Finance 1 Study Quiz

Study Notes

Assets: Property owned, which can be classified into debt and equity.
Debt: Money owed by an individual or organization.
Equity: Amount received from selling an asset after settling associated debts.
Preferred Stock: A form of equity that grants ownership rights and claims on company operations.
Liability: Financial obligations or money owed to others.
Dividends: Distribution of earnings to shareholders.

Defined as the science and art of managing money.
Important for understanding financial implications of business organization structures.

Aim to maximize shareholder wealth, which often correlates with maximizing stock price.
Managers must balance demands of various stakeholders (employees, customers, suppliers) while focusing on shareholder interests.
Actions should be taken only if expected to enhance shareholder wealth.

Common companies measure performance via Earnings Per Share (EPS), indicating earnings for each share of common stock.
Profit maximization does not always equate to the highest share price due to various reasons:
- Timing: Early receipt of funds is prioritized for greater potential returns.
- Cash Flows: Profits don't always lead to available cash; increased profits may not result in guaranteed higher dividends.
- Risk: Investors prefer higher returns for accepting additional risk; increased cash flows enhance share prices.

Companies increasingly consider the interests of stakeholders, including employees, customers, suppliers, and creditors.
Emphasis is on maintaining stakeholder well-being rather than maximizing it.

Business ethics dictate moral standards for conduct in commerce.
Ethical behavior is essential for achieving wealth maximization for shareholders.
Maintaining ethical standards can positively impact cash flow and reduce perceived risk, benefiting share price.

Encompasses the relationship with economics and accounting.
Primary activities revolve around making financial decisions that align with overall business strategy.