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L1: Intro to FinMan
MAs2
| Term | Definition |
|---|---|
| legal forms of business organization (according to no. of owners) | 1. sole proprietorship 2. partnership 3. corporation |
| legal forms of business organization (according to activities) | 1. service 2. merchandise 3. manufacturing |
| goal of the firm (short-term) | profit maximization |
| goal of the firm (long-term) | maximization of shareholder's wealth |
| profit maximization | - timing - cash flow - risk |
| treasurer | - financial manager - evaluates the reports from the controller for decision-making |
| controller | - accountant - records, classifies, and summarizes, past transactions for presentation of financial statements |
| economics | - marginal cost-benefit analysis - "anong benefit niyan sa'kin???" - risks |
| accounting | - emphasis on cash flows - decision-making |
| primary objectives of financial manager | - making investment decisions (current and fixed assets) - making financing decisions (current liabilities and long-eterm funds) |
| principle 1 | the risk-return trade-off |
| the risk-return trade off | "we won't take on additional risk unless we expect to be compensated with additional return" |
| principle 2 | the time value of money |
| the time value of money | "a dollar received today is worth more than a dollar received in the future" - nawawala 'yung opportunity cost |
| opportunity cost | return na hindi mo na-receive |
| principle 3 | cash - not profit - is king |
| cash - not profit - is king | - e.g. mga profit na naka-AR |
| principle 4 | incremental cash flows |
| incremental cash flows | "it is only what changes that counts" - kung ano/saan 'yung mas nagbibigay sa'yo ng pera, doon ka - hindi dapat 'yung sa malulugi ka |
| principle 5 | the curse of competitive markets |
| the curse of competitive markets | "if an industry is generating large profits, new entrants are usually attracted. the additional competition and added capcity can result in profits being drive down to the required rate of return" |
| principle 6 | efficient capital markets |
| efficient capital markets | "the markets are quick and the prices are right" - e.g. for corporations, punta ka ng stock market to check the price |
| principle 7 | the agency problem |
| the agency problem | "managers won't work for the owners unless it is in their best interest" |
| agent | - employees - works on behalf of the principal |
| principle 8 | taxes bias business decisions |
| taxes bias business decisions | - the cash flows we consider are the after-tax incremental cash flows to the firm as a whole - dapat naka-after tax ang cash flow na kino-consider |
| principle 9 | all risks are not equal |
| all risks are not equal | - "some risk can be diversified away, and some cannot" - "do not put all the eggs in just one basket" - hindi pare-pareho ang risks sa iba't ibang bagay |
| principle 10 | ethical behaviour is doing the right thing, and ethical dilemmas are everywhere in finance |
| ethical behaviour is doing the right thing, and ethical dilemmas are everywhere in finance | - i-apply kung cnu b tlaga tau |
Created by:
tabeeelll
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