Finance 301 1st Edition Exam 1 Study Guide Lectures 1 7 Chapter 1 Terms Finance Corporate finance Capital market Debt Stocks Market efficiency Asset allocation Diversification Risk Markets Financial intermediaries Investment decision Financing decision Net present value Cost of capital Primary markets Secondary markets Liquidity Direct finance Indirect finance I What is Finance a The Management of Money b The Three Primary Areas of Finance i Corporate finance ii Institutions and markets iii Investments Financial Decisions and the Financial Toolbox a Financial statements and ratios i Present value future value ii Spreadsheet modeling iii Models of risk and return The Importance of Financial Markets a Agricultural Energy Gold Currencies Capital The Uniqueness of Capital Markets a Debt and Equity Markets b The Role of Capital Markets c Free markets versus government controlled markets I Free Markets II Government Controlled Markets Case study Financial Crises a The four common elements of financial crises I Excessive Investment II Easy Financing III Government Bailout IV It will Happen again b Warren Buffet Case study II I II III Chapter 2 The Principles of Finance Terms Return and risk Mean reversion Efficient capital markets IV V Capital asset pricing model Beta Market risk premium Risk aversion Simple average Compound average Time value of money Present value Future value Compounding Discounting Modern portfolio theory Asset allocation Efficient Frontier Systematic risk Unsystematic risk Diversification Ten Principles of Finance a Higher Returns Require Taking More Risk I Key Number to know annual stock market return 10 b Efficient Capital Markets are Tough to Beat c Rational Investors are Risk Averse d Supply and Demand Drive Stock Prices in the Short run e Corporate Finance and Governance I Corporate Managers Should Make Decisions That II Maximize Shareholder Value f Transaction Costs Taxes and Inflation are Your Enemies g Time and the Value of Money are Closely Related h Asset Allocation is a Very Important Decision i Asset Diversification Reduces Risk j An Asset Pricing Model Should be Used to Value Investments Traditional vs Behavioral Finance a Greed vs Fear b Mind Over Money Video Traditional or rational finance vs behavioral finance I 20 Bill Experiment II Traditional Rational Finance 1 Gary Becker Adam Smith John Cochran 2 Models of Rational Individual Behavior 3 Free Markets Long Term Economic Growth 4 Missed Seeing Financial Crisis Coming c Behavioral Finance I Thaler Shiller II People Can be Irrational III Financial Crisis is Proof d The key differences between traditional and behavioral finance I Key issue are markets price efficient e Who believes in traditional or rational finance vs behavioral finance Chapter 3 Terms CFO Controller Treasurer Capital budgeting Capital Structure Working capital Shareholder value Corporate governance Sole proprietorship Partnership Corporation Limited unlimited liability Dividends Stock buy back Capital gains Free cash flow Return on equity Stock options Acquisitions Divestiture Agency problem Stock split Corporate raider Hostile takeover Junk bond Voting rights Shark repellent White knight Pac man defense Greenmail Golden parachute Self tender offer Poison pill Crown jewels Proxy solicitations Mutual fund Insider trading Institutional Investors I II III IV V VI VII VIII IX X Shareholder activism The Finance function and the CFO a Treasurer duties and activities finance b Controller duties and activities accounting Case Study The CFO The new corporate finance a The financial environment b Elements of new financial environment events reflected in markets around the world c Advances in Finance i The role of academic advances in finance The CFO as financial engineer a The traditional and new roles of the CFO i Controller vs treasurer ii Communicator with markets b CFOs of the Year Key Areas of Strategic Financial Management a Working capital management daily activities b Capital budgeting investments for growth c Capital structure debt equity to finance investment i Who leads US in sales Cash Inventories Plant Debt Market Value Gordon Gekko s message in Wall Street a Management lessons Creating Shareholder Value a What is creating shareholder value b Corporate examples Creating Shareholder Value Lessons Market capitalization a What is it b How is it measured i shares price per share ii Why is it important The most valuable company in the US Chapter 4 Terms Financial accounting Balance sheet Income statement Statement of cash flows Statement of retained earnings GAAP Assets Liabilities Equity I II III IV Revenue Expenses Net income Auditing 10 k 10 q Cash accounting Accrual accounting Current assets Inventory Accounts Receivable Current liabilities Long term assets Goodwill Long term liabilities Off balance sheet activities Cost of goods sold Gross margin Selling expenses General and administrative expenses Operating expenses Income tax expenses Earnings per share EPS dilution Operating activities Investing activities Financing activities Common size statement Liquidity ratios Acid test ratio Activity efficiency ratio Leverage ratios Debt covenant Case Study The Numbers You Need to Know a DJIA 30 Year Treasury Gold NASDAQ barrel of oil Value maximization as a guiding principle Corporate Stakeholders a The stakeholder philosophy Stakeholders vs Stockholders a Stakeholders are protected by contracts b Stockholders as the residual claimants of a firm s cash flows c Stakeholders and Stockholders and the Income Statement i Stockholders get what s left over V VI VII VIII IX X XI XII XIII XIV XV XVI Winning in Business Shareholder Value a Microsoft vs Saturn example The Dual Challenges of Management a Compete in Product and Provide a Competitive Return in Capital Markets The challenges to the Shareholder Value Standard a Too much focus on markets short term horizon Issues in markets scandals and CEO compensation How does Management Create Shareholder Value a Return on Investment Cost of Capital Avenues of shareholder value creation in financial management a Investments with the highest risk adjusted returns high ROI b Minimize the cost of capital via financial engineering c Enhance performance with ownership structure Business Organizational Forms a The differences between sole proprietorships partnerships and corporations i Ease of formation legal distinction and liability taxation ability to raise capital Corporate Governance a The