MANGMT 1010 1st Edition Exam 2 Study Guide Lectures 1 3 Lecture 1 Finance I II III Definition of the finance function Planning obtaining and managing the company s funds in order to accomplish its objectives Today s focus is on how large businesses obtain funds through the securities markets What are securities Stocks and binds representing secured or asset based claims by investors against issuers Company s sell stocks to get money Bond No voting rights A What is the security and exchange commission SEC Making sure companies follow rules regarding those markets B What is an investment bank IPO s Financial institution engaged in issuing and reselling new securities Common stock Equilibrium Expectations of future growth Apples total market value is higher than Samsung A Investment traits of common stock Common stocks are among the riskiest of all securities Common stock offer high growth potential A well established company with a sound financial history and a stable pattern of dividend payouts issues blue chip stock IV What is a bond IV Security through which an issuer promises to pay the buyer a certain amount of money by a specified future date A Types of bonds Government bond is issued by the federal government Municipal bond is issued by a state or local government Corporate bond is issued by a company as a source of long term funding Making choices Diversifications and asset allocation 1 Diversification Reduce risks and just buy 1 stock w 1 company Unsystematic risk 2 Asset Allocation What percent you re going to invest in an asset clause Ex Housing real estate Lecture 2 Accounting I II III IV V What is accounting Accounting a comprehensive system for collecting analyzing and communicating financial information Bookkeeping the recording of transactions Accounting information system AIS An organized means by which is financial information is identified measured recorded and retained for use in accounting statements and management reports Who uses accounting information 1 Business Managers 2 Employees and Unions 3 Investors and Creditors 4 Tax Authorities 5 Government Regulatory Agencies Accountants Financial Versus Managerial Accounting Financial accounting system is concerned with external information users Managerial accounting system serves internal users Controller Person who manages all of a firm What is an Audit Systematic examination of a company s accounting system to determine whether its financial reports fairly represent its operations The accounting equation ASSETS LIABILITIES OWNERS EQUITY Assets any economic resource expected to benefit a firm or an individual who owns it Liability a debt owned by a firm to an outside organization or individual Owners equity the amount of money that owners would receive if they sold all of a firm s assets and paid all of its liabilities Lecture 3 Funding a Startup 1 What type of financing do you think most startups use and why Personal savings credit money from family friends because it is the easiest most available source 2 How does angel investing differ from venture capital funding Angel smaller amounts of money individual investor most likely to have emotional connection early stage interest without desire to be intrusive 2A Forbes Article on how to raise from VC Considerations of who to approach 1 Find investors whose strategy and expertise fit your proposal 2 For early stage venture seek local investors first 3 Look for a referral 4 Check references on investor What to do in first meeting 1 Create excitement 2 Establish credibility 3 Begin to build relationship 1 What are the motivations of the entrepreneurs that influence whether they use bootstrapping or seek venture capital Bootstrapping or self financing allows entrepreneurs to maintain control of operations and ownership equity VC route allows for bigger faster strategic growth when dominating market or moving fast is critical 1 Which type s of funding are the following startups likely to use 1 A new ecommerce website to sell only backpacks 2 A new biotech process for developing anticancer drugs 3 A new eauction website e g eBay or Quibids that connects buyers and sellers 1 Self financing 2 Angels if early stage or VC if later stage 3 Probably VC to make big move rapidly 4 For startups using venture capital funding what does an exit mean When they go public IPO What is the main takeaway from the CB Insights study 1 That many of the most successful startup exits were made by firms that didn t take huge amounts of VC money Taking a lot to start with puts pressure on startups to grow fast and make profit for VC investors