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Business Finance
For test chapter 1-3
| Question | Answer |
|---|---|
| 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 |
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