Exam 1 Review Flashcards
(22 cards)
Someone who oversees treasurer and controller, responsible for capital budgeting, capital structure and managing every day liquidity (i.e. working capital) plus they work with CEO to meet the ultimate goal: Maximize current value of the company’s stock price
CFO (Chief Financial Officer)
How does information transfer within a company (list 4 positions and their order)
CFO, then CEO, then board of directions, then shareholders (AKA ultimate group of power)
Single or double tax for sole proprietorship, partnership, and corporation?
Sole proprietorship and partnership = single tax
Corporation = double tax
Order of easiest to hardest to attain capital (3 types of businesses)
Corporation = easiest
Partnership = 2nd easiest
Sole Proprietorship = least easy
Limited life or Unlimited Life for 3 types of businesses
Sole Proprietorship and Partnership = Limited Life
Corporation = Unlimited Life
The “BLANK” is when the principal (shareholders) hires an agent (CEO) to represent higher interests
Agency Relationship
Conflict of interest between principal and agent
Agency conflict
Indirect (opportunity costs), cost from monitoring (i.e. paying outside auditors and/or paying board of directors), wasteful spending, and taking on bad investment.
Agency Costs
Managerial compensation, proxy fights (i.e. when shareholders articulate need of change to board of directors), threat of takeover, independent board directors.
Agency Potential Solutions
Original sale of securities by corporations and governments. (IPO) Initial Public Offering.
Primary Market
Securities bought and sold after the original sale
Secondary Market
Liabilities + Stockholders’ equity =
Assets
Assets are listed in order of “BLANK” liquidity.
decreasing
Ability to convert to cash quickly w/out significant loss in value.
Liquidity
Liquid assets typically earn a “BLANK” return.
lower
Current Assets - Current Liabilities (AKA “BLANK”) = “BLANK”
financial buffer, NWC (Networking Capital)
Difference between total assets and total liabilities
Shareholder Equity (Stockholder’s Equity is also an acceptable answer because the terms are interchangeable)
“BLANK” value is the net value of a firm’s assets found on its balance sheet, and it is roughly equal to the total amount all shareholders would get if they liquidated the company. “BLANK” value is the company’s worth based on the total value of its outstanding shares in the market, which is its market capitalization.
Book, Market
% of total assets represents
Balance Sheet
% of sales represents
Income statement
The “BLANK” identity is an expression that shows a company’s return on equity (ROE) can be represented as a product of three other ratios: the profit margin, the total asset turnover, and the equity multiplier.
DuPont
When shareholders articulate need of change to board of directors
Proxy fights
