INTRO TO CORPORATE FINANCE (L1) Flashcards
Investment decision
Purchase of real assets for future benefits
Financing decision
Raising money for investment, selling financial assets for it (stocks,bonds)
Types of ownership
Sole proprietorship
Partnership (general/limited)
Corporation (private/public)
Sole proprietorship
One owner, full/unlimited liability of debt
Partnership
2-3 owners, full liability using personal tax (paid from salary of each partner)
General- unlimited liability, managing the business
Limited partners- limited liabbility, don’t manage the business
Corporation
Separate to owners, owned by shareholders/stockholders
Advantages & Disadvantages of corporations
limited liability to owner/shareholder
easy to raise capital
infinite lifespan
tax on corporate profit & dividends (double tax)
Financial manager
Manages cashflow, advise of investments, reinvesting and returning cash to investors
Financial intermediaries
Organisations that engage in financial transactions
Banks, Insurance companies, Mutual fund, Hedge fund, Pension fund
Mutual fund and hedge fund differences
Money pool of savings from multiple investors for short term debts, hedge fund money is from wealthy investors, used for more risky investments for high return
How can you classify financial markets
Through type of financial assets: markets where debt assets like bonds are traded = debt market/fixed income market, where equity assets like stock is traded is known an equity or stock markets
OR
Primary markets- market for the sale of new securities by corporations
Secondary markets- market where old issued securities are traded among investors
role of financial intermediary
allow investors to supply money so companies can take out loans from banks
facilitate liquidity by allowing investors to save money and gain on it and borrowers to take money to use
transfer risk to insurance companies for a price
