Theory Flashcards
What’s a stakeholder
Someone with financial interest in performance of business/in a position of influence:
Shareholders
Lenders
Directors
What are lenders interested in
Long-term solvency
Ability to pay interest and repay capital
Quality of management
What’s a type 1 agency issue
Between directors/managers and shareholders
What’s a type 2 agency issue
Between majority shareholders and minority investors
Example of type one agency cost
Corporate expenditure to monitor and control manager activities
Example of type 2 agency cost
Majority shareholders can force company to declare large dividend because they need cash
A rule designed to help shareholders/minority shareholders
Proxy voting (allows a shareholder to give another shareholder the right to vote on their behalf)
What do lenders look at to get an idea of profitability
Trends and peer-comparisons
why is financial planning important
helps plan for the future
what is an annuity
a series of payments made at equal intervals
what is a perpetuity
a stream of cash payments that continues forever.
what is nominal interest rate
the rate of interest stated on a loan or investment (state or quoted interest rate)
what is effective annual rate
Interest relative to a year
how do you value shares with constant dividends?
D / r (Gordon growth model)
