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Questions and Answers
What is the primary focus of finance?
What is the primary focus of finance?
Which area of finance specifically involves making decisions about securities for investment portfolios?
Which area of finance specifically involves making decisions about securities for investment portfolios?
What is a major goal that firms typically pursue?
What is a major goal that firms typically pursue?
What aspect of finance aids in understanding decisions in marketing and management?
What aspect of finance aids in understanding decisions in marketing and management?
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Which of the following is NOT counted as a financial institution?
Which of the following is NOT counted as a financial institution?
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What do ethical considerations and good governance contribute to in a business context?
What do ethical considerations and good governance contribute to in a business context?
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Which statement accurately reflects the principle regarding cash value in finance?
Which statement accurately reflects the principle regarding cash value in finance?
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In the context of finance, what is defined as the system that includes the circulation of money and provision of banking facilities?
In the context of finance, what is defined as the system that includes the circulation of money and provision of banking facilities?
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What does earnings per share (EPS) represent?
What does earnings per share (EPS) represent?
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What is meant by the intrinsic value of a stock?
What is meant by the intrinsic value of a stock?
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How can executive compensation typically be structured?
How can executive compensation typically be structured?
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Why is business trend awareness important?
Why is business trend awareness important?
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What percentage faster do small businesses with a website tend to grow compared to those without?
What percentage faster do small businesses with a website tend to grow compared to those without?
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What does the term stock price refer to?
What does the term stock price refer to?
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Which of the following is NOT a benefit of business trend awareness?
Which of the following is NOT a benefit of business trend awareness?
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What components are generally included in executive compensation?
What components are generally included in executive compensation?
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What is a major disadvantage of a proprietorship?
What is a major disadvantage of a proprietorship?
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How does a partnership differ from a proprietorship?
How does a partnership differ from a proprietorship?
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What is a key advantage of a corporation?
What is a key advantage of a corporation?
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What is a common limitation of Limited Liability Partnerships (LLPs)?
What is a common limitation of Limited Liability Partnerships (LLPs)?
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Which tax structure is associated with S Corporations?
Which tax structure is associated with S Corporations?
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What is the main goal of management regarding shareholder wealth?
What is the main goal of management regarding shareholder wealth?
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Which of the following is a characteristic of a Limited Liability Company (LLC)?
Which of the following is a characteristic of a Limited Liability Company (LLC)?
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What ethical obligation do managers have regarding shareholders?
What ethical obligation do managers have regarding shareholders?
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What is the primary goal of a corporation as mentioned in the content?
What is the primary goal of a corporation as mentioned in the content?
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Which of the following is NOT a mechanism to ensure managers act in shareholders' best interests?
Which of the following is NOT a mechanism to ensure managers act in shareholders' best interests?
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How can business trends be utilized by a company?
How can business trends be utilized by a company?
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What does business ethics reflect?
What does business ethics reflect?
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What element is considered a part of managerial actions to maximize stockholder wealth?
What element is considered a part of managerial actions to maximize stockholder wealth?
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Which of the following best describes business ethics?
Which of the following best describes business ethics?
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What is a potential consequence of a lack of adherence to business ethics within a company?
What is a potential consequence of a lack of adherence to business ethics within a company?
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Which factor does NOT directly impact the measurement of a firm's commitment to business ethics?
Which factor does NOT directly impact the measurement of a firm's commitment to business ethics?
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Study Notes
Holy Angel University School of Business and Accountancy
- The school offers courses in business and accountancy
- The school is part of Holy Angel University
- The course material covers an overview of financial management
Overview of Financial Management (MATHBUSFIN)
- Finance is about decisions concerning money (cash flows)
- Financial decisions involve how money is raised and used
- Value is preferred over less value
- Earlier receipt of cash is more valuable
- Less risky assets are more valuable
- Finance is a complex system involving money circulation, credit, investments, and banking.
Learning Outcomes
- Understanding basic financial concepts
- Different forms of business organizations and their advantages/disadvantages
- Major business goals
- Role of ethics and good governance in successful businesses
- Differences between foreign and U.S. firms, and factors influencing financial decisions in multinational firms
What is Finance?
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Decisions about cash flows
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How money is raised and used
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Value and the time it's received
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Risk and valuation
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Finance is a 'system' that encompasses money circulation, granting credit, investment, and banking.
Jobs in Finances
- Finance prepares students for jobs in: Banking, Investments, Insurance, Corporations, and Government.
- Accounting students need to understand marketing, management, and human resources. Finance impacts decisions in these areas.
General Areas of Finance
- Financial markets and institutions
- Investments
- Financial services
- Managerial finance
Financial Markets and Institutions
- Banks, insurance companies, savings and loans, credit unions are key components of the financial services market place.
Investments
- Finance focusing on decisions businesses and individuals make when choosing investment securities.
Financial Services
- Functions provided by organizations involved in managing money.
Managerial Finance
- Decisions made by businesses regarding cash flows (inflows and outflows).
Alternative Forms of Business Organization
- Proprietorship
- Partnership
- Corporation
Proprietorship
- Advantages: Easy formation, few government regulations, no corporate income taxes.
- Limitations: Unlimited personal liability, limited life, transferring ownership is difficult, capital raising is challenging.
Partnership
- Similarities to a proprietorship, with two or more owners.
Corporation
- Advantages: Unlimited life, easy transfer of ownership, limited liability, and easy capital raising.
- Disadvantages: High setup and reporting costs, double taxation.
Hybrid Forms of Business Organization
- Limited Liability Partnership (LLP)
- Limited Liability Company (LLC)
- S Corporation
Limited Liability Partnership (LLP)
- A general partnership where each partner isn't liable for other partners' debts
Limited Liability Company (LLC)
- A relatively new business form, combining features of corporations and partnerships
S Corporation
- A corporation with (max) 100 stockholders, taxed like a proprietorship/partnership. Income is taxed just once.
Balancing Shareholder Value and Societal Interest
- Goal is shareholder wealth maximization (maximizing stock price).
- Managers must operate ethically and consider societal constraints.
Managerial Actions to Maximize Shareholder Wealth
- Strategic decisions related to capital structure, budgeting, and dividend policies are important to achieve maximization of shareholder wealth.
Should Earnings per Share (EPS) Be Maximized?
- Earnings per share (EPS) equals net income (NI) divided by the number of outstanding shares (EPS= NI/Shares)
- Investors use EPS to gauge stock value.
Intrinsic Values, Stock Price, and Executive Compensation
- Intrinsic value is an estimate of a stock's "true" value based on accurate risk and return data.
- Stocks' market price relates to the current trading price on the market.
- Executive compensation includes salary, bonuses, company stock, and other benefits, ideally aligning with organizational and government regulations.
Intrinsic Value
- Measured based on accurate risk and return data
- Can be estimated, but not precisely measured
Stock Price
- Current trading price for a share of publicly traded company stock.
Executive Compensation
- Combining financials (salary, bonuses) with non-financial benefits (perquisites)
- Designed to consider government regulation, tax laws, company needs, and employee performance.
Importance Business Trends
- Being aware of changing business practices.
- Online presence is crucial for small businesses. (higher growth)
- Knowledge of trends helps forecasting, improving strategies, and navigating competition.
Why is Business Trend Awareness Important?
- Necessary for businesses to follow trends and improve strategies
- Important for forecasting and adapting to changes
Enhanced Forecasting Ability
- Understanding current and future trends makes forecasting easier
- Crucial for making effective decisions and capitalizing on opportunities
Helps in Determining Required Changes for Improvement
- Trends are useful benchmarks
- Strategies that do not align with trends should be adjusted.
Business Ethics
- A standard of conduct and moral behavior, encompassing how a company treats its employees, customers, community, and stockholders.
- Reputations of firms depend on the practice of ethical conduct and good standards
Stockholders versus Managers
- Managers are naturally inclined to act in their own best interests.
- Mechanisms to motivate managers in the best interest of shareholders: stakeholder intervention, compensation incentives, and threat of takeover.
Goals of the Corporation
- Primary goal is shareholder wealth maximization.
- Maximizing shareholder wealth translates to maximizing stock price
- Managerial incentives and social responsibility are relevant considerations
- Important Decisions: Capital Structure, Capital Budgeting, and Dividend Policy.
Managerial Actions to Maximize Stockholder Wealth
- Capital Structure Decisions
- Capital Budgeting Decisions
- Dividend Policy Decisions
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Description
This quiz covers key concepts in financial management, including cash flow decisions, the value of money over time, and the different forms of business organizations. Understand the role of ethics in business and explore the differences between foreign and U.S. firms. Perfect for students in Holy Angel University's School of Business and Accountancy.
