lecture 04 - Business Finance Lecture 4 Review of the...

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14 Business Finance Lecture 4 Review of the Previous Lecture Forms of Business Organization Proprietorship Partnership Corporation Goals of the Corporate Firm Agency Problem Topics under Discussion Firm and the Financial Markets Financial Statements Balance Sheet Assets Liabilities and Owners’ Equity Working Capital Liquidity Market Value vs. Book Value Income Statement GAAP Non-cash Items Time and Costs The Firm and the Financial Markets Cash flow from firm (C) Taxes (D) Firm Governmen Firm issues securities (A) Retained cash flows (F) Invests in assets Dividends and debt payments (E) Current assets Financial markets Short-term debt Long-term debt Equity shares Ultimately, the firm must be a cash generating activity. The cash flows from the firm must exceed the cash flows from the financial markets .
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15 Financial Markets Primary Market When a corporation issues securities, cash flows from investors to the firm. Usually an underwriter is involved Secondary Markets Involve the sale of “used” securities from one investor to another. Securities may be exchange traded or trade over-the-counter in a dealer market. Financial Markets Dealer Vs. Auction Markets Auction markets are different from dealer markets in two ways: Trading in a given auction exchange takes place at a single site on the floor of the exchange. Transaction prices of shares are communicated almost immediately to the public. Listing The Balance Sheet An accountant’s snapshot of the firm’s accounting value as of a particular date. The Balance Sheet Identity is: Assets Liabilities + Stockholder’s Equity When analyzing a balance sheet, the financial manager should be aware of three concerns: accounting liquidity, debt versus equity, and value versus cost.
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lecture 04 - Business Finance Lecture 4 Review of the...

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