HiFi shares today? (59.15– 59.83)/59.83

= -1.1%

— What is the best price you can currently buy JB HiFi shares? $59.17

— What is the best price you can sell JB HiFi shares? $59.15

— What is the market value of JB HiFi?

Slide 28 | Version 2
 latrobe.edu.au

Stock Quotes
Activity
4

— What was the price of the most recent trade in JB HiFi shares? $59.15

— What is the percentage change in JB HiFi shares today? (59.15– 59.83)/59.83

= -1.1%

— What is the best price you can currently buy JB HiFi shares? $59.17

— What is the best price you can sell JB HiFi shares? $59.15

— What is the market value of JB HiFi?

Slide 29 | Version 2 $6.55 billion
 latrobe.edu.au

Different types of firms

Activity
Name three types of firms 5
a)
b)
c)
Which type of firm is the most common?

a)
Which type of firm dominates the economy?

c)

Slide 30 | Version 2
 latrobe.edu.au

Different types of firms

Activity
Name three types of firms 5
a) Sole trader
b) Partnership
c) Corporation
Which type of firm is the most common?

a) Sole trader
Which type of firm dominates the economy?

c) Corporation

Slide 31 | Version 2
 latrobe.edu.au

Advantages: different firm types

Activity
Which type of firm offers these advantages? 6
Sole trader Partnership Corporation

a) Limited Liability for the firm’s debts

b) Easy and inexpensive to set up
c) Unlimited liability for the firm’s debts
d) Easy to transfer ownership
e) Firm continues indefinitely

Slide 32 | Version 2
 latrobe.edu.au

Advantages: different firm types

Activity
Which type of firm offers these advantages? 6
Sole trader Partnership Corporation

a) Limited Liability for the firm’s debts

b) Easy and inexpensive to set up
c) Unlimited liability for the firm’s debts This is NOT an advantage

d) Easy to transfer ownership

e) Firm continues indefinitely

Slide 33 | Version 2
 latrobe.edu.au

Disadvantages: different firm types

Activity
Which type of firm has these disadvantages? 7
Sole trader Partnership Corporation

a) Limited Liability for the firm’s debts

b) Most difficult and costly to set up
c) Unlimited liability for the firm’s debts
d) Firm ends with the owner’s death
e) Firm continues indefinitely

Slide 34 | Version 2
 latrobe.edu.au

Disadvantages: different firm types

Activity
Which type of firm has these disadvantages? 7
Sole trader Partnership Corporation

a) Limited Liability for the firm’s debts This is NOT a disadvantage

b) Most difficult and costly to set up

c) Unlimited liability for the firm’s debts
d) Firm ends with the owner’s death
e) Firm continues indefinitely This is NOT a disadvantage

Slide 35 | Version 2
 latrobe.edu.au

Different firm types

Activity
Which statement is true for which 8
type of firm?
Private Public Listed
a) Restricted number of shareholders
b) Unlimited number of shareholders
c) Required to appoint an auditor
d) Shares can be traded on the ASX
e) Most common type of company
f) Generally the largest companies
g) Denoted by Pty. Ltd.

Slide 36 | Version 2
 latrobe.edu.au

Different firm types

Activity
Which statement is true for different 8
types of firms?
Private Public Listed
a) Restricted number of shareholders
b) Unlimited number of shareholders
c) Required to appoint an auditor
d) Shares can be traded on the ASX
e) Most common type of company
f) Generally the largest companies
g) Denoted by Pty. Ltd.

Slide 37 | Version 2
 latrobe.edu.au

Financial Manager Role

Activity
Other than managing day-to-day cash flow, what are the two main
9
types of decisions made by a financial manager?
Give two examples of each type of decision
a)
a)
b)
b)
a)
b)
What is the primary objective of a financial manager?

Slide 38 | Version 2
 latrobe.edu.au

Financial Manager Role

Activity
Other than managing day-to-day cash flow, what are the two main
9
types of decisions made by a financial manager?
Give two examples of each type of decision
a) Investment Decisions
a) What real assets should the firm buy or sell? eg. Land, buildings
b) What financial assets should the firm buy or sell? eg. Shares, cash
b) Financing Decisions
a) How should the firm finance its assets? eg. Issue shares or borrow
money
b) How much should the firm pay out in dividends?
What is the primary objective of a financial manager?

a) To maximise the wealth of the owners of the firm

Slide 39 | Version 2
 latrobe.edu.au

DIY Finance
Activity
Open the browser on your phone or laptop. 10
Type in the following URL: https://www.marketindex.com.au/
Scroll down to see the change in value of the S&P/ASX 200 today.
— How much has it changed?
— What sectors are driving this movement in the index?

Click on the Search icon, type ”DMP” and select “Domino’s Pizza”
— What is DMP’s Last Price?
— How much has it changed today in cents and percentage terms?
— What is currently the best price at which you can buy DMP shares?
— What is currently the best price at which you can sell DMP shares?
— What is the range of prices within which DMP has traded today?

Slide 40 | Version 2
 latrobe.edu.au

How to prepare for the next workshop

1. Submit your final attempt at Quizzes 1.1 and 1.2 by 11:59pm, 17 March
Topic 2: Time Value of Money
2. Read the listed readings: Titman (2019) pp 138-162 & 183-185
3. Watch videos 2.1.1 – 2.1.5
4. Have at least 1 of your 3 attempts at Quiz 2.1.
5. Watch videos 2.2.1 – 2.2.4
6. Have at least 1 of your 3 attempts at Quiz 2.2
7. Watch videos 2.3.1 – 2.3.3
8. Have at least 1 of your 3 attempts at Quiz 2.3
9. Watch videos 2.4.1 – 2.4.2
10. Have at least 1 of your 3 attempts at Quiz 2.4

Slide 41 | Version 2
 ????
latrobe.edu.au

La Trobe University
CRICOS Provider Code Number 00115M © Copyright La Trobe University 2018
 Thank you
latrobe.edu.au

La Trobe University
CRICOS Provider Code Number 00115M © Copyright La Trobe University 2018