Fin 301 1st EditionExam # 1 Study Guide Lectures: 1 - 9Lecture 1 (January 8)Overview of financial management: What are the fundamental and powerful concepts? What are the long term and short term markets? What is intrinsic value when referring to stocks? What is a principal agency relationship? What is a golden parachute? What is a poison pill?Fundamental and powerful concepts:-risk & return-time value of moneyLong term and short term markets:-long term: stock market & brand market-short term: money marketsIntrinsic value:-refers to the estimate of a stock’s “true” value based on accurate risk and return dataprincipal agency relationship:-when one group hires another group to act on its behalfgolden parachute: when a person in a high up position is asked to leave but they leave with a lotof money and perksposion pill:-something that makes a company seem unappealing ex. Golden parachute Lecture 2 (January 13) Financial Markets and Institution: What is the difference between primary and secondary markets? What is the differences between spot and future markets? What is the difference between money and capital markets? What is the difference between commercial paper and treasury bill? What is securitization?Primary and secondary markets: primary is a market for newly issued securities for corporationsto raise money and secondary is the market for existing sharesSpot and future markets: spot markets are markets in which assets are bought or sold for on-the-spot delivery and future is when the participants agree to buy or sell an asset at some future dateMoney markets and capital markets: money is short term securities with low risk and low returnand capital is long term securities.Commercial paper & treasury bill: businesses use commercial paper and they have higher risk than treasury bill which is what the government usesSecuritization: packaging loans and selling themLecture 3 (January 15)Financial Markets and Institution: What is the difference between public and private? What does it mean to be efficient according to stock markets? What is the differences between organized exchanges and over-the-counter? What is the difference between large cap and small cap? What are the three types of efficient forms?Public and private: private doesn’t sell to public and public doesStock market efficiency: when markets are efficient, investors can by and sell stocks and be confident that they are getting good prices.Organized and over-the-counter: organized exchanges make the market and over-the-counter has a bid-ask price *the more trading there is the more narrow the bid/ask spread isLarge cap vs. small cap: large cap has high market value and small cap has lower valueEfficient forms: Weak form efficient prices reflect historical info, semi-strong form efficient prices reflect current info, and strong form efficient prices reflect all info public & privateLecture 4 (January 20)Financial statements, cash flows, and taxes: What’s on the income statement? Whats on the statement of cash flows? What’s on the balance sheet? How does source (+) affect the accounting equation? How does use of funds(-) affect the accounting equation? How do you findnet working capital? What’s the equation for total debt? What is another name for short term debt?Income statement: sales-cogs=gross profit-operating expenses-depreciation= earnings before interest & tax- interest=earnings before tax-tax=earnings after taxStatement of cash flows: cash flows from operations= net income +depreciation +short term balance sheet accounts, cash flows from investing= selling fixed assets or make investments, cash flows from financing= everything else (dividends, notes payable, bonds, & common stock)Balance Sheet: total current assets= cash +accounts receivable+ inventory+ misc., (PP&E) fixed assets –accumulated depreciation= net fixed assets, total assets =net fixed assets+ total current assets, accounts payable+ notes payable +accruals +misc.=total current liabilities+ long term debt (bonds)+ common stock+ retained earnings= total liabilities and owners equityAffect of source (+): assets decrease, liabilities increase and equity increasesAffect of use (-): assets increase, liabilities and equity decreaseNet working capital= current assets- current liabilities (usually positive)Total debt= current liabilities +long term debt and total assets- owners equityShort term debt= current liabilitiesLecture 5 (January 22)Analysis of financial statements and the evaluation of firm performance: What are the 5 types of ratios? What is the DuPont equation? 5 types of ratios: 1. Liquidity ratios- can you pay your pays? NWC=CA-CL, current ratio= ca/cl, quick or acid test=current assets-inventory/current liabilities 2. Asset management ratios- how firm uses B/S investments to generate revenue on income statement. Avg. collection pd or days sales outstanding=(sales/accounts receivable)*1/365, fixed assets turnover ratio= sales/net fixed assets, total assets turnover ratio= sales/total assets, inventory turnover ratio= sales/inventories (not good or bad, simply more or less effective) 3. Debt management- how firm has financed its asset & how well firm pays off long-term debt. Total debt to total capital=total debt/ total debt+equity, debt ratio=total debt/total assets, times interest earned= earning before interest and tax/interest (higher is better) 4. Profitability- how profitable the firmis operating and using its assets. Profit margin= net income/sales, return on assets=net income/total assets, return on equity=net income/common equity 5. Market value- what investors think about the firm & its future prospects. Price/earnings ratio=price per share/earnings per share, market/book ratio=market price/book value, book value per share=common equity/shares outstanding, book value per share= owners equity/# of shares outsideDuPont equation: roe=roa x equity multiplier=pm x ta turnover x equity multiplier=ni/sales x sales/ta x ta/oeLecture 6 (January 27)Time Value of money: What is the time value of money equation? In order to use a calculator fora time value of money equation what are the five components? When to use equation and whento use calculator?Time value of money: PV(1+i)n=FVFive components: n= number of periods, i=interest, pv=present value, fv= future value, pmt=annuityEquation and calculator: equation-fv and pv of lump sum. Calculator-fv or pv of annuityLecture 7 (January 29)Time value of money: When is ordinary