Ch 1-3.docx - 3 AREAS OF FINANCE 1 MANAGERIAL FINANCE...

This preview shows page 1 - 3 out of 9 pages.

3 AREAS OF FINANCE:1.MANAGERIAL FINANCE: concerned with the financial management of a firma.Buying/selling assetsb.Financing choicesc.Control costs2.INVESTMENTS: concerned with purchasing & holding assets and securitiesa.Stocksb.Bonds3.FINANCIAL MARKETS:a.Money Marketb.Capital Marketsi.Implies to long term moneyii.Stock exchanges, trading of stocks and bonds.c.Financial Intermediariesi.Intermediaries themselves: Banks, credit unionsii.Loans3 FUNDAMENTAL DECISIONS IN FINANCIAL MANAGEMENT:1.CAPITAL BUDGETING DECISIONS: identifying the productive assets the firm should buy2.FINANCING DECISIONS: determining how the firm should finance or pay forassets3.WORKING CAPITAL MANAGEMENT DECISIONS: determining how day to day financial matters should be managed so that the firm can pay its bills andhow surplus cash should be invested.MAJOR PRINCIPLES OF FINANCE:1.RISK: Return Tradeofa.The higher the risk, the higher the return2.Time Value of Money3.Cash is King (not profits)4.Incremental cash flowsa.The change or improvement in cash flows5.Competitive Markets6.Efficient Capital Marketsa.Information spreads quickly and its reflected in the stock priceb.7.Agency Issuea.WHo do managers really work for?8.Tax Impact a.Investment decisions should be viewed after tax9. Diversificationa.Don’t put all your eggs in one basketb.Means safety10.EthicsBUSINESS ORGANIZATION SETUP1.SOLE PROPRIETORSHIP:1 person show, you are the ownera.Tax bill is not paid by the business but it goes to your personal taxes.b.Liability: goes to you, “the sole proprietor”.c.More difficult time raising capital
d.Easier to sell2.GENERAL PARTNERSHIP:2 or more ownersa.Liability: can be 50/50 but theres a chance of you bringing responsible for all 100 if your partner doesn’t have any other assets it all goes to youb.Can be the riskiest.c.Harder to selld.Continuity: ends when partners die.3.LIMITED PARTNERSHIP: quiet ownersa.Can only lose what you put inb.Needs general partnerc.Harder to selld.Continuity: if a general partner dies, it stops. But if a limited partner dies then it continues.4.LLP LIMITED LIABILITY PARTNERSHIP (HYBRID):a.Takes benefits from partnerships and companiesb.Continuity5.CORPORATION: a legal entity a.Life of its own.b.Taxes are the “downfall”c.Easier time raising capitald.Very easy to sell6.SUBCHAPTER Sa.Family owned businessesFinancial markets and interest ratesDescribe the importance of financial markets including both primary and secondary marketsIdentify some of the important legislative acts relating to firmsDescribe and calculate the real rate and nominal rate of interestConstruct a balance sheet and income statementCalculate corporate income taxes based on computed taxable incomeCompare and contrast average and marginal tax ratesPURPOSE OF FINANCIAL MARKETS:is to bring the sources of capital and the users of capital togetherBring people together (people with money and people who need it)Money Market vs. Capital MarketMoney Market:

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture