chapter 1 Flashcards
(39 cards)
basic areas of finance
- corporate/business finance
- investments
- financial institutions
- international finance
investments works with
financial assets such as stocks and bonds
investments studies
value of financial assets, risk versus return, asset allocation
financial institutions
companies that specialize in financial matters
examples of financial institutions
banks, insurance companies, brokerage firms
international finance
an area of specialization within the other areas of finance
when working in international finance, you must be familiar with
exchange rates, political risk, the customs of another country
important questions 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 of the firm
treasurer
oversees cash management, credit management, capital expenditures, financial planning
controller
oversees taxes, cost accounting, financial accounting, and data processing
the financial management function is usually associated with
the CFO
financial management decisions
capital budgeting, capital structure, working capital management
capital budgeting
the process of planning and managing a firm’s long-term investments
capital budgeting involves identifying investment opportunities that
are worth more than they cost to acquire (cash flow exceeds cost)
capital structure
specific mixture of long-term debt and equity the firm uses to finance its operations
working capital management
managing day-to-day finances (short-term assets like inventory and short-term liabilities like money owed)
three major forms of bus. organizations in the US
sole proprietorship, corporation, partnership
sole proprietorship
business owned by one person, simplest type to start and the least regulated
there are more _______ than any other type of business
proprietorships
characteristics of sole proprietorship
- owner keeps all profits
- unlimited liability
- no distinction between personal and bus. income, all taxed
- limited to the owner’s life span
- amount of equity that can be raised is limited to owner’s personal wealth
- difficult to transfer ownership
partnership
two or more partners, easy and inexpensive to form, more capital available
characteristics of partnership
- unlimited liability for debts
- income taxed as personal income
- amount of equity raised is limited to partners’ combined wealth
- ownership not easily transferred bc new partnership must be formed
general partnership
all partners share in gains or losses, all have unlimited liability
limited partnership
one or more general partners run the business and have unlimited liability, but there is one or more limited partners that do not actively participate in the business (liability is limited to how much they contribute)
