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33 Cards in this Set
- Front
- Back
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the movement of money from lender to borrower and back again.
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the cycle of money
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participants in the cycle of money
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o Lender, borrower, financial intermediary like a bank.
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Objective of borrowing and lending
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o The common objective is to make both the lender and the borrower better off.
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• Four main areas of finance
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o Corporate finance, investments, financial institutions and markets, and international finance.
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• Three main categories of financial management.
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o capital budgeting, capital structure, and working capital management.
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o is the process of choosing the products and services the company will produce.
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• Capital budgeting
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o is concerned with choosing the lenders the company will use to finance its operations.
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• Capital structure
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o involves choosing the policies that manage the day- to-day operating needs of the company.
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• Working capital management
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• Identify the main objective of the finance manager
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To maximize the current stock price ( equity value) of the firm. The finance manager works with multiple players inside and outside the firm to create and preserve the economic value of the firm’s assets.
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• three main categories of business organizations
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Sole proprietorship, partnership, and corporation.
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o Companies are run by managers who may have different goals than the owners.
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agency theory
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o is the conflict between the owners of the company and the managers hired by the owners to work in the owners’ best interests.
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• The principal- agent problem.
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o deals with how a company conducts its business and what controls are put in place to ensure proper procedures and ethical behavior.
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• corporate governance
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• There are four financial statements that report the performance of a firm:
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( 1) the balance sheet,
o ( 2) the income state-ment, o ( 3) the statement of retained earnings, o ( 4) the state-ment of cash flow. |
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• states that the cash from assets is always equal to the cash to lenders and the cash to owners.
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• The cash flow identity
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Accounting identity: assets =
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liabilities + owners’ equity
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cash flow from assets =
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cash flow to creditors + cash flow to stockholders
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change in retained earnings =
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net income - distributed earnings
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operating cash flow =
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earnings before interest and taxes + depreciation - taxes
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revenue - operating expenses =
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earnings before interest and taxes
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net income =
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revenues - expenses
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net working capital =
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current assets - current liabilities
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Is relationship between firms’ stakeholders and the way a company is DIRECTED, ADMINISTERED And CONTROLLED.
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Corporate Governance
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o Shareholders o Debtholders o Suppliers o Customers o Employees o Etc. |
Who are stakeholders?
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o Respecting the rights of shareholders
o Role of Board, which is reviewing and challenging management performance o Integrity, ethical behavior, ethical and responsible decision making o Disclosure and transparency. Disclosure should be made timely and made sure that all investors have access to clear information |
• Principles of Corporate Governance
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o Competition in the market
o Debt covenants o Government regulations o Managerial labor market o Media pressure o Takeovers |
• External Corporate Governance Controls
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• Problems of Corporate Governance
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Monitoring Cost
Supply of accounting information |
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Firm that are valuable are ones with
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a lot of cash flows
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• Type o f Assets
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○ Current Assets
○ Fixed Assets |
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• Type of Liability
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○ Short term
○ Long term ○ equity |
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○ Types of Assets
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Equity Markets
Bond Markets Derivative Market Foreign Exchange Market |
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○ Is a time that the borrower has to pay back what is borrowed
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• Maturity
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Type of Markets
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Money Markets
Capital Markets |
