BU111 Study Guide - Midterm Guide: Debenture, Swot Analysis
ProfessorJim Mc Cutcheon
Important Lecture Notes
Business Success Factors
- Achieve financial performance
- Meeting customer needs
- Providing quality products and services
- Encouraging innovation and creativity
- Gain employee commitment
Stakeholders – individuals/groups who depend on a company for personal goals.
Primary – Owners, customers, employees
Secondary – Suppliers, Creditors, Communities, Government, Society
If unclear about success factors, and direction, the firm can potentially go bankrupt.
Management’s Primary Objective – Devise and implement strategies that will allow the organization to
achieve critical success factors.
Bonds/Debentures – Large corporations use this to finance operations, and securities.
- IOU kind of note from the government.
ABC 7 of 30 - 7% Interest Date of Maturity, 2030. We always assume bonds are 20 years in BU111.
- First in line when companies fall apart, and have to liquidate their assets.
o Order of Liquidation
Secured Creditors (Banks, Bondholders)
Preferred Creditors (Gov)
Unsecured Creditors (Suppliers, Employees, Debenture Holders)
- Must pay in full before moving onto the next group.
- Mortgage bonds – real property land building
- Collateral Trust bond – Stocks and bonds
- Equipment Trust Bond – machinery and equipment
- Debenture – no collateral, bondholders are unsecured
- Hybrid between bonds, common stocks.
- Fixed annual rate of dividends
- No date of final maturity, can sell anytime you want
- Liquidation Rights (All debts to Preferred Stocks must be paid in full FIRST)
- Features of Preferred Shares
o Cumulative Feature (Interest add up throughout the years)
o Call Feature (Allows the issuer to buy back)
o Conversion Feature (Investors can convert preferred shares to common shares)
o Participating Feature (Additional profits if extra dividends are left)
Bid and Ask Price
- Ask is the lowest per share anyone is willing to sell
- Bid is the highest per share anyone is willing to buy
Buying on Margin
- Put up only a part of purchase price (broker lends you remainder with interest)
- Realizing greater profits, and greater losses
- Lowest is 50% minimum requirement
- Sell shares you don’t actually own.
- Borrowing from broker.
- You sell at a price, and buy it back t return to Broker
- Rule: 150% CMV at all times.
One LMN July 85 Call at 5
100 Shares, $85 strike price, $5 Premium.
- When you purchase an option you are not buying or selling stock
- Instead you are merely acquiring the right to buy or sell stocks at a fixed rate in the future.
- Prescribed price (striking), prescribed shares (contract), predetermined price, determined period
Characteristics of External Business Environment
- Always changing, must adapt
- Be pro-active not re-active
- Increase globalization
- PEST, SWOT models.
- Hard to change
Characteristics of Internal Business Environment
- Unlike external, internal is very controllable.
- 4 Key Functional Areas: Marketing, Finance + Accounting, Operations Mgmt, Human Resources