Week One Notes
Week One Notes BUS 413 Corporate Finance
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This 2 page Class Notes was uploaded by Samantha Bressler on Sunday October 2, 2016. The Class Notes belongs to BUS 413 Corporate Finance at College of the Ozarks taught by Mr. Kevin Riley in Fall 2016. Since its upload, it has received 3 views. For similar materials see Corporate Finance in Business Administration at College of the Ozarks.
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Date Created: 10/02/16
1. what is the difference between revenues and profits on a basic income statement? Revenue is the money received, profit is the difference between revenue and expenses. 2. is the ultimate objective of an incorporated firm to maximize profits? Ultimate goal is to maximize shareholders wealth. 3. why is accounting considered the "language of finance"? It is the basic understanding of where the money is going. 4. what is the difference between accounting profit and economic profit? economic profit is what could have been done, accounting profit is what is directly happening. 5. in the field of finance, why is a dollar today worth more than a dollar a year from now? when saving money there is a positive return relationship. 6. what are two basic ways to finance a business? debt and equity 7. in the field of economics, what is meant by "incentives matter"? personally or corporately: employees offering benefits for better employees. Incentive to save money because of benefits is personal incentive. 8. how the "external environment" can affect the financial condition of a company? Agency problem is when managers do not work in the owner's best interest. Golden handcuff: upper level management may want to do what's best for them instead of overall company so they will own a part of the company to mitigate some of these temptations. stock options must focus on time and incentive to reduce agency problems. Firms put all their eggs in one basket, and then watching that basket very closely. Executives at big financial firms received big bonuses if they could report big profits. Accountants/finacials + Marketing + Sales + Human Resources is synergy Synergy: The whole is greater than the sum of the parts. Short term expense is a maximization of profits which can affect your long term focus No business firm, or government, can exist for long without following at least the basic principles of financial management. Initial public offering makes a shift from private to public shares. The language of business: financial mangament use economic principles to guide them in making financial decisions. income statement example revenue $85,000 Investment ($3,000) CofGS $38,000 Rent for a year ($6,000) Gross Margin $47,000 Salary ($28,000) Expenses $12,000 Net Profit $35,000 ($37,000) = ($2,000) Net Loss Accounting profit vs Economy profit: economic conception of profit "cannot be carried to theoretical completeness" because it is difficult to quantify. Basic Finical goal of a firm is to make a lot of money or maximize profits. Primary goal of a business firm is to maximize the wealth of the firms owner. Wealth refers to value
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