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Business Finance

For test chapter 1-3

6 steps of planning predict need for funds source of funds tax management *relations with investors and creditors insureable risks inventory management
4 steps of controlling general accounting budgeting auditing establishing systems/ procedures
forms of ownership sole proprietorship partnership corporation
which form of ownership generates the most money? corporation
which form of ownership is most common? sole proprietorship
Personnal guarentee by small business owner "piercing the corporate veil"
To encourage business formation there are two other types of business subchapter S & Limtied liability Company
Limtied liability compnay ( 6 facotrs) Not asrestictive as S corps Members and governors Taxed as a corporation ( if retain earnings, no double tax) Non transferable ownership limited life no stock options
agency theory relationship between managers and owners
Institutional investors Stock mutual, pension funds, large % stock holding - professionaly managed
options for "non" effective managers *fire them *proxy fights *threat of takeover *Stock options/ stock
3 Goals of financial management * Maintain or increase overall firm value * Maximize owners wealth in long run * socially responsible/ ethical activity
3 ways to maintain or increase overall value of firm * risk involved in operations * timing of earnings * quaility of reports- new SEC rule, CEOs and CFOs must certify results.
What are two markets for financial assets? money "short term" securites mature under 1 year & Capital" long term" securites mature over 1 year
Money invloves * T bills * Cds Commercial papers
Capital invloves * stock- prefeered, common * bonds- govn't corp * Primary- oringinal issues IPO * secondary- buy previously owned securities
Finance Managment of the flows of funds through the organization. also invloves providing capital & managing it efficiently & profitable
Factors of production used to make goods to and services and to distribute them localy and globaly
Important things in finance land labor capital entreprenuers knowledge
risk analysis relative certanity of outcomes Optimistic- 15% Most likly- 65% Pessmistic- 20% = risk adjusted expected value
Pricing theory compeditive strusture perfect compition, monopolistic, competion, oligolopy
comparative return Section a vs. section b
Income statement revenues - expenses
Balence sheet Assest - Liabilities = Owner's equity
Cash Flow Statement * operating avtivities * Investing activites * Financial activites
Ratio Analysis *relationships between the amounts on the balence sheets and L. S. * Compare to other years * compare ot other companies
1990's Industrial revoltion * merges & acquuisitations created monopolies Rockfeller- oil carnagie- steel -vanderbitt- rail dupoint- chemical
1920's antitrust legislation strictly enforced sherman (1890) forbids combined resourses to restrict trade, attempt to create monopoly.
clayton act (1914) illegal attempts to leason competition resulting in monopoly - exclusive deals - tieing contracts - interlock directorates
FTC (1914 prohbit unfair methods of competition.
companies raised capital by offering... Ownership shares- increase equity debt contracts (bonds)- increasing liability
1923-1929 roaring 20's, rapid expansion of business
1930's great depression * value of stock grew to fast * maintain liquidity * reorganized trouble firms * preserve capital * SEC disclosure (1934)
1960's to present better crash managemtn up collections down payments
Profit margin= Net income / Sales
Return on assests = Net Income / total Assets
Return on equity = Net Income / Stock holders Equity or Return on assets / (1 - debt/assets)
Du point system of analysis resturn on assets ( investment) = profit margin x Assest turnover
Receivable turnover = Sales( credit) / Recivables
Average collection Period = Accounts reciable / Average daily credit sales
Inventory Turnover = Sales / Inventory
Fixed asset turnover = Sales / Fixed Assets
Total Asset Turnover = Sales / Total Assets
Current Ratio = Current assets / Current Liabilities
Quick Ratio = Current assets - Inventory / Current liabilties
Debt to total assets = Total Debt / Total Assets
Times interest Earned = Income before interest and taxes / Interest
Fixed charge coverage = Income before fixed charges and taxes / Fixed charges
Income before fixes charges and taxes = Income before interest and taxes + Lease payments
Created by: xxGiJ0Exx