Entrepreneurial Finance
Whether you are an entrepreneur, a director, or a manager; if accounting and finance are subjects you find confusing or daunting, this resource has been specifically written foryou. I have had the pleasure of teaching Entrepreneurial Finance to students at UCLand other institutions for nearly a decade, and the majority of these students have hadno prior knowledge of accounting, finance or any significant commercial experience.The approach I took when teaching, and have followed in this resource, is to break thetopic down into small omponents and to deliver them in a progressive and logicalmanner. The structure of this resource reflects that approach – a gentle spoon-feeding of
the information in a fun and light-hearted way. But do not be mistaken in thinkingthe content is light-weight: we have explained some complex areas of accounting, andalso introduced a bundle of other useful commercial knowledge. The latter not onlymakes the resource more interesting, but also sets the context for why accounting infor-mation and good financial management is so powerful when applied correctly.The final section of the resource draws all the knowledge together, and sets out how itis possible to drive the profitability higher in a number of very practical ways.A few points to help you navigate the resource:
• We have progressively introduced you to the many powerful financial ratios, insert-
ing these where appropriate throughout the resource. However, Appendix 2 contains
a highly comprehensive list of them all in one place for easy reference.
• As new terms are introduced, we have put these in bold. A full definition of theirmeaning is included in a comprehensive glossary.
• We have made reference to numerous small and large companies and offer ourthanks to those who have provided information to us. In the case of our formerbusiness, the greeting card publisher Card Connection Limited, we have made anadaptation of some of the original accounts. Where we have done this, we refer tothe business as Tulp Greeting Cards, rather than the company’s actual name.
Throughout my career, I have been very fortunate to have hadnumerous teachers and mentors who played an important role inmy development and intellectual nurturing. The following peoplewill always have a special place in my memory: Frederick Dixon(Portland, Oregon), who gave me my first job in the industry;Leighton Huske (Richmond, Virginia), who took me under hiswing during my time with Branch Cabell; Sanford Leeds (Austin,Texas) and Britt Harris (Austin, Texas), who both helped guide methrough business school; and Paul Magnuson (Dallas, Texas),whose passion for value investing made a lasting impression onboth me and my career.From my earliest days, family has been my foundation. My sister,Hedley, and brother, Whitfield, have provided love and supportthroughout the many years. Shirley was always there to lend ahelping hand. My wife, Michele, is still with me through all the upsand downs while simultaneously serving as a wonderful motherand friend. My children, Christian and Thomas, have kept mefeeling young as I have just crossed over my 40th birthday. Mybeloved dogs, Brogan and Sydney, in their own magical way never
failed to provide comfort and companionship whenever I needed
the encouragement to just keep on keeping on.
Behavioural Finance
organised into fi ve parts as follows:
Part I Neoclassical Finance and Behavioural Challenge comprises two cs.
C 1 discusses the rational expectations hypothesis, the dominant paradigmin finance and the behavioural challenge thereto. C 2 explains the expectedutility theory, portfolio theory, capital asset pricing model, and the efficient marketshypothesis which represent the central tenets of traditional finance.
Part II Foundations of Behavioural Finance includes six cs (3-8). C 3discusses the heuristics and biases characterising real-life decision makers. C4 explores the implications of overconfidence and other forms of self-deceptionwhich are so pervasive. C 5 presents prospect theory (an alternative toexpected utility theory) and mental accounting, two central ideas of behaviouralfinance. C 6 discusses the theoretical arguments and empirical evidence indefence of and in opposition to the efficient markets hypothesis. C 7 describesthe emotional factors and social forces that have a bearing on decision-making.
C 8 discusses the neuroscientific underpinnings of observed behaviour.
Part III Behavioural Aspects of Investing comprises three cs (9-11). C 9discusses how behavioural factors impinge on investment behaviour. C 10seeks to explain the anomalies and puzzles observed in financial markets with thehelp of behavioural fi nance. C 11 explores the principles of value investing,an approach to investing aimed at countering behavioural biases.Part IV Behavioural Corporate Finance includes two cs (12 and 13). C 12looks at how psychological forces bear on corporate finance decisions. C 13discusses how an organisation can be made psychologically smart.Part V Other Insights includes one c (14) that provides insights from diversesources, which illuminate different facets of fi nance
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