FINANCE EXAM PREP

the field of finance

the study and measurement of money, investments, and financial instruments

• how do businesses, individuals, and governments allocate resources over time

finance is essential for…

decision making, risk management, and value creation

business management/corporate finance

the area of finance concerned with how corporations manage their capital structure or funding (equity or debt)

and business decisions (what projects should be undertaken)

with the goal being to maximize shareholder value

for investors who are giving the capital, corporate finance is….

about understanding how a company’s financial decisions affect the comp’s valuation, risk profile, and potential returns

time value of money

interest rates, connect today and in the future

“a dollar today is worth more in the future”

stockholders (equity holders)

own the company

balance sheet

assets, liabilities, stockholder equity

income statement

sales, costs, profits or losses

statement of cash flows

operating cash flow

net present value (NPV)

value of a business decision

• how much does it cost vs expected cash flows/returns

internal rate of return (IRR)

return on business decisions

• rate of return youre getting from a bond/stocks/projects

cost of goods sold (COGS)

• direct costs of production

  • ex: raw materials, direct labor, freight costs

net income

• also called profit or loss

• can be used to pay stockholders a dividend

• whatever is not paid out is retained for future growth

retained earnings are owned by…

the stockholders