Class 6: Financial Statements

Question 1

3 necessary statements

Answer 1

Income statement: revenues - cost of goods sold = gross profit - operating expenses - taxes = net earnings,
Statement of cash flows (activities)
Balance sheet (assets = liabilities + equity)

Question 2

Equity financing advantages

Answer 2

Benefit from expertise of investor, equity capital expands borrowing power of business, spread risk of failure to others

Question 3

Equity financing disadvantages

Answer 3

Dilutes ownership interest, possibility of disagreement and lack of coordination

Question 4

Private equity market

Answer 4

Individuals (angel funds, family offices)
Venture capital (private venture capital firms, small business investments companies - SBIC, banks, etc),
Private equity firms (limited partners, general partners)

Question 5

Regular private lending institutions

Answer 5

Chartered banks, trust companies (geared towards long-term assets), credit unions, finance companies (high risk lenders that charge higher interest)

Question 6

Business angel value added

Answer 6

Sounding board/strategic role, supervision and monitoring role, resource acquisition role, mentoring role

Question 7

Going public

Answer 7

When equity owners offer and sell part of the company to the public
Good: obtain new equity capital
Bad: loss of flexibility/increased duties, public exposure/control loss potential