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Introduction to Corp
Introduction to Corporate Finance - Chapter 1 & Chapter 2: Financial Statements,
| Term | Definition |
|---|---|
| Corporate Finance | How corporations/finance managers manage viable decisions surrounding finance of a company, business finance |
| Primary goal for financial managers | Maximizing shareholder wealth |
| Basic Areas of Finance | Corporate finances Investments Financial Institutions International finance |
| Financial assets | stocks and bonds, much more liquid than tangible (non physical asset, it has value but you cannot hold it) |
| When one buys a stock they believe... | the value of a company will increase or its wealth, you become a partial owner |
| Capital | money, resources, currency needed to fund and expand enterprise |
| How is Capital raised | borrowing money/capital (issuing bonds/debt) OR take money from shareholders, issuing stock (equity/ownership) |
| Financial Management Decisions | Capital budgeting, management, and structure |
| Sole proprietorship | easy to start, requires little to no capital, easy to regulate, but has unlimited liability for the owner (whatever asset you hold can be affected as there is no separation between business and the owner) |
| Partnership | General - unlimited liability but with two or more owners Limited - multiple owners but liability is limited (limited in how much each person can lose) |
| Limited liability company | limits liability of the owner, business loses assets not the owner, requires more recording, filing, and paperwork |
| double taxation | Double taxation refers to income taxes paid twice on the same income source. It occurs when income is taxed at both the corporate and personal level |
| Wealth vs Profit | Wealth (focuses on longevity of the firm) vs Profit (difference between sales price and cost of goods sold, ex. 20 dollars to sell toy but 10 dollars to make it = 10 profit) |
| The Agency Relationship/Issue | Difference between those who own a firm and those who manage the firm, separation within public traded companies Principal - Owner (stockholder), hires manager Agents - Manager run the company |
| Agency Problem | Conflict of interest between principal and agent |
| Without taking risk... | there is no reward, significant return, or chance to maximize wealth |
| Primary market | (raise $ via public offering or private placement, first issued (bond or stock) happens within this market, you receive capital from stakeholders) After initial IPO (initial public offering) shares traded in secondary market |
| Secondary markets | buying shares that are already in the market (ex. From Tesla, IBM…etc) |
| Balance Sheet | Has two sides and those two sides much balance (Assets = Liabilities + (Shareholders) Equity), highlight these aspects/factors at a point of time (“as of…specific date”) |
| Income Statement | a companies financial performance at a specific period of time. Revenue - Expenses = Net Income (what a business makes after taxes, deductions, and other expenses are taken out) |
| Assets | What a company owns (plant, property, equipment, cash, accountable receivable, inventory…etc) |
| Current Assets | On top, life of 1 year or less, will be converted into cash within a year |
| Fixed Assets | On bottom, have a long life can be tangible (something you can touch building, equipment…etc) or intangible (something you cannot hold, patent, licenses, copyright..etc) (ex. plant, property…etc) |
| Liabilities | (borrowing bonds,loans..etc, you have to pay it back, anything you use to fund your assets) (ex. Account payable, notes payable) what you owe others |
| Shareholder Equity | (issuing stocks to fund your assets/capital, you owe stakeholders something in return (max wealth) as they are funding your capital) - What a company owes stakeholders |
| Networking Capital | difference between how much the firm has in current asset and current liabilities |
| Positive Networking Capital | You have more current assets (what you own) than current liabilities (what you owe) = enough liquidity/cash to cover short term liabilities that will become due in the next year |
| Negative Networking Capital | Do not have enough liquidity/cash to meet short term liabilities (someone may not be getting paid/what you owe will not be payed off) |
| Liquidity | ability to convert an asset into cash quickly without a significant loss in value, is important because it helps companies avoid financial distress and if encountered with one you are able to cover/handle it |
| Capital Budgeting | managing long term assets |
| Capital Structure | Capital Structure between debt or equity |
| Capital Management | managing day to day finance operations |
| Book Value | What the firm paid minus depreciation (ex. Honda over 5 yrs) |
| Market Value | True value (price assets, liabilities, or equity can actually be bought or sold) |
Created by:
Jaydas.
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