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FI 363 Exam 1

advantages of a sole proprietorship easy to start; light regulatory and paperwork burden; single taxation at the personal tax rate
disadvantages of sole proprietorship unlimited liability; limited access to capital
advantages of general partnerships relatively easy to start; single taxation
disadvantages of general partnerships partners jointly share unlimited liability; difficult to raise large amounts of capital
advantages of corporations limited liability for owners; can raise large amounts of capital; easy to transfer ownership
disadvantages of corporations double taxation (corporate level and personal level)
goals of the firm maximization of shareholder wealth (stock price)
when one party (the principal) hires another party (the agent) to work for them, relationship between stockholders and management agency relationship
managers may act in their own self-interest instead of the shareholder's interest agency problem
growth rate a firm can sustain if it uses only internal financing - that is, retained earnings - to finance future growth internal growth rate
growth rate a firm can sustain if it finances growth using both debt and internal financing such that the debt ratio remains constant sustainable growth rate
process of moving money through time to account for interest received or paid; relationship between time, money, and interest rates time value of money
perpetual annuity or payment that does not end perpetuity
the nominal rate or annual percentage rate (APR) ignores the effect of compounding. for loans, this is the quoted rate effective annual rate (EAR)
current ratio lower than industry weakness
quick ratio lower than industry weakness
liquidity includes current ration and quick ratio
asset management includes inventory turnover ratio, receivable ratio, fixed asset turnover ratio, total asset turnover ratio
inventory turnover ratio lower than industry weakness
receivable turnover lower than industry weakness
fixed asset turnover ratio lower than industry weakness
total asset turnover ration lower than industry weakness
debt management includes debt ratio, debt-to-equity ratio, equity multiplier, times interest earned
debt ratio lower than industry strength
debt-to-equity ratio lower than industry strength
equity multiplier lower than industry strength
times interest earned lower than industry weakness
profitability includes profit margin, ROA, ROE, dividend payout ratio
profit margin lower than industry weakness
ROA lower than industry weakness
ROE lower than industry weakness
dividend payout ratio lower than industry not a good or bad thing; depends on investor preference
market value includes market-to-book ratio, PE ratio
market-to-book ratio lower than industry not good or bad; technically a weakness bc investors do not value companies as highly; selling at lower value than industry
PE ratio lower than industry not good or bad; technically a weakness bc investors do not value companies as highly; selling at lower value than industry
DuPont Analysis ROA and ROE
Created by: pace_sauce



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