Business Ethics and Financial Institutions

Financial Institutions

• Depository institutions include commercial banks, thrift banks, and rural banks.
• Non-depository institutions feature pension funds, life insurance companies, mutual funds, finance companies, pawnshops, security dealers, and investors.

Business Ethics

• Defined as a company's attitude and conduct towards employees, customers, the community, and stockholders.
• Most firms possess strong written codes of ethical behavior.
• Ethical considerations can outweigh profits during conflicts.

Financial Statements Learning Objectives

• Importance of financial statements in business contexts is highlighted.
• Ability to prepare and analyze the four basic financial statements.
• Understanding limitations of ratios and comparison between Economic Value Added (EVA) and Net Income for firm valuation.

Financial Statements Overview

• Balance Sheet:
  • Represents a company's assets and claims on those assets as of a specific date.
  • Provides insights into liquidity, solvency, capital structure, and adaptability.
  • Snapshot of the firm's financial position at a designated moment.
• Statement of Comprehensive Income:
  • Summarizes revenue, expenses, and profits over a reporting period.
  • Includes metrics like Operating Income (EBIT) and Earnings Per Share (EPS).

Key Balance Sheet Components

• Cash vs. Other Assets, with working capital often referred to as current assets.
• Net Working Capital is calculated as Current Assets minus Current Liabilities.
• Distinction of Net Operating Working Capital involves current assets and non-interest bearing current liabilities.
• Highlights importance of depreciation and differences between market values and book values.

Financial Management Tools

• CAPM Formula: E(Ri) = Rf + βi(E(Rm) − Rf) for calculating expected returns.
• Financial policy-making involves selecting goals and developing policies.
• Financial planning includes preparing budgets and forecasting.
• Financial analysis encompasses evaluating operational results, financial conditions, and investment opportunities.

Forms of Business Organization

• Types include Sole Proprietorship, Partnership, Corporation, Limited Liability Company (LLC), and Limited Liability Partnership (LLP).
• LLC is a hybrid of partnerships and corporations, with tax benefits akin to partnerships while providing limited liability protections.

Financial Markets

• Financial markets facilitate transactions in various financial claims and connect fund surplus holders with those in need of funds.
• Notion of Marginal Investor influences actual stock prices, while equilibrium occurs when market prices equal intrinsic value.

Financial Management Decisions

• Investment Decisions focus on evaluating project profitability and wealth creation.
• Capital Budgeting is essential for planning long-term investments.
• Financing Decisions revolve around determining the appropriate mix of debt and equity to maximize investment value.
• Working Capital Management deals with short-term asset and liability management.
• Dividend Decision involves determining profit distribution and retention strategies.

Organizational Structure of Financial Management

• Comprises a Board of Directors, CEO, COO, and various Vice Presidents responsible for key areas like Marketing, Finance, and Production.
• Financial management functions focus on acquiring funds efficiently from appropriate sources at minimal costs.

This quiz covers the roles and characteristics of depository and non-depository financial institutions, alongside the principles of business ethics. Explore how organizations conduct themselves regarding their employees, customers, and stakeholders. Test your knowledge on ethical practices and various financial entities.