Finance for Non-Financiers 1: Basic Finances

By José Saul Velásquez Restrepo

I have written this book with the aim to make easier that apparently is difficult
and with the desire of contribute in the formation of a theory applicable in
real life. This is a description available to everyone, though this could hardly
be called a lack of depth in any of the items, which makes the text highly
recommended for non-financial executives.

• Language: English
• Publisher: Palibrio
• Release date: Feb 8, 2011
• ISBN: 9781617642418

José Saul Velásquez Restrepo

José Saul Velásquez Restrepo is a graduate of Business Administrations in EAFIT; specialist in  finance in EAFIT and worked as an executive in companies of the most varied sectors and in all administrative fronts. He was complemented by over thirty years as a professor at the Universities of Rosario, Central and La Salle in Bogotá; University of Antioquia, University of Medellin and EAFIT in Medellin, as well as many extension courses in the country’s major cities, consultants and consultancies. This book is written in a simple and practical manner, easily understood by people with no financial training. This book is perfect for both the financier and non-financier individuals.

Book preview

Contents

Introduction

Chapter 1 Basic Concepts Of Financial Mathematics

Chapter 2 Supposed Basic To Study Finances

Chapter 3 Financial Function

Chapter 4 Analysis Of The Countable Principles

Chapter 5 Handling Cash-Electronic Bank

Chapter 6 Administration Of Portfolio

Chapter 7 How To Define The Granting Of Credit (Method Of Josavere)

Chapter 8 Practical Aspects Of The Handling Of Inventories

Chapter 9 Model Of Inventories

Chapter 10 Working Capital

Chapter 11 Financial Analysis

Chapter 12 State Of Sources And Applications Of Funds

INTRODUCTION

I have written this book with the aim to make easier that apparently is difficult and with the desire of contribute in the formation of a theory applicable in real life. This is a description available to everyone, though this could hardly be called a lack of depth in any of the items, which makes the text highly recommended for non-financial executives.

The approach is very practical; based on a great deal of evidence to avoid any situation that may arise in the business world and apply personal finances too. The papers are presented according to the recommended order of learning and practical exercises are made in Excel.

It is an effort that I have enthusiastically encouraged by many friends, who have helped me to mature and clarify concepts. There are so many that fail to list them and so I refrain from doing so to avoid being unfair by omitting any name oblivion unintentional. In all, my sincere thanks, on behalf of those who can draw some profit from this book.

josavere

[e-mail]

CHAPTER 1

BASIC CONCEPTS OF

FINANCIAL MATHEMATICS

1. VALUE OF THE MONEY THROUGH TIME

Money is an asset that costs which the time; no matter it is day or night, Saturday, holyday or Sunday; June or September, etc. it is received to periodic interest rates (monthly, quarterly, etc.). In finances, it is understood that money assets work with composed interest, that is to say, that the interests that are produced periodically turn automatically into capital.

Example:

If I place $1,000,000 (PV) to an interest rate (i) 3% monthly, when finishing the first period, the capital is equal to $1,030,000 and the new interest will be 3% of this number, and thus, successively.

Periods:

KEY FOR THE ANALYSIS:

To correctly process a graph that indicates the investments ( missing image file ) and the outcome ( missing image file ) in the exact date that these are considered will display.

Applying that concept, the financial computers or even a program in Excel allows you to solve the situations that can be presented.

2. BASIC PROBLEMS

A. TO CALCULATE A FUTURE VALUE: knowing a real value now (present value), the interest rate and the number of periods (expressed in the same unit that rate was defined).

image009.jpg

Example: PV: $1.000.000; i: 2.5%; n: 24.

FV = PV (1 + i)n = 1000000 (1 + 0.025)²⁴ = 1.808.725,95

Now, we calculate the same, but using Excel, steps to follow:

a. Open Excel.

b. Click in functions (fx).

image011.jpg

c. Select in the left menu in Financial category. In the menu of the right, it names of function VF.

image011.jpg

d. Click in button to accept (it appears a window)

e. In the box they asked for the following information:

• Interest rate (2.5%).

• Number of periods: (24).

• Payments (to place 1, in this model is unique payment).

• VA present value ( -1.000.000)

image013.jpg

f. Click in button to accept

g. To evaluate the answer (1.808693.601)

B. DEFINE A FUTURE VALUE: to calculate a present value which I must invest to accumulate a sum of money in a determined time, (defined) in equivalent periods, to a periodic and well-known interest rate.

Example: if I need to accumulate 5.000.000 of pesos at the end of the third year, how much money I must deposit today if 1,5% interests pay to me to monthly?

image013.jpg

Now, we calculate the same, but using Excel, steps to follow:

a. Open Excel.

b. Click in functions (fx).

c. Select in the left menu in Financial category. In the menu of the right, it names of function VF future value.

d. Click in button to accept (it appears a window).

e. In the box they asked for the following information:

• Interest rate (1.5%).

• Number of periods: (36).

• Payments (to place 1, in this model is unique payment).

• VA present value (5.000.000)

image015.jpg

f. Click in button to accept

g. To evaluate the answer ( -2.925.476.337)

C. TO CALCULATE THE FUTURE VALUE (FV) WITH PERIODIC PAYMENTS: one appears when equal and periodic payments become (payments), knows the number of periods (n) and the interest rate by every period.

Example: if saving monthly a defined number, to one appraises previously agreed, during a number of periods decided how much money I reach to reunite?

image017.jpg

Numerical exercise: what capital will be at the end of 15 months, if monthly are deposited $50,000 in a investment that recognizes 1,5% by month?

Now, we calculate the same, but using Excel. Steps to follow:

a. Open Excel.

b. Click in functions (fx).

c. Select in the left menu in Financial category. In the menu of the right, it names of function VF future value.

d. Click in button to accept (it appears a window)

e. In the box they asked for the following information:

• Interest rate (1.5%).

• Number of periods: (15).

• Payments (50.000)

image019.jpg

f. Click in button to accept.

g. To evaluate the answer ( -834.106.8888)

D. TO CALCULATE THE PERIODIC PAYMENTS (PMT): when a future value is defined that is wanted to accumulate (well-known); a period of time to make it (n) and the interest rate (i), expressed in he himself period in which they must invest. In other words, if I determine a number which I want to accumulate in a number of periods previously defined, to a decided rate, whatever I must contribute every month?

image019.jpg

Example: how much I must save during 10 months to have $1.500.000 in the end, if they offer an interest to me of the 1,5% monthly cash.

Now, we calculate the same, but using Excel, steps to follow:

a. Open Excel.

b. Click in functions (fx).

c. Select in the left menu in Financial category. In the menu of the right, it names of function VF.

d. Click in button to accept (it appears a window).

e. In the box they asked for the following information:

• Interest rate (1.5%).

• Number of periods: (10).

• Future value: (1.500.000) (number