CH1+2 Finance (Book) Flashcards
Capital Budgeting
In what long-lived assets should the firm invest?
Capital structure
How can the firm raise cash for required capital expenditures?
How should short-term operating cash flows be managed?
Net working capital
Most important goal of a company
Maximise value to shareholders (they are only paid once stakeholders have been served)
Money markets
- markets for debt securities that will pay off in the short term
- are dealer markets
Capital markets
markets for long-term debts and for equity shares
Auction market
supply and demand come together in one regulated market
Dealer market
- secondary market
- no central location
- money markets are dealer markets
- dealers is a principal in most transactions
- dealer makes continuous quotations of prices for which they stand ready to buy and sell short-term financial instruments for their own inventory and at their own risk. (a dealer buys and sells securities)
Auction market
- secondary market
- Auction markets take place at a single location
- Transactions of the auction market are directly made publicly available
- the agent in an agency market like the stock broker does not acquire the securities
What are creditors?
People or institutions that buy debt from (i.e. its buildings, land and inventory)
Price quotation
Kostenvoranschlag, Preisangabe
cotización del precio
The Primary Market
initial sell of securities.
- public offerings and private placements
private placements
Raising adequate capital is integral to building and growing a business, and companies usually go the initial public offering (IPO) route. An alternative is the capital raising event known as a private placement. A private placement involves the sale of securities to a relatively small number of select investors. Investors targeted include wealthy accredited investors, large banks, mutual funds, insurance companies and pension funds.
Syndicate
A syndicate is a temporary, professional financial services alliance formed for the purpose of handling a large transaction that would be hard or impossible for the entities involved to handle individually.
OTC
over-the-counter market
are dealer markets in equities and long-term debt
- no physical location
general partnership
all partners agree to provide some fraction of the work and cash, and share the profits and losses of the firm.
General partners have unlimited liability for all debts.
limited partnership
permit the liability of some of the partners to be limited to the amount of cash each has contributed to the partnership.
Requirements
1. At least one partner is a general partner
2. Limited partners do not participate in managing the business
What happens if one general partner is unable to meet his commitment?
The shortfall must be made up by the other general partners.
What happens in a general partnership if a general partner dies or withdraws?
The general partnership is terminated
What happens if a partner dies in a limited partnership?
The partnership must not be dissolved.
Where is income taxed for a partnership?
As personal income to the partners
agency cost
the cost of a conflict of interest between shareholders and management. They can be direct and indirect
Direct agency costs
Two forms
- corporate expenditure that benefits management but costs the shareholders
- expense that comes from the need to monitor management actions. (i.e. audiors)
Executive renumeration
Entlohnung.
Salary
LTI Long-term incentives
STI short-term incentives
Control of the firm
Control of the firm ultimately rests with shareholders.
Shareholders elect the board of directors.
The board of directors hire and fire managers
What Is Default?
Default is the failure to repay a debt including interest or principal on a loan or security.
What is collateral?
Collateral is an asset that a lender accepts as security for a loan. If the borrower defaults on the loan payments, the lender can seize the collateral and resell it to recoup the losses.
Are dividends expenses?
No they are not. Dividends are not deductible for corporate tax purposes. Dividends are paid out of the corporation after-tax profits.
Are dividends received by individual shareholders taxable?
Yes
Type I agency relationship
btw. shareholders and management of company
Type II agency relationship
The relationship between a dominant or controlling shareholder and other shareholders who have a small proportional ownership stake.
stipulated
vereinbart
to default
failure to fulfill an obligation, especially to repay a loan
