Exam 1 Flashcards
financial management
how much/what types of assets to acquire, maximize value
capital markets
interest rates are determined
investments
stocks/bonds, security analysis, market analysis
organizational roles
board of directors, CEO, COO, CFO
proprietorship
owned by one person
benefits of proprietorship
easy/inexpensive
few government regulations
low income tax
keep all profit
complete owner control
limitations of proprietorship
unlimited personal liability
business life = person’s life
hard to make capital
difficult to transfer ownership
limited life
partnership
two/more people
benefits of partnership
income is allocated
single taxation
few government regulations
limitations of partnership
partners are responsible for other’s debts
difficult to transfer ownership
unlimited liability
limited life
corporation
separate/distinct from owners
benefits of corporation
owners lose only what they invested
easier access to capital
easier to transfer ownership
easier to expand
limitations of corporation
double taxation
shared control
harder/expensive
more government regulation
corporate governance
rules/practices to act in shareholder’s interest
-holding managers accountable
business
provides good/service for monetary value in exchange for money
-needs a want/need – demand
-purpose is to satisfy want/need
Sand Cloud Shark tank
corporation or LLC
difficult to transfer ownership of partnership, so in order to go on the show must be CORP or LLC
what mattered to the sharks?
cash flows
profits
cash in bank
valuation
asking amount/equity stake
finance
raising money to acquire assets
-circulation of money/making investments
three main methods to pay assets
debt
internal equity
external equity
intrinsic value
estimate of stock’s true value based on risk/return
current stock price
going rate in market place
-market price
stockholder wealth maximization
long-term goal
short-sighted actions cause inability to compete
stockholder actions
reasonable compensation packages
direct intervention by shareholders
threat of takeover
annual report
verbal section – letter from chairperson, describes operating results from past year and new developments for future
-provide picture of financial position
balance sheet
firm’s position at specific point in time
current assets
assets that should be converted into cash within one year
-cash
-cash equivalents
-inventory
-accounts receivable
long-term assets
assets expected to be used for more than one year
-plant and equipment
-“net fixed assets”
-intellectual property
left side of balance sheet
claims against assets
current liabilities
claims that must be paid off within one year
-accounts payable
-notes payable
-accrued wages
-accruals
long-term liabilities
bonds that mature in more than a year
stockholder’s equity
the amount that stockholders paid to the company when they bought shares
-earning the company retained over the years
retained earnings
total of all earnings company earned/retained over the years
what represents actual money?
only cash/cash equivalents
working capital
current assets that “turn over”
used and replaced throughout the year
NOWC
makes distinction between operational purpose cash and excess cash
-distinguish between “free” liabilities and interest-bearing notes payable
convertible bonds
debt securities to exchange bonds for shares of common stock
depreciation
annual charge against income that reflects estimated dollar cost of equipment and assets depleted in production process
-report lower earnings
balance sheet time dimension
point in time
income statements
operations over a period of time
-record of revenues/expenses
operating income
earnings from operations before interest/taxes
amortization
represents decline in value of intangible assets
-non-cash charge similar to depreciation
EBIT
earnings before interest
statement of cash flows
shows how much cash a firm generates
-operating, investing, financing
“Every _____ is a ______ but not every _______ is a ________.”
stockholder ; stakeholder ; stakeholder ; stockholder
triple bottom line
people, planet, profit
-society, environment, sustainable profit
stockholder-manager conflicts
managers may only be invested in short-term
-not acting in best interest of stockholders/company
free cash flows
how much cash a business generates after capital expenditures/operational needs
-amount can be withdrawn without hurting future operations
-cash belonging to shareholders
always want more ____ than _____
current assets ; current liabilities
Cash flow rules
-asset increase = use of cash (-)
-liability increase = source of cash (+)
-asset decrease = source of cash (+)
-liability decrease = use of cash (-)
operating cash flows
IDEAL
-want to see funding operations with operating activities
do retained earnings = cash dividend?
NO
-not held as cash, but investment in firm’s assets
are investors more interest in free cash flows or NI?
FCF because shows exact amount available to all investors
