Corp Finance

Question	Answer
Agency Problem	The possibility of conflict of interest between the owners (shareholders) and management of a firm (financial manager)
Real Assets	Generate cash inflows and income: - tangible assets - intangible assets
Tangible asset	An asset that has physical substance. - plants - machinery - infrastructure
Intangible assets	An asset that has no physical form but a value based on the rights conferred to the firm. - patents - goodwill - trademarks - R&D - marketing & advertising
Financing assets	Firms can borrow (debt), reinvest incoming cashflows, and sell additional shares of (stock) to shareholders ...
What do financial managers ask regarding assets?	1) Investment decisions: What investments to make? How to spend money? - purchase of real assets 2) Financing decisions: How to finance/ pay for these investments? - sale of financial assets
Stakeholders' desire	Shareholders may be different: wealth, risk tolerance, investment horizon. Same Goal: increase the value of their investment (value of corporation and stock price).
Opportunity cost	Alternatives outside the firm set standards for investments inside the firm. Financial managers add value when internal investments generate greater returns than if shareholders had made investments themselves outside.
Financial assets	Claims on real assets or the income/cash flow generated by them. - Bank loans - Corporate bonds
Securities	Claims on real assets or the income/ cash flow generated by them and can be held and traded on financial markets. - Bonds - Shares of stock - other specialized instruments
Bank loan	Debt from a bank. Cash to corporation in exchange for promise to repay the loan + interest
Capital budgeting	Planning and managing a firm's long-term investments. Aka: Capital expenditure (CAPEX) - Firms often prepare an annual capital budget listing major projects approved for investments - Investment decisions can be referred to as capital budgeting.
Equity investors	Shareholders of the company do not get fixed returns but shares that offer a fraction of future profits and cash flow. - Contribute to equity financing
Capital structure	A firm's mix of debt and equity financing
Capital	Firm's money for long-term investing.
Equity financing	1) sale of ownership through the issuance of new shares of stock 2) reinvesting of cash flow generated by existing assets (no new shares)
Payout decision	The decision to pay dividends or repurchase shares
Market Capitalization (Market Cap)	The value of a firm calculated by: share price x no. of outstanding shares. Ex: $20 * 2million = $40million
Corporation	Legal entity distinct from its owners. Can make contracts, be sued, borrow/lend money, and carry on business. In U.S.: formed under articles of incorporation.
Articles of incorporation	Identifies and sets out the purpose of the business and how it is to be governed & operated. Specifies the board of directors.
Limited liability	Shareholders cannot be held responsible for the corporation's debts. A corporation may declare bankruptcy but the owner's personal assets (yachts) cannot be seized.
Permanence of corporations	Separation of ownership and control allows for corporations to last indefinitely. Disadvantage: can sometimes lead to managers serving their own best interest as opposed to stockholders'.
Chief Financial Officer (CFO)	Deeply involved in financial policy and financial planning and is in constant contact with the CEO and other top management.
Treasurer	Responsible for the management of a company's cash. - currency trading - financing transactions - bank relationships
Controller	Responsible for internal accounting, oversees preparation of financial statements and tax returns.

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	Created by Valentin Desvigne over 1 year ago