Business Administration - Financial Planning RFC125 Study Guide - Fall 2018, Comprehensive Midterm Notes - Financial Statement, Profit Margin, Dupont
12 Oct 2018
School
Professor
Business
Administration -
Financial Planning
RFC125
MIDTERM EXAM
STUDY GUIDE
Fall 2018
The Goals and Functions of Financial Management
Structure and Functions of Financial Markets
• Money markets deal in short-term securities
(<1 year)
– e.g. Treasury Bills, commercial paper
• Capital markets deal in long-term securities
(>1 year)
– e.g. common stock, preferred stock, corporate bonds,
government bonds
• Primary market is where a firm issues new bonds or shares to
raise new funds
• Secondary market is where investors buy and sell (trade)
outstanding bonds or shares
Securities in Financial Market
Stock (Share) = ownership or equity
• Shareholders own the company
Bond = debt or liability
• Bondholders are owed $ by company
Role of Financial Markets
• Financial markets determine value and allocate capital to the most
productive use on a risk-return basis
• Debt is an important component of a firm’s capital structure
find more resources at oneclass.com
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– Too much debt can erode the firm’s cash flow and increases
the firm’s risk
– Interest rates or yields help establish the allocation of capital
– Greater risk increases the spread between inflation and yield
Summary and Conclusions
• Finance links economics and accounting.
• It helps managers make decisions to maximize shareholder
wealth.
• However, managers may pursue their own interests instead of
those of shareholders.
• Agency theory studies the conflicts between shareholders and
management.
• Financial managers make investment and financing decisions.
• Financial markets are where financial managers raise funds and
are given feedback about the effect of their decisions.
Sites
• http://bigcharts.marketwatch.com/
• http://www.bankofcanada.ca/
• http://fin.gc.ca/
• http://www.ic.gc.ca/eic/site/cd-dgc.nsf/eng/h_cs03922.html
• http://canadabusiness.ca/
• http://www.ccgg.ca/
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Structure and functions of financial markets (<1 year: money markets deal in short-term securities. E. g. treasury bills, commercial paper: capital markets deal in long-term securities (>1 year) E. g. common stock, preferred stock, corporate bonds, government bonds: primary market is where a firm issues new bonds or shares to, secondary market is where investors buy and sell (trade) raise new funds outstanding bonds or shares. Stock (share) = ownership or equity: shareholders own the company. Bond = debt or liability: bondholders are owed $ by company. Role of financial markets: financial markets determine value and allocate capital to the most, debt is an important component of a firm"s capital structure productive use on a risk-return basis the firm"s risk. Too much debt can erode the firm"s cash flow and increases. Interest rates or yields help establish the allocation of capital. Greater risk increases the spread between inflation and yield. Sites: http://bigcharts. marketwatch. com, http://www. bankofcanada. ca, http://fin. gc. ca, http://www. ic. gc. ca/eic/site/cd-dgc. nsf/eng/h_cs03922. html, http://canadabusiness. ca, http://www. ccgg. ca/
