ch 1 discussion video notes Flashcards
what are the basic areas of finances
- Corporate finance = busn. finance
- Investments
- Financial institutions
- International Finance
What are investments
Focus on assets such as stocks or bonds
risk vs return and an asset allocation
career opportunities
stockbroker or financial advisor
portfolio manager
security analyst
Busn finance: what is?
Focus on assets such as stocks or bonds
risk vs return and an asset allocation
career opportunities
stockbroker or financial advisor
portfolio manager
security analyst
investments
busn finance: financial institutions
companies that specialize in financial matters
banks- accounts, savings, loans, credits
Insurance companies
Brokerage firms
job opportunities
banks: credit analysis, loan officer
insurance: financial analyst
Brokerage: trader, operations
busn finance: what is …
companies that specialize in financial matters
banks- accounts, savings, loans, credits
Insurance companies
Brokerage firms
job opportunities
banks: credit analysis, loan officer
insurance: financial analyst
Brokerage: trader, operations
financial institutions
busn finance: international finance
an area of specialization in investments, finance institutions, corporate
work with other countries
familiar with interest rates and political risk
need to understand the customs of other countries
busn finance: what is…
an area of specialization in investments, finance institutions, corporate
work with other countries
familiar with interest rates and political risk
need to understand the customs of other countries
international finance
what is?
3 primary activities
- financing: obtaining funds (debt, equity)
- investing: using funds to produce the highest possible returns
- dividend payout: what to do with profits (dividends or retention)
role of the finance function
what are the 3 roles of finance function
- financing: obtaining funds (debt, equity)
- investing: using funds to produce the highest possible returns
- dividend payout: what to do with profits (dividends or retention)
what are important questions to ask for business finance
- what long-term investments should the firm take on
- where will we get the long-term financing to pay for the investments
- how will we manage the everyday financial activities
what is..
- what long-term investments should the firm take on
- where will we get the long-term financing to pay for the investments
- how will we manage the everyday financial activities
answered by a financial manager
business finance
treasurer- overseer cash and credit management, capital expenditures, and financial planning
controller- oversees taxes, cost and financial accounting and data processing
financial manager
what are some financial management decisions
capital budgeting - long-term investments or business projects
capital structure- how to pay assets, debt, or equity?
working capital management- manage day-to-day finances
forms of business organization
- sole proprietorship
- partnership (general/ limited)
- corporation (s-corp, limited liability company)
sole proprietorship is what
a business owned by one person
advantages:
easy to start, least regulated, keeps all profits, taxed as a personal income
disadvantages:
limit of life owner
unlimited liability
difficult to sell ownership interest
partnership is what
business with 2 or more owners
advantages:
more capital availability
income taxed once
disadvantages
failed, limit or general partnership,
unlimited liability
corporation is what
a legal “person” distinct from owners and a resident of a state
advantages:
limited liability
unlimited life
separate or ownership and management
easy to raise capital
disadvantages:
double taxation, income taxed as corporate, dividends taxed as personal
the goal of finance management
maximize the market value of the existing owner’s equity
Freedman perspective: maximize the current value per share of the company’s existing stock
This is …?
Principal hires an agent to represent its interest
stockholders (principals) hire managers (agents) to run the company.
management goals and agency costs
conflict of interest between the principal and agent
The agency problem
what is the agency problem
conflict of interest between the principal and agent
agency relationship of principal and agent
principal = stockholders
agent = managers
work together to manage goals and agency costs
Do managers act in the shareholder’s interest? is so how?
Managerial compensation
incentives; carefully structured to achieve their goal
corporate control - the threat of a takeover may result in better management
other stakeholders
what is the Sarbanes - Oxley Act (SarBox, 2002) ?
driven by corporate sandals
- Eron, Tyco, WorldCom, Adelphia
intended to strengthen protection against accounting fraud and financial malpractice
COMPLIANCE VERY COSTLY
Firms driven to
- go public outside of us
- go private “go dark”
WHAT IS
driven by corporate sandals
- Eron, Tyco, WorldCom, Adelphia
intended to strengthen protection against accounting fraud and financial malpractice
COMPLIANCE VERY COSTLY
Firms driven to
- go public outside of us
- go private “go dark”
Sarbanes - Oxley Act (SarBox, 2002
