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Corporation Considered a legal person, separate and distinct from its shareholders.
Shareholders select the board of directors, and the board selects the management team. Most
important form of business in the US. Ownership can be easily transferred. Corporations suffer
double taxation, pays taxes on its earnings and then shareholders also pay taxes.
Sarbanes-Oxley Act Enacted by congress, requires each publicly traded company to give
an assessment of internal controls and financial reporting, management's report must be reviewed
by an independent auditor.
Agency Relationship The relationship between the management team and the
shareholders.
Agency Problem Conflict of interest between management and shareholders.
Proxy Fight a technique used to gather enough stockholder votes to control a targeted
company
Stakeholder Someone who potentially has a claim on the cashflow of the company
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Who is the biggest stakeholder? Government
Primary Market The market in which new securities are originally sold to investors.
Secondary Market Previously issued securities are traded among investors.
Auction Market Matches people who want to buy with people who want to sell.
Dealer Market A market where dealers buy and sell for their own accounts.
Balance Sheet Snapshot of a business in a moment of time
Balance Sheet Formula Assets=Liabilities+Stockholders equity
Income Statement Snapshot of a company's performance
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Income Statement Formula Income=Revenue-Expenses
Statement of Cashflows Summary of cash coming in and out of the business
Cashflow Formula Source of Funds Less Use of Funds
Current Asset Life of less than one year
Fixed Asset Life more than one year
Liability Something which is owed, classified as current and long term.
Working Capital Difference between short term assets and short term liabilities.
Liquidity The speed of which an asset can be converted to cash.
Parts of Liquidity Ease of conversion