Chapter 1 Lecture Notes Flashcards
(26 cards)
What is the primary goal of Finance?
Maximize shareholder wealth
Three basic factors of finance:
- Assets must generate cash flows
- Optimize the timing of the cash flows
- Find the optimal tradeoff between risk and return
When you miss out on cheap _____ you miss out on ____
debt, profit
Art Cashin
CNBC old guy, trustworthy
Bob Pisani
CNBC says what is going in the market, looks at data
What are decisions which affect the stock price:
- What products or services should be produced?
- How should these products or services be produced/delivered?
- What mix of debt and equity should be used?
- What percent of earnings should be paid out in dividends rather than retained and reinvested?
Stock price is also affected by external factors such as:
- legal constraints
- health of economy
- tax laws
- interest rates
- conditions in the stock market
Who controls the interest rates?
the FED Jerome Powell (head of the FED)
Will maximizing profits maximize shareholder wealth?
Maximizing profits does not necessarily maximize shareholder wealth
What should you consider about social responsibility?
- welfare of the firm’s employees? (yes)
- best interest of the customers? (yes)
- community in which the firm operates? (yes)
Market price
Changes every second
Intrinsic value
What the stock price should be considering all public information
Equilibrium
Market price = Intrinsic value
no two analyst values the same
Current Assets
Cash
Marketable Securities
Accounts Receivables
Inventories
Current Liabilities
Accounts Payable
Notes Payable
Accruals
Common Equity
Common Stock
Capital in excess of par
Retained Earnings
What is the significance of EBITDA?
It is the purest form of seeing if the company is doing good at getting the product sold
EBIT is aka
operating income
EBT is aka
taxable income
Source of cash
Decrease an asset account (sell an item)
Increase a liability/equity account (get a loan)
Use of cash
Increase in asset account (buy a truck)
Decrease in a liability/equity account (pay back loan)
Transfer all sources/uses to the…
Statement of Cash Flows
(use Net Income and Payment of Dividends)
USE GROSS FIXED ASSETS
Net cash flow generally differs from accounting profit
accounting profit = net income (pulled out depreciation)
Net cash flow equation
Net cash flow = net income + depreciation
