1. Intro Flashcards
What is the Agency Theory?
looks at conflicts of interest between people with different interests in the same assets. This most importantly means the conflicts between shareholders and managers of companies
What is the difference between the money and capital markets?
Money markets are used for a short-term basis, usually for assets up to one year. Capital markets are used for long-term assets, which are any asset with maturity greater than one year. Capital markets include the equity (stock) market and debt (bond) market.
What is the difference between the primary and secondary market?
In the primary market investors buy securities directly from the company issuing them, while in the secondary market, investors trade securities among themselves, and the company with the security being traded does not participate in the transaction.
What are the three most important questions for a finance manager?
Investment decision
Financing decision
Dividend decision
What is the balance sheet?
it is a snapshot of the firm. A summary of Assets, Liabilities, and the difference between the 2 (equity)
Whats the difference between current and non-current assets?
Non-current assets have a long life, these can be tangible (computer) or intangible (trademark)
Current assets is cash on hand or life of less than a year
Basically the same for Liabilities
What is shareholder’s equity (owner’s equity)?
The left over after Assets minus Liabilities, also on the balance sheet
What is the net working capital?
It is the difference between a firm’s current assets and current liabilities
What is capital budgeting?
The process of planning and managing a firm’s investment in non-current assets
What are the three things to take into consideration with cash flow?
Risk, timing & size
What is capital (or financial) structure?
The mix of debt and equity maintained by the firm
What are the three questions when working capital management?
How much cash and inventory should be on hand?
Should we sell on credit? if so what are the terms?
How to obtain short-term financing?
What are the three different legal forms of a business organisation?
Sole Proprietorship
Partnership
Corporation
What is a company?
A business created as a distinct legal entity composed of one or more individuals or entities
What is the goal of the financial management?
Is to maximise the current value per share of the existing shares
