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Business Fundamentals Quiz 3 > Chapter 3 / Class 9 > Flashcards

Chapter 3 / Class 9 Flashcards

1
Q

Finance

A

the management of money

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2
Q

Corporate Finance

A

Concerned w raising and managing of funds/capital to meet the goal of maximizing value for stakeholders

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3
Q

Ways to raise capital

A
  1. Reinvest retained earnings into business operations
  2. borrow money from banks/lenders to finance growth
  3. Take on debt by selling bonds to investors
  4. sell stock in company to investors
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4
Q

stock

A

security that represents ownership/investment AKA equity - when purchased, person becomes owner/shareholder in business

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5
Q

Bond

A

form of debt that pays interest to owner - when issued by company, company is boring money from investors at agreed upon interest rate and must pay back at agreed upon future date

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6
Q

Stock exchange

A

Where large companies list their stocks, easier for investors to buy/sell, matches buyers/sellers to get best prince, mon-fri, 9:30-4

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7
Q

liquidity

A

ability to buy/sell a security quickly at low cost w limited affect on market price - investors generally willing to pay more for stock with high liquidity on stock exchange, which reduces company’s cost of capital

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8
Q

Cost of capital

A

when it is reduced, helps improve company profitability and provides more opportunity for growth

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9
Q

larger companies

A

usually publicly traded/listed on stock exchange

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10
Q

smaller/younger companies

A

privately held, no listed on exchange

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11
Q

Public company

A

larger number of shareholders, listed on stock exchange, higher liquidity, broader access to less expensive capital, reporting requirements of SEC and stock exchange = higher info flow

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12
Q

Major US Stock exchanges

A

NYSE (New York Stock Exchange), NASDAQ - both in NY

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13
Q

NYSE

A

bought by Intercontinental Exchange Group Inc for 8 billion in December 2012, “Big Board”, older and larger than NASDAQ, est. in 1817, 80% of volume conducted electronically

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14
Q

NASDAQ

A

founded in 1971, preferred for tech/younger growth companies, only electronically traded

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15
Q

Designated Market Makers

A

formerly called specialists, ensure orderly buying/selling of company shares during market hours

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16
Q

“Open Outcry” trading

A

psycho traders gesturing around market maker posts

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17
Q

Chicago

A

home of Chicago Board of Trade, Chicago Mercantile Exchange, Chicago Board Options Exchange - hub for trading complex financial instruments like futures/options

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18
Q

Futures Contract

A

standardized agreement - requires delivery of an asset, ie physical commodity, of a specified quantity at future date/price

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19
Q

Initial Public Offering

A

high profile important event in company history - first time corp sell stock to public w shares listed on stock exchange

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20
Q

Reasons to IPO

A

“go public”
1. raise capital for business growth
2. reward investors/founders/employees with ability to sell shares
3. incentivize management/employees through stock options for shares in public company
4.have stock “currency” for future acquisitions
5. raise company profile w current/prospective stakeholders

21
Q

IPO Process

A

multi-year process
1. hire investment bank as underwriter - estimate value of company/interest in stock
2. File S-1 registration statement (prospectus) with SEC (or other regulator in non-US company/deal)
3. Road show
4. file IPO
5. then quiet period (40 days after IPO)

22
Q

Jumpstart Our Business Startups (JOBS) Act

A
  1. Companies w less than 1 billion annual revenue can confidentially file prospectus - more time to work out plan before disclosing financial/other details
23
Q

Prospectus Document

A

S1 Registration statement - crafted by team of lawyers/accountants/investment bankers/investor relations professionals. Outlines company operations, past performance, risk, and intentions w future funds. Can take 6 months for SEC review/changes/approval.

24
Q

Quiet Period

A

time after filing prospectus - not allowed to share info selectively w stakeholders - prevent companies from hyping stock for 40 days after IPO

25
Q

Road Show

A

happens in leader to IPO, management team goes out with underwriters, hosts meetings in major cities w large prospective shareholders such as professional money managers. Comms prepare presentation slides, Q responses, travel schedules

26
Q

Ringing the bell

A

happens on actual day of IPO

27
Q

Secondary Offering

A

“follow-on offering” - company sells additional shares to public

28
Q

“going private”

A

when public company facing operational difficulties they do this – allows them to fix operations w/o public markets/shareholders’ inclination for short-term performance. Investor group acquires firm, buys out stock held by public market shareholders. Can always go public later.

29
Q

Leveraged buyout

A

when purchase/acquisition is financed partially w debt - comms role is persuading shareholders they’re recieving fair price/should support transaction

30
Q

Investor relations

A

focus on relationship building w institutional investors/analysts. Contains finance/legal/comms expertise - the point person when communicating with Wall Street

31
Q

Investment Banks

A

hired to help take companies public - advise on selling a division, buying another firm. ie Bank of America, Goldman Sachs

32
Q

Corporate Law Firms

A

provide counsel on legal/strategic matters

33
Q

Regulators

A

SEC - federal stock market regulator, every state has own securities regulator. SEC collaborates w US department of Justice. Financial Industry Regulatory Authority (FINRA) self-regulates member brokerage firms/exchange markets

34
Q

Corporate Communications

A

smaller public companies - general corporate communication / corporate affairs can also be responsible for investor relations. Typically first point of contact for financial journalists, work closely with investor relations colleagues

35
Q

Financial Communication Firms:

A

outside financial comms advisors, hired to counsel on major corporate issues like restructuring, bankruptcies, crises, shareholder activism, IPOS, mergers and acquisitions.

36
Q

Institutional Investors:

A

large professional investors - mutual funds, hedge funds, pension funds, endowments - buy large blocks of stock. Own on average more than 70% of stock in top thousand largest US corporations

37
Q

Individual investors:

A

smaller, private investors who buy smaller amounts of stock at a time.

38
Q

Venture capital firms:

A

professional investors, provide equity capital to young emerging private companies, with the hope that they will grow into larger companies who conduct IPO or are acquired

39
Q

Private Equity Firms:

A

invest in older, more established companies, using a mix of debt/equity - hope to generate return on investment via stock sales in IPO or business acquisition.

40
Q

Information intermediaries:

A

aka Wall Street analysts, financial journalists who provide expertise/opinions on what stocks to buy/hold/sell. Employed by brokerage firms (“sell side”) to publish investment research recommendations for institutional investors (“buy side”). This hopefully generates trading commissions for brokerage firms.

41
Q

Proxy solicitors:

A

specialized comms/research firms hired to persuade shareholders to vote a certain way on ballot issues and to project voting outcomes

42
Q

Proxy advisers:

A

advise institutional investors on how to vote their stock holdings on company ballot issues (board of director elections, corp transactions, shareholder proposals).

43
Q

Stock index:

A

a collection of stocks, used to track overall prices of stocks

44
Q

Dow Jones Industrial Average:

A

aka the Dow. stock index. a collection of the stocks of 30 very large well-known “blue chip” US corporations. Represent a microcosm of overall economy.

45
Q

Capital:

A

Money, property and other assets of value that serve as the lifeblood of an organization. Goal of capital is to generate profit

46
Q

Investors:

A

essential source of capital

47
Q

Stock exchange and listings:

A

place for investors to purchase/sell shares of stock in companies, mon-fri from 9:30-4 PM ET. “market makers” ensure orderly buying/selling company shares during market hours, 80% trading volume conducted electronically.

48
Q

Canadian Stock Exchange:

A

Toronto Stock Exchange (TSX)

Business Fundamentals Quiz 3 (4 decks)

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