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34 Cards in this Set
- Front
- Back
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Three basic questions financial managers must answer
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What long-term investments
What short-term investements How to manage/finance short-term assets |
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Current assets
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Assets that are liquid in the next 12 months without significant reduction in value.
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Current liabilities
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Liabilities coming due in next 12 months.
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Fixed assets
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Assets that are not current assets.
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Long-term debt
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Liabilities that are due over a longer horizon than 12 months.
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Long-term investments pertain to what part of balance sheet.
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Fixed assets.
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What options does a firm have to raise capital for investments
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Short-term (current) debt
Long-term debt Shareholders' equity |
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In terms of a pie, what dimension of the pie corresponds to a) value of the firm, b) capital structure of the firm
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a) The size of the pie is the value
b) The way in which the pie is cut into debt-vs-equity is the capital structure |
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What is the relationship between capital structure and value of the firm
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How you cut the pie affects the size of the pie (thus capital structure decision matters)
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Primary goal of financial manager
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Increase value of the firm (by selecting value creating projects and making smart financial decisions)
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What group sits at the top of a corporations organizational structure
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Board of directors
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Name three officers in a corporation report to the board of directors
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CEO, COO, CFO
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What is the separation of duties in a corporation
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Treasurer vs. Controller
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Duties of Treasurer
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Writes checks
Checks reconciliation Checks the controllers actions |
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Duties of Controller
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Oversees accounting
Checks treasures actions |
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Is CEO primarily concerned with outside investors or daily operations?
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Outside investors
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Is COO primarily concerned with outside investors or daily operations?
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Daily operations
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Three places to which outgoing cash flows from firm end up
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Retained cash flows (stay in firm)
Dividends and debt payments Taxes |
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Who reports to shareholders in a firm?
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Board of directors
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Three major forms of business organization
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Sole proprietorship
Partnership (general or limited) Corporation |
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Which is more liquid, a corporation or sole-proprietorship/partnership?
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Corporation
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How are taxes paid in a partnership?
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Partners pay taxes on distributions.
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How are taxes paid in corporation?
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Double taxation (corporation and shareholders)
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Do partnerships/proprietorships have limited liability?
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Generally no, unlimited liability. Limited partners enjoy limited liability.
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Continuity of corporation vs. proprietorship
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Corporations have perpetual life, proprietorships/partnerships have limited life (the life of the proprietors).
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What is the agency problem
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Conflict of interest between principal and agent.
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In corporate setting, who is the agency and who is the principal?
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Principal: stockholders
Agent: managers of the company |
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Agency relationship
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principal hires an agent to represent his/her interest
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What conflicts may have with their primary job as an agent to shareholders?
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Their own survival
Independence Expensive perquisites |
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Are increased growth and size of a firm necessarily equivalent to increased shareholder wealth?
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No, e.g. short-term increases in growth may hurt long-term goals.
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What can keep managers in line?
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Managerial compensation (incentives based on performance)
Corporate control (threat of takeover) Other stakeholders |
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Difference between primary and secondary financial markets
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Primary market: first time issuance
Secondary market: buying/selling of previously issued securities |
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Two types of secondary financial markets
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Dealer (NASDAQ) or auction (NYSE)
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Primarily goal of financial management
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Maximize shareholder wealth
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