100% satisfaction guarantee Immediately available after payment Both online and in PDF No strings attached
logo-home
College notes Finance&Investments, Financial Accounting and External Reporting $13.72   Add to cart

Class notes

College notes Finance&Investments, Financial Accounting and External Reporting

 21 views  2 purchases
  • Course
  • Institution

Looking to ace your Finance and Investments, Financial Accounting, and External Reporting courses? Look no further! These meticulously crafted college notes provide a comprehensive and easy-to-understand overview of these complex topics. These notes will help you succeed in your classes and bey...

[Show more]

Preview 4 out of 39  pages

  • March 8, 2023
  • 39
  • 2022/2023
  • Class notes
  • Om
  • All classes
avatar-seller
CHAPTER 1
The Role of
Managerial Finance

,FINANCE AND THE FIRM

 finance: The science and art of how individuals and firms raise, allocate, and invest money.
 managerial finance: Concerns the duties of the financial manager in a business.



WHAT IS A FIRM?

- a firm is a business organization that sells goods or services
- The goal is to satisfy customers
- Managers must inspire and motivate employees



 earnings per share (EPS)
The amount earned during the period on behalf of each outstanding share of stock,
calculated by dividing the period’s total earnings available for the firm’s stockholders by
the number of shares of stock outstanding.
 risk
The chance that actual outcomes may differ from those expected.
 stakeholders
Groups such as employees, customers, suppliers, creditors, and others who have a direct
economic link to the firm but are not owners
 business ethics
Standards of conduct or moral judgement that apply to persons engaged in commerce.
 investment decisions
Decisions that focus on how a company will spend money on long-term projects that
ultimately determine whether the firm creates value for its owners.
 financing decisions
Decisions that determine how companies raise the money they need to pursue
investment opportunities.
 capital
The money that firms raise to finance their activities.
 working capital decisions
Decisions that refer to the management of a firm’s short-term resources
 treasurer
A key financial manager, who manages the firm’s cash, oversees its pension plans, and
manages key risks.
 director of risk management
Works with the treasurer to manage risks that the firm faces related to movements in
exchange rates, commodity prices, and interest rates.
 controller
The firm’s chief accountant, who is responsible for the firm’s accounting activities, such
as corporate accounting, tax management, financial accounting, and cost accounting

MARGINAL COST–BENEFIT ANALYSIS

marginal cost–benefit analysis Economic principle that states that financial decisions should be made
and actions taken only when the marginal benefits exceed the marginal costs

,  accrual basis
Preparation of financial statements that recognizes revenues and expenses when they occur
(regardless of when cash actually exchanges hands).
 matching principle
GAAP accrual accounting rule that says a firm should report expenses in the same period in
which it earns the related revenue, regardless of when the expenses are paid or the revenues
collected.
 cash basis
Recognizes revenues and expenses only when actual inflows and outflows of cash occur.



LEGAL FORMS OF A BUSINESS:

 sole proprietorship A for-profit business owned by one person.
 unlimited liability The liabilities of the business are the owner’s responsibility, and creditors
can make claims against the owner’s personal assets if the business fails to pay its debts.
 partnership A business owned by two or more people and operated for profit.
 limited liability A legal provision that limits owners’ business liability to the amount they have
invested in the business.
 corporation A legal business entity with rights and duties similar to those of individuals but
with a legal identity distinct from its owners



 stockholders
The owners of a corporation, whose ownership, or equity, takes the form of common stock
or, less frequently, preferred stock.
 stock
A security that represents an ownership interest in a corporation.
 cash dividends
Periodic distributions of cash to the stockholders.

, marginal tax rate The tax rate that applies to the next dollar of income earned.

average tax rate The average tax rate paid per dollar of taxable income.




ordinary income Income earned by a business through the sale of goods or services.

capital gain Income earned by selling an asset for more than it cost.




AGENCY PROBLEMS AND AGENCY COSTS

agency costs The costs that shareholders bear due to managers’ pursuit of their own interests

principal–agent problem A problem that arises when the owners (principals) and managers (agents)
of a firm are not the same people, and the agents fail to act in the interest of the principals.



CORPORATE GOVERNANCE

corporate governance The rules, processes, and laws by which companies are operated, controlled,
and regulated.

stock options Securities that allow managers to buy shares of stock at a fixed price

restricted stock Shares of stock paid out as part of a compensation package that do not fully transfer
from the company to the employee until certain conditions are met.



EXTERNAL CORPORATE GOVERNANCE MECHANISMS

individual investors Investors who own relatively small quantities of shares to meet personal
investment goals.

institutional investors Investment professionals such as banks, insurance companies, mutual funds,
and pension funds that are paid to manage and hold large quantities of securities on behalf of others.

activist investors Investors who specialize in influencing management.

The benefits of buying summaries with Stuvia:

Guaranteed quality through customer reviews

Guaranteed quality through customer reviews

Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.

Quick and easy check-out

Quick and easy check-out

You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.

Focus on what matters

Focus on what matters

Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!

Frequently asked questions

What do I get when I buy this document?

You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.

Satisfaction guarantee: how does it work?

Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.

Who am I buying these notes from?

Stuvia is a marketplace, so you are not buying this document from us, but from seller CasualUniStudent123. Stuvia facilitates payment to the seller.

Will I be stuck with a subscription?

No, you only buy these notes for $13.72. You're not tied to anything after your purchase.

Can Stuvia be trusted?

4.6 stars on Google & Trustpilot (+1000 reviews)

81989 documents were sold in the last 30 days

Founded in 2010, the go-to place to buy study notes for 14 years now

Start selling
$13.72  2x  sold
  • (0)
  Add to cart