Corporate Finance
The three important questions of corporate finance are... (*make sure your answer is in the form of a question!*)
What is capital budgeting?
- a method of estimating the financial viability of a capital investment over the life of the investment. Unlike some other types of investment analysis, capital budgeting focuses on cash flows rather than profits.
What is capital structure?
- refers to the specific mix of debt and equity used to finance a company's assets and operations. From a corporate perspective, equity represents a more expensive, permanent source of capital with greater financial flexibility.
What is working capital management?
- represents the relationship between a firm's short-term assets and its short-term liabilities. It aims to ensure that a company can afford its day-to-day operating expenses while also investing the company's assets in the most successful direction possible.
Definition: discount provided by the supplier of goods/services on list or catalog prices of the goods supplied
the purchase of a controlling share in a company.
What is a buyout?
the handling of financial assets and other investments
What is investment management?
Long term debt securities given by the Treasury, government agencies and corporations to finance their operations.
What are bonds?
Analysts use a (_______) to project the future performance of an organization.
What is a financial model?
- The steps to create an accurate model are – studying historical results and assumptions and preparing income statements, balance sheets, schedules, and cash flow statements. Afterward, analysts do sensitivity analysis, stress tests, and audits to verify the model.
current assets divided by current liabilities is...
(*Hint: Math formula*)
What is current ratio?
the average employee of a bought-out company has employment spells that are (___)% to (___)% longer than people who work for firms that weren't bought out.
What is 6 to 9%?
What is one of the 4 primary purposes for investment management?
Manage funds until they are withdrawn for retirement.
What are pensions?
the tax that the company is due to pay for the current year but it would pay it in the future.
What is deferred tax liability?
- Such liability does not arise from the company not meeting tax obligations. Instead, it arises because of the timing when the company earns a specific income and when it pays the taxes for the current year.
The golden rule(s) of accounting is....
What is debit the receiver and credit the giver?
- Debit what comes in and credit what goes out. Debit expenses and losses, credit income and gains.
an asset or object bought or obtained, typically by a library or museum.
What is an aquisition?
Can you name one good investment management firm?
Long-term debt obligations created to finance the purchase of real estate.
When a company converts its illiquid assets into security for the purpose of selling them to the investors, it is (_______).
What is Securitization?
- Usually, a lot of financial engineering is involved in the process of securitization. One of the most common examples of Securitization is mortgage-backed securities (MBS).
one of the five main principles that underpin accounting practices and the preparation of financial statements are.....
What is the accrual principle?
- concept that requires transactions to be recorded in the time period in which they occur, regardless of when the actual cash flows for the transaction are received.
What is the matching principle?
- part of the Generally Accepted Accounting Principles (GAAP), based on the cause-and-effect relationship between spending and earning. It requires that any business expenses incurred must be recorded in the same period as related revenues.
What is the historic cost principle?
- most basic accounting principle under the US GAAP, assets are to be recorded on the balance sheet at their historical cost even if they have significantly increased in value over time.
What is the conservatism principle?
- a principle that requires company accounts to be prepared with caution and high degrees of verification. All probable losses are recorded when they are discovered, while gains can only be registered when they are fully realized.
What is the principle of substance over form?
-the concept that the financial statements and accompanying disclosures of a business should reflect the underlying realities of accounting transactions. Conversely, the information appearing in the financial statements should not merely comply with the legal form in which they appear.
An acquisition can help to increase the market share of your company quickly. Even though competition can be challenging, growth through acquisition can be helpful in gaining a competitive edge in the marketplace. The process helps achieves market synergies.
Sell shares to surplus units and use the funds received to purchase a portfolio of securities
Mutual Funds
What repercussions do variations in the price of oil have on the value of a company? (Answer does not have to be in the form of a question)
It depends on how the oil will affect the collections and payments of the company (its expected flows). However, the expectations on the future price of oil are far more important than its price today.
True or False: The Trial Balance is...
which is NOT a core financial statement. Core financial statements are: the income statement, the balance sheet, statement of cash flows, statement of retained earnings and the notes to the financial statements.
Can you name an example of an aquisition in the tech world?
1) Facebook purchasing Instagram for $1 billion in 2012.
2) Google's $50 million acquisition of Android in 2005.
3) Pfizer's $90 billion acquisition of Warner-Lambert in 2000.
4) Elon making aquisitions of $44 billion from Twitter
A secondary market where securities are bought and sold
What is the stock exchange?