Management and Organizational Studies 3370A/B Lecture Notes - Corporate Finance, Balance Sheet, Takers

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Published on 17 Apr 2013
School
Western University
Department
Management and Organizational Studies
Course
Management and Organizational Studies 3370A/B
Professor
Page:
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Ch1: Introduction to Finance 3/29/2013 12:32:00 PM
Finance: study of how/under what terms saving money= allocated, (may
recognize similarity of finance and economics-studies how scarce resource
are allocated in economy)
Management of an entity’s balance sheet
o Distinct from economics- finance not just about how
resources allocated, but under what terms/through what
channels
Financial Securities: whenever funds transferred, financial contract comes
into existence
Balance Sheet: snapshot of what owned, (assets) and owed, (liabilities) at
particular time
Net worth/Equity: difference between value of what’s owned and what’s
owed
3 major domestic groups in economy- individuals/households, businesses,
government
Balance sheet shows all assets according to 6 major classifications
Assets included under headings= real assets
Real Assets: tangible things compose personal/business assets
Personal Assets: value of houses, land houses are on, major appliances in
houses, cars
Consumer Durables: appliances/cars because they last many years
Major Assets for businesses= office towers, factories, mines etc, (non-
residential structures)
Asset acquisitions/capital expenditure decisions- how firms arrive at decision
to build new factory, increase level on inventory holdings, buying another
firm etc…
Corporate Financing- ways to finance capital expenditures decisions
Financial Assets: what one individual has lent to another- one person’s
positive financial asset=another person’s negative financial asset/liability
Formed legal documents that set out rights/obligations of all parties
involved
4 major areas in finance- personal finance, government finance, corporate
finance, international finance
Household sector=primary provider of funds to business/government- non-
resident sector being net provider of funds
Financial System comprises of- financial intermediaries, market
intermediaries
Financial Intermediaries: entities that invest funds on behalf of
others/change nature of transactions
Intermediation: transfer of funds from lender to borrower
Direct intermediation- lender provides money directly to ultimate
buyer, (non-market transactions because exchange negotiated
directly between borrower and lender)
Market Intermediary- entity that facilitates working markets/helps
provide direct intermediation, (called brokers)
Financial Institution/Intermediary- lends money to ultimate
borrowers but raises money itself by borrowing directly from other
individuals
2 market segments- retail, (when market intermediaries help
individuals), institutional, (when market intermediaries help
financial intermediaries)
Canadian banks involved in almost all areas of financial system- core
activity= acting as deposit takers and lenders
Contractual Savers: insurance companies
Mutual Funds: do not transform nature of underlying financial security
Perform 2 major functions- pool small sums of money so they can
make investments that wouldn’t be possible for smaller investors,
offer professional expertise in management of those funds
Crown Corporations: government-owned companies that provide
goods/services needed by Canadians
2 major categories of financial securities:
Debt Instruments: legal obligation to repay borrowed funds at
specified maturity date/provide interim interest payments as
specified in agreement, (ex/ bankers’ acceptances, t-bills, mortgage
loans, bonds, debentures)
Equity Instruments: ownership stakes in company
o Common share- most common form of equity- represents
part ownership in company, usually gives voting rights on
major decision affecting company
o Preferred shares- entitle owner to fixed dividend payments
that must be made before any dividends paid to common
shareholder
way to distinguish financial instruments= non-marketable and
marketable financial assets
o Non-marketable assets- savings accounts/demand deposits
with financial demand, guarantees liquidity in these
investments, CSB, invested funds that’re available on demand
in instruments that are not tradable
o Marketable securities- those that can be traded among
market participants

Document Summary

Finance: study of how/under what terms saving money= allocated, (may recognize similarity of finance and economics-studies how scarce resource are allocated in economy) Management of an entity"s balance sheet: distinct from economics- finance not just about how resources allocated, but under what terms/through what channels. Financial securities: whenever funds transferred, financial contract comes into existence. Balance sheet: snapshot of what owned, (assets) and owed, (liabilities) at particular time. Net worth/equity: difference between value of what"s owned and what"s owed. 3 major domestic groups in economy- individuals/households, businesses, government. Balance sheet shows all assets according to 6 major classifications. Personal assets: value of houses, land houses are on, major appliances in houses, cars. Consumer durables: appliances/cars because they last many years. Major assets for businesses= office towers, factories, mines etc, (non- residential structures) Asset acquisitions/capital expenditure decisions- how firms arrive at decision to build new factory, increase level on inventory holdings, buying another firm etc .