[BUS 330] - Midterm Exam Guide - Everything you need to know! (18 pages long)

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BUS 330
MIDTERM EXAM
STUDY GUIDE
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BUS 330 Finance
Finance Science/art of managing $$$
- Personal
a. How much of earnings spent
b. How much saved
c. Investments of savings
- Business
a. How firms raise money from investors
b. How they invest for profit
c. Decision of where to reinvest profits/distribution back to investors
Financial Services branch of finance; design & delivery of advice and financial products to individ,
bus, gov’t
- Careers:
a. Banking
b. Personal financial planning
c. Investments
d. Real estate
e. Insurance
Managerial Finance duties of financial manager in business
- Financial Managers administer financial affairs
a. Develop financial plan/budget
b. Extend credit to customers
c. Evaluate proposal of expenditures
d. Raise money to fund operations
Certifications
- Chartered Financial Analyst (CFA) Graduate level; focus on investments
- Certified Treasury Professional (CTP) for corporate treasury dept
- Certified Financial Planner (CFP) pass exam on topics related to financial planning
- American Academy of Financial Management (AAFM) administers certifications
- Professional Certifications in Accounting
Forms of Business
- Sole Proprietorship owned by one person operated for his/her own profit
a. Owner receives all profits, Low org cost, Income included and taxed on personal tax return,
Indep, Secrecy, Ease of dissolution
b. Unlimited liability, limited fund raising power, proprietor must be jack of all trades, difficult
to give employees long careers, lacks continuity of power when owner dies
- Partnership owned by 2+ people and operated for profit
a. Unlimited liability, partnership dissolved when a partner dies, difficult to liquidate
- Corporation entity created by law; legal powers of an individ
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a. Limited liability, large size, ownership easily transferable, long life, better access to
financing
b. Taxes = higher, more expensive to org, lack secrecy
Goal of firm = Maximize shareholder wealth
- Only take actions that are expected to incr share price
- Profit Maximization may not lead to highest share price
a. Timing important receive funds sooner than later
b. Profits don’t always result in cash flows avail to stockholders
c. Doesn’t account risk
- Stakeholders groups (employees, customers, suppliers, creditors, owners) that have direct econ
link
a. Stakeholder focus firm trys to preserve stakeholder well-being not maximize
Ethics
- Reduce litigation & judgment costs
- Maintain pos image
- Build shareholder confid
- Gain loyalty of stakeholders
Economics
- Marginal Cost-Benefit Analysis financial decisions should be made and actions taken only
when added benefits exceed costs
Accounting vs. Finance
- Accounting uses accrual method; devote attention to collection and presentation of financial data
- Finance focuses on cash flows; make decisions based on assessment of returns and risks
Corporate Governance = rules process & laws by which companies are operated, controlled and reg
- Individual investors investors who own relatively small quantities of shares for personal
investment goals
- Institutional investors banks, insurance companies, mutual funds paid to manage and hold
large quantities of securities on behalf of others
a. Direct influence on corp governance
- Sarbanes-Oxley Act (2002)
a. Est. board to monitor accounting industry
b. Strengthen accounting disclosure requirements and ethical guidelines
c. Mandate instant disclosure of stock sales
- Principal-Agent relationship agent acts of behalf of a principal (i.e. shareholders)
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