midterm1review - Primary market transaction= between corp...

Info icon This preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Primary market transaction= between corp. and investor for 1 st time ex: IPO Secondary=any time after ex: buy/sell stock Financial managers goal= increase market value of OE, max shareholders wealth Agency cost= managers don’t act upon shareholders best interest Sole Proprietorship: Advantages Easiest to start Least regulated Single owner keeps all the profits Taxed once as personal income Disadvantages Limited to life of owner Equity capital limited to owner’s personal wealth Unlimited liability Difficult to sell ownership interest Partnership: Two or more owners More capital available Relatively easy to start Income taxed once as personal income Corporation: -limited liability Unlimited liability General partnership, Limited partnership Partnership dissolves when one partner dies or wishes to sell Difficult to transfer ownership -separation of ownership & management -unlimited life -double taxation (income taxed at -separation of ownership & management corporate rate and then dividends -transfer of ownership= easy taxed at personal rate) -easier to raise capital Limited liability=lose only what you invest -limited liability corporation= taxed on personal level Agency relationship: Principal hires an agent to represent their interest Stockholders (principals) hire managers (agents) to run the company Agency problem= Conflict of interest between principal and agent Management goals and agency costs (direct and indirect) Managerial compensation Incentives can be used to align management and stockholder interests The incentives need to be structured carefully to make sure that they achieve their goal Corporate control The threat of a takeover may result in better management Working capital management= firm’s STA & Liab. ex: inv, $ to suppliers
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
CH2 : Current assets: plan to use in one year or less Ex: cash, AR, inv, marketable securities, short-term investments, ppd. Expenses (insurance, rent) Fixed= PPE (land, building), long-term investments (stock in other companies or owe another company) intangible (goodwill, patent, copyright) *not very liquid, but earns high returns Current Liabilities: AP, un-paid expenses (accrued), taxes payable, NP, bond Long term Liab.= “long-term” debt, notes B/S= short period of time I/S= long period of time Financial leverage= degree of debt in firm; more debt as % of assets= more leverage NWC= CA-CL if positive, cash available> cash that must be paid Market value= value today, not shown in B/S (more important) Book values= historical Market > Book= well-managed company
Image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern