S1: Intro To Corporate Finance Flashcards
Corporate Finance
Study to address the 3 questions:
1. What long term investments should a firm take on?
2. How will the firm obtain long term financing to pay for these investments?
3. How will a firm manage every day financial activities?
Capital Budgeting
The process of managing long term investments, the value generated should be more than the cost
Capital Structure
The mix of borrowing (debt) and ownership interest (equity) offered to raise long term financing to pay for a firm’s assets
Working Capital
Management of current assets & liabilities
Residual Claim
Right of a party to receive remaining assets or income from a firm after all debts, obligations, and other claims have been settled (in profit distribution or bankruptcy/liquidation event)
VP of Finance/CFO
Oversees financial operations and addresses capital budgeting, structure, and working capital
Treasurer
Oversees cash and credit management, capital expenditures, and financial planning
Controller
Oversees taxes, cost accounting, financial accounting, and data processing
Board of Directors
A group of shareholders, or people elected by shareholders, who vote on executive positions and compensation - also oversee firm management
Sole Proprietorship
Business owned by a single individual, simple structure with no double taxation but unlimited liability, no existence apart from owner, and difficult to raise capital
Partnership
Owned by 2+ individuals, a partnership agreement spells out rights and duties of each partner.
General Partners
Similar to sole proprietorship, subject to unlimited liability
Limited Partners
Limited Liability, doesn’t participate in day to day of firm
Corporation
Distinct legal entity composed of 1+ individuals or entities
C Corp
Most publicly traded firms. Must file their corporate charter or articles of incorporation and bylaws that define purpose, rules, and how directors are elected. Limited liability for all owners, unlimited life and transferring of ownership is easy, easy to raise capital, but double taxation occurs
S Corp
Limited to 100 US citizens or resident owners without double taxation
B Corp
For profit & benefit, must submit special reports
Non-Profit
For charitable or educational purposes, not required to pay taxes and can’t distribute dividends
Co-Ops
Owned and operated by members who can use the firms services, may vote and receive profit distributions
Limited Liability Corporation (LLC)
Hybrid form of a sole proprietorship/partnership but retain limited liability and generally avoid double taxation, recommended for anyone starting a small business
Limited Liability Partnership (LLP)
Similar to LLC, but generally reserved for professional services like ACCT and Law - PWC
Limited Liability
Only investment in firm, and not personal wealth, can be lost in bankruptcy (promotes risk taking and innovation)
Unlimited Liability
Business lenders and individuals can go after your personal wealth if your business cannot pay back debts
Double Taxation
The firm, as a separate legal entity, pays taxes while owners are also taxed on dividends the firm pays out
