FIN 380 Final Exam Review - Need anything about it Need...

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Need anything about it Need explanation Might be incorrect How to calculate? / exam like examples SPEND MOST TIME ON 1. The goal of the financial manager a. The goal of the financial manager is to increase shareholder’s wealth 2. The advantages/disadvantages of corporations, partnerships, and sole proprietorships a. Sole Proprietorship—business owned by an individual i. Advantages—easiest, least regulated, single owner, taxed once as personal income ii. Disadvantages—limited to life of owner, equity capital limited to personal wealth, unlimited liability, difficult to sell ownership interest b. Partnership—two or more persons organize a business for profit i. Advantages—two owners, more capital, easy to start, income taxed as personal income ii. Disadvantages—unlimited liability, partnership dissolves when one dies or tries to sell c. Corporation—legal entity separate from its owners (owners own shares of stock)- S-corp maintains benefits of corp but is taxed as a partnership- LLC can be taxed as corp or partnership i. Advantages—limited liability, separation of ownership and mgmt, transfer of ownership is easy ii. Disadvantages—agency cost due to separation of ownership, double taxation (corp then personal) 3. Financial market participants, trading, listing, and classifications (primary vs. secondary, broker vs. dealer, organized vs. OTC, etc.) a. Primary—newly-issued securities are sold first time from issuer to investor b. Secondary—previously-issued securities are traded from investor to investor c. Auction—brokers coordinate transactions between buyer and seller in a physical location d. Dealer—dealer is on one side or the other in transactions (electronic) 4. Basic financial statements (construction and interpretation, with special emphasis on dividends, addition to retained earnings) a. 5. Computation and understanding of marginal and average tax rates, and how they affect financial decisions a. Average tax rate = total tax / taxable income b. Marginal tax rate is the tax rate on the next $1 of earnings 6. Cash flow from assets (including all components: OCF, NCS, ∆NWC, CFS, CFC) a. CFFA—how cash is generated using assets i. CFFA = OCF – NCS – Change in NWC b. CFFA—how cash is distributed to financiers i. CFFA = Cash Flow to Creditors + Cash Flow to Stockholders c. Components on Cash Flows i. Operating Cash Flow (OCF) 1. OCF = EBIT + depreciation – taxes a. EBIT = sales – costs – depreciation ii. Net Capital Spending (NCS) 1. NCS = ending net fixed assets – beginning net fixed assets + depreciation iii. Change in NWC- should be percentage change? That is, divided by beginning NWC 1. Change in NWC = ending NWC – beginning NWC 7. Ratio analysis (computation and interpretation of all ratios on page 65 of the RWJ Fundamentals of Corp. Fin. 9ed MSU version) a. Short-term solvency, or liquidity, ratios i. Current ratio = current assets / current liabilities ii. Quick ratio = current assets – inventory / current liabilities
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This note was uploaded on 09/27/2011 for the course FINANCE 380 taught by Professor E.c during the Spring '10 term at Missouri State University-Springfield.

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FIN 380 Final Exam Review - Need anything about it Need...

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