Week 1 Flashcards
What are the three pillars of corporate finance? (3)
Investment, financing and liquidity
The three pillar of finance are broken down into what? (3)
Investment (capital budgeting)
Financing (capital structure)
Liquidity (Working capital management)
Explain what capital budgeting, capital structure and working capital management is?
Capital budgeting is how a firm handles and manages its long term investments
Capital structure is how a firm raises finance for its longer term investments to support them
Working capital management is how a firm handles its short term investments and liabilities
Cash invested in an asset must be matched by an equal amount of cash raised by financing, explain why this is?
Because it is double entry bookkeeping, it helps balance the financial position of a company.
An asset bought by a company is usually purchased by debt (liabilities) or financed through shareholder investment (equity)
Asset= Liability + equity
What creates value creation?
The three pillars of finance (investment, financing and liquidity)
How might you show value on a balance sheet?
Assets = Liabilities + Equity
What exactly does a financial manager do in terms of their responsibility/ how do they maximise value from cash?
They maximise value from cash by:
Raising cheap external financing
Efficient tax policies
Invest in long term investments which increase in value
Purchase assets which will create more value than they cost
What might 3 main goals of financial management be with the most important?
Increase sales
max profit
increase growth
MAXIMISE FIRM VALUE
What is the triple bottom line?
Economy, society and environment which creates sustainability
What are different ways of financing a company might use? (5)
Bonds, bank loan, equity, short term loan, private investors
What is the difference between primary and secondary markets?
Primary markets are buying securities first hand from either the government or from the corporation
Secondary markets are buying securities second hand essentially, bought after their original sale
In terms of investment, what do you need to start a firm?
Inventory, Machinery, land and labour (IMLL)
What is the main idea behind starting a financial firm or for a potential shareholder to invest in a firm?
For value creation
What might a finance company consider when thinking about cash flow? (3)
Identification (can they identify cash flows)
Timing (Do they know when the cash flows occur)
Risk (Is the cash flow risky)
Who might be behind cash flow considerations?
Financial management
