Flashcards
Corp Finance
Cards in this deck (25)
- 1Agency ProblemThe possibility of conflict of interest between the owners (shareholders) and management of a firm (financial manager)
- 2Real AssetsGenerate cash inflows and income:
- tangible assets
- intangible assets - 3Tangible assetAn asset that has physical substance.
- plants
- machinery
- infrastructure - 4Intangible assetsAn asset that has no physical form but a value based on the rights conferred to the firm.
- patents
- goodwill
- trademarks
- R&D
- marketing & advertising - 5Financing assetsFirms can borrow (debt), reinvest incoming cashflows, and sell additional shares of (stock) to shareholders ...
- 6What do financial managers ask regarding assets?1) Investment decisions: What investments to make? How to spend money?
- purchase of real assets
2) Financing decisions: How to finance/ pay for these investments?
- sale of financial assets - 7Stakeholders' desireShareholders may be different: wealth, risk tolerance, investment horizon.
Same Goal: increase the value of their investment (value of corporation and stock price). - 8Opportunity costAlternatives outside the firm set standards for investments inside the firm.
Financial managers add value when internal investments generate greater returns than if shareholders had made investments themselves outside. - 9Financial assetsClaims on real assets or the income/cash flow generated by them.
- Bank loans
- Corporate bonds - 10SecuritiesClaims on real assets or the income/ cash flow generated by them and can be held and traded on financial markets.
- Bonds
- Shares of stock
- other specialized instruments - 11Bank loanDebt from a bank. Cash to corporation in exchange for promise to repay the loan + interest
- 12Capital budgetingPlanning and managing a firm's long-term investments.
Aka: Capital expenditure (CAPEX)
- Firms often prepare an annual capital budget listing major projects approved for investments
- Investment decisions can be referred to as capital budgeting. - 13Equity investorsShareholders of the company do not get fixed returns but shares that offer a fraction of future profits and cash flow.
- Contribute to equity financing - 14Capital structureA firm's mix of debt and equity financing
- 15CapitalFirm's money for long-term investing.
- 16Equity financing1) sale of ownership through the issuance of new shares of stock
2) reinvesting of cash flow generated by existing assets (no new shares) - 17Payout decisionThe decision to pay dividends or repurchase shares
- 18Market Capitalization (Market Cap)The value of a firm calculated by: share price x no. of outstanding shares.
Ex: $20 * 2million = $40million - 19CorporationLegal entity distinct from its owners. Can make contracts, be sued, borrow/lend money, and carry on business. In U.S.: formed under articles of incorporation.
- 20Articles of incorporationIdentifies and sets out the purpose of the business and how it is to be governed & operated. Specifies the board of directors.
- 21Limited liabilityShareholders cannot be held responsible for the corporation's debts.
A corporation may declare bankruptcy but the owner's personal assets (yachts) cannot be seized. - 22Permanence of corporationsSeparation of ownership and control allows for corporations to last indefinitely.
Disadvantage: can sometimes lead to managers serving their own best interest as opposed to stockholders'. - 23Chief Financial Officer (CFO)Deeply involved in financial policy and financial planning and is in constant contact with the CEO and other top management.
- 24TreasurerResponsible for the management of a company's cash.
- currency trading
- financing transactions
- bank relationships - 25ControllerResponsible for internal accounting, oversees preparation of financial statements and tax returns.
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- Green Finance Flashcards on Corp Finance, created by Valentin Desvigne on 15/08/2023.
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- Valentin Desvigne
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