Principles Of Finance Raju Chapter 1

Front 1

Financial institutions

Back 1

businesses that deal primarily in financial matters.

Front 2

Investments work opportunities

Back 2

stockbroker, portfolio manager, security analyst.

Front 3

Why study finance?

Back 3

You need it no matter what you go into. If you are into marketing you need to know finance bexause they work with budgerts and cost and benefit of projects. They work with marketers to analyze the profitability of proposed projects. Accountants finance is required because they are often called upon to make finance decisions in addition to their accounting duties. Management strategy withouth thinking about finance is a disaster. I will have to make personal finance decisions as well.

Front 4

What is business finance?

Back 4

is the study of ways to answer 3 questions:
1. What long term investments should you make?
2. Where will you get the financing to pay for these investments?
3. Ho will you manager your everyday financing activities?

Front 5

Ca[otal budgeting

Back 5

the process of planning and managing a firm's long term investments. Try to identify investment opportunities that are worth more to the firm than they cost to acquire.

Front 6

Capital structure

Back 6

The mixture of debt and equity maintained by a firm. How much should they borrow? and what are the least expensive sources of funds for the firm? Decids how and where to raise the funds.

Front 7

Working capital

Back 7

A firm's short term assets and liabilities.

Front 8

Sole proprietorship

Back 8

A business owned by a singe individual. The sole owner keeps all profits and has unlimited liability. NO SEPARATION FROM PERSONAL AND BUSINESS INCOME so ALL TAXED AS PERSONAL. Limited to owner's lifespan.

Front 9

Partnership

Back 9

A business formed by 2 or more individuals or entities. Have to sign a partnership agreement. They share all gains and losses and have unlimited liability for ALL partnership debts. Easy tof orm unlimited liability, taxed as personal income. Limited life, hard to transfer ownership.

Front 10

Limited partnership

Back 10

ne or more gneral partners run the bus and have unltd. liability however then there are 1 or more limited partners who are limited to the partner contribution. They have to not actively participate or they can be judged as a general partner.

Front 11

Corporation

Back 11

A business created as a distinct legal entity owned by one or more individuals. Can borow money and own property, can sue and be sued, and can enter into contracts. Have to file articles of incorporation and come up with a set of bylaws. Stockhlders elect borad of directors, who then elect managers. This is how stockholders exercise their ownership rights. Ownership can be readily transferred and the life is unlimited. Stockholders can only lose what they have invested. Less risk. Can sell shares to attract investors. Double taxation. Taxed when money is paid to taxholders in the form of dividends and then again as personal income to recipient.

Front 12

Profit maximization

Back 12

Commonly cited business goal. This doesn't tell us much

Front 13

The goal of financial management in a corp.

Back 13

The goal of financial management is to maximize the current value per share of the existing stock. The manage has to act in the best interest of the stockholder by making decisions that increase teh value of the stock.

Front 14

A general financial management goal

Back 14

Maximize the market value of existing owner's equity.

Front 15

Sarbanes Oxley act

Back 15

imposed in response to corporate scandals. Strengthens protectuion against corp accounting fraud. Officers must review and sign, attesting that they are accurate and no material omissions. They state they are fairly presented. Compliance has been costly.

Front 16

Agency relationshop exists

Back 16

Whenever someone hires another to represent his or her interest.

Front 17

Agency problem

Back 17

The possibility of a conflict of interest between the owners and management of the firm.

Front 18

Management do they act in the niterest of stockholders?

Back 18

Sometimes managers have significant incentive to act in the best interest of stockholders. Some companies managers compensation is usually tied to performance and share price. Control of the firm rests with stockholders who elect the borad of directors who hires and fires managers. Managers will be fired if they arent acting in the best interest of stockholders.

Front 19

Stakeholder

Back 19

Someone other than a stockholder or creditor who potentially has a claim on the cash flow of the firm.

Front 20

Financial market

Back 20

brings buyers and sellers together. In financial markets. Debt and equity are sold.

Front 21

Primary jmarket

Back 21

the corporation is the seller and the transaction raises money for the corp. Oftne do public offerings and private placements. the pubnlic offerings must be registerd with the SEC. Often sold privately to large financial instituations because then u can avoid costly SEC requirements.

Front 22

Secondary Market

Back 22

involves one owner or creditor selling to another. Means for transferring ownership of corp securies.

Front 23

public offering

Back 23

involves selling securies to the general public

Front 24

private placement

Back 24

a negotiated sale involving a specific buyer.

Front 25

dealer vs. auction markets

Back 25

dealers buy and sell for themselves at their own risk. Brokers match buyers and sellers. They don't actually own the commodity that is being sold. Acutiion markets differ in 2 ways auction markets have a physical location. Most of the buying and selling is done by the dealer.

Front 26

Trading in corporate secirties.

Back 26

Most take place on NYSE or AMEX or NASDAX

Front 27

listing

Back 27

stocks that trade on an organized exchange are said to be listed on that exchange. In order to be listed a firm must meet certain criteria such as asset size and number of shareholders.