D775 Introduction to Business Finance - Comprehensive Study Guide correct & verified

D775 Introduction to Business Finance In-Depth OA Study Guide (Concept Mastery) Purpose: This study guide is designed for deep understanding of D775 concepts so you can confidently pass the Objective Assessment (OA). This is not a cram sheet — it explains what, why, and how concepts connect. 1. Accounting vs Finance (Foundation Concept) Accounting Accounting focuses on recording and reporting past financial activity. It answers the question: What already happened financially? Key outputs: • Balance Sheet – financial position at a point in time • Income Statement – performance over a period • Cash Flow Statement – cash inflows and outflows Accounting information feeds directly into finance decisions. Finance Finance focuses on decision-making using financial data. It answers: What should we do next to grow the firm? Business finance goals: • Manage assets and liabilities • Plan for growth and stability • Maximize shareholder value OA Connection: Questions often test whether a task belongs to accounting or finance. 2. Financial Instruments (Ownership vs Debt) Stocks (Equity Financing) Stocks represent ownership in a company and are recorded under shareholder equity on the balance sheet. Common Stock Characteristics • Voting rights • Variable dividends (paid after preferred stockholders) • High liquidity in public markets Market Capitalization Market cap measures firm size and is calculated as: Stock Price × Shares Outstanding Higher market cap generally means a larger, more established firm. Bonds (Debt Financing) Bonds are loans issued by organizations to raise capital and are recorded as liabilities. Key bond components: • Coupon rate: interest paid to bondholders • Maturity date: date principal is repaid • Yield: investor’s rate of return