Finance
The study of fund management and asset allocation over time
*time drives finance decisions
Accounting vs. Finance vs. Economics
- Accounting looks at the past
- Finance uses past information for looking into the future
- Economics looks at what happens if...cause and effect
Why shoul...
WGU C708 V4 Questions and Answers
Already Passed
Finance
The study of fund management and asset allocation over time
*time drives finance decisions
Accounting vs. Finance vs. Economics
- Accounting looks at the past
- Finance uses past information for looking into the future
- Economics looks at what happens if...cause and effect
Why should we care about finance in business?
1. Maximize shareholder value
2. Choose between different investment choices
3. Make sure money is in the right place at the right time
*Focus on cash flow, not profit!
How do finance professionals make investment decisions?
1. How can we finance this investment efficiently?
2. Will this investment maximize firm valuation & shareholder value?
3. Is this investment decision in line with our risk objectives?
*no guarantee
For Profit Business Types
1. Sole Proprietorship
,2. Partnership
3. Corporation
Sole Proprietorship
- smallest type of business
- easiest to start
- one owner who is solely liable for business decisions
- all profits of the business become the owners income
General Partnership
- two owners at a minimum ("Partner")
- Owners personally SHARE the liability for the business debts and other financial decisions
- Partners share the business profits
- Business profits are considered income for the individual partners...partnerships (the business)
don't pay federal taxes
Corporation
- Business now becomes it's own taxable entity
- Corporation must create a board of directors
- Corporation becomes liable for the debts and
financial decisions of the business
- Corporation seeks external funding
- Shareholders
- Business valuation
- Connection with the financial markets
- Principle/Agent problem (conflict)
, Business Valuation
For shareholders to invest in a company, they want to know the companies value (valuation).
-Is this a good investment for me?
Prospective investors conduct a "valuation process" by analyzing the company financial statements
to help determine the companies valuation.
-Historical performance does NOT predict future performance.
Principle/Agent problem (conflict)
When the principles (shareholders) preferences are not aligned with the agents (manager(s))
preferences.
-Detailed contracts spell out expectations and incentives
Connection with the financial markets
Shareholders (company stock ownership)
-Voting rights
-May lose if company underperforms
Bond holders (lenders to the company)
-No voting rights
-Gets paid no matter what
Financial Markets
-Capital Markets (long term financial needs)
-Money Markets (short term financial needs)
Example of capital markets:
The benefits of buying summaries with Stuvia:
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
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
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 dennisgathiru. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $13.99. You're not tied to anything after your purchase.
