Exam 1 Study Guide

Exam 1 Study Guide - Fire 312 BUSINESSES HOUSEHOLDS Notes...

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HOUSEHOLDS BUSINESSES Fire 312 Notes Day 1 Aug 21 Cant set appointments during office hours, must set appointments outside office hours, 1 st come 1 st serve on office hours Refresh up on Excel Cut cell phone off during exams Basics Household sector with extra funds and businesses Reference Depreciation: Amortization is intangible depreciation and will not use for this part of the class INCOME STATEMENT REVENUES - COGS (OPERATION - ADMINISTRATION / GENERAL COSTS COSTS) EBITDA (OPERATION - DEPRCIATION (for this class Tangible Assets) COSTS) EBIT (Earnings Before Interest & Taxes) - INTEREST (Bond Holders) EBT (Earnings Before Taxes) - TAXES (payment to Government) EAT (Earnings After Taxes) or NI ( Net Income) (Payment to Stock / Equity holders) 1
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BALANCE SHEET CASH FROM SECURITIES ON THIS SIDE SECURITIES ARE ON THIS SIDE ASSETS LIABILITIES (Net Fixed Assets) (Long Term Debt) (ie buy more machines, increase productivity) SHAREHOLDERS EQUITY (Common Stock or Accumulated Retained Earnings Additional Paid in Capital) 2
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Income Statement Related to Sale of Securities INCOME STATEMENT REVENUES - COGS (OPERATION - ADMINISTRATION / GENERAL COSTS COSTS) EBITDA (OPERATION - DEPRCIATION (for this class Tangible Assets) COSTS) EBIT (Earnings Before Interest & Taxes) - INTEREST (Bond Holders) (Debt Holders) (Have Priority after operation costs) Households have excess funds after consumption so they will give up consumption for a stock or a bond in the hopes of return on excess consumption ie money SECURITY MONEY $ 2 ways BUSINESSES attract money from HOUSEHOLDS 1 st is bond which go here in income statement BONDS (Debt) – thus must claim the interest on income statement EBT (Earnings Before Taxes) - TAXES (payment to government) EAT (Earnings After Taxes) or NI ( Net Income) (Payment to stock / equity holders) 2 nd is stocks which go here on income statement STOCKS (Equity) – profits from firm claim on net income in form of Dividends – income distribution or Retained Earnings – which are reinvested in firm thus stock holders are equity holders / managers usually work for common stock / equity owners 3
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(Successful Businesses / Firms grow at a sustainable level) So if firm has 7% of market share for example and they want 11%, then they need extra capital / money so they can take the other 4% market share from competitors and basic advertising usually will not do that Managers main goal is increase wealth of common stock owners A Firm is – a collection of contracts Principals or Stockholders – hire managers to maximize their wealth AGENCY PROBLEMS Managers vs Stock Holder Stockholders manipulate relationship by setting up a contract with the manager Stockholders vs Bondholders Bond holders put stipulations on bond contracts and limits to what firm can due plus put themselves first before stockholders ie get interest payout before stockholder gets dividend payout and the contracts are call Restrictive
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Exam 1 Study Guide - Fire 312 BUSINESSES HOUSEHOLDS Notes...

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