UCLA ECON 106F - Econ 106 F Lecture Notes (3 pages)

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Econ 106 F Lecture Notes



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Econ 106 F Lecture Notes

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Pages:
3
School:
University of California, Los Angeles
Course:
Econ 106f - Finance
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Econ 106 F Lecture 1 1 Four types of Firms General partners Limited Partners Limited liability Company Cost is higher Corporation legally formed sue the corp not the individual o Raise money in the public market by selling stock Most are sole proprietorships in the US Bankruptcy Can reorganize company Can liquidate company Stock Market Primary markets when a corporation itself issues new shares of stock and sells them to investors Secondary markets Continuation to trade in a secondary market between investors Lecture 1 2 Preparation of financial statements GAAP accounting policies for companies Auditor reviews the financial statements Balance Sheet snapshot in time of the firm s financial positions made of Asset liabilities Stockholders Equity Assets o Current Assets cash or expected to be turned into cash in the next year o a r and example is Dell computer turned the accounts receivable to zero by ensuring they receive the money before assembling the computer o inventories things you plan to sell within 1 year o Long term assets Net Property Plant and equipment Depreciation will become less valuable over years straight line depreciation is better considering time value of money Book value Acquisition cost Accumulated depreciation Good will and intangible assets Liabilites o Current Liabilities paid within the next year Accounts payable Short term debt Notes payable Current maturities of Long Term Debt Net working capital current assets current liabilities measure of how liquid the firm is and how it can address financial emergencies o Long term liabilities Long term debt capital leases deferred taxes Book value of equity stockholder s equity Market value of equity market price per share x of shares outstanding this cannot be negative Comparison ratio MV of equity BV of equity o Value stocks have low M V ratios not much growth pretty steady o Growth stocks have high M V ratios success in the future Income Statement shows the flow of those revenues and expenses between two dates Includes total sales and net income If net income is small and sales is large could be a loss on taxes R D or loans EPS Net income shares outstanding this is determined by the companies Price per earnings P E ratio how much the market is willing to pay Stock price EPS P E Dilution due to the growth in the of shares Lecture 2 1 Statement of Cash Flows when accounts payable increases cash flow increase in inventory there is a decrease in cash flow financing activities includes changes in borrowings taking out loans paying off loans Cash flow show the difference between the ending balance sheet amounts from the current year and the previous year Financial statement analysis Profitability ratios o Gross margin gross profit sales o Operating marging operating income sales o Ebit Margin EBIT sales o Net profit Margin NI sales Liquidity Ratios o Measures how prepared you are to pay your debts o Current ratio current Assets current liabilities o Quick ratio cash short term Investments AR current liabilities o Cash ration Cash Current Liabilities Working Capital Ratios o Operating Liquidity available to a business Involves a measure of time and how quickly can it create cash Leverage Ratios o How much the firm relies on debt o Debt equity ratio Valuation ratios o P E Ratio Market Capitalization net income Share Price earning per share o Enterprise Value to EBIT Market value of equity Debt cash EBIT o Enterprise value to sales Market value of equity Debt cash sales Operating returns o Return on Equity how well the firm can find investment opportunities net income book value of equity o Return on assets net income interest expense total assets o Return on invested capital ROIC after tax earnings generated by the business over capital raised through equity and debt Lecture 2 2 Financial Reporting in Practice Enron and WorldCom accounting scams Sarbanes Oxley Act tried to give rules for accounting Dodd Frank Act Identify Costs and Benefits Competitive market market in which goods can be bought and sold at the same price What are they worth and what do they cost Time value of money the difference in value between money today and money in the future is due to the tie value of money Net present value is the difference between the present value of its benefits and the present value of its costs Arbitrage you can buy it at a lower price somewhere and sell it at a higher price This doesn t exist because prices would eventually equilibrate Lecture 3 1 Lab information Pg 137 138 Lab 1 Assumptions base pay goes up g 3 r 1 cost 5000 benefit promo goes up by 10K 2 MBA cost 25000 per year for three years benefit promotion goes up by 20K 3 do nothing Lecture 4 2 Inflation effects purchase power Term structure the relationship between the investment term and the interest rate


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