Intro to Financial and Real Estate Careers

transaction risk

FX prices might move against you before a transaction is completed

Direct Listing or Direct Private Offering

Allows existing shares to be bought/sold to the general public May involve listing on an exchange Requires SEC filings

translation risk

FX prices might move against you when its time to consolidate financials, determine equity ownership, and translate everything into your home currency

economic risk

FX rates might affect cash flows from operations

If you think you might be interested in obtaining the CFP credential, which of the workshops should you consider joining?

Charles Schwab Wealth Management

Which of the following is a financing strategy in which long-term financing supports fixed assets, permanent current assets, and some portion of fluctuating current assets?

Conservative financing strategy

Which of the key elements of financial regulation is typically linked to the fair allocation of credit?

Consumer Protection

Net Working Capital

Indicates the dollar amount by which current assets exceed current liabilities =current assets-current liabilities

Which of the following publications relies heavily on crowdsourced stock analyses and commentary?

Seeking Alpha

Types of Debt

Senior Subordinated Short-term Long-term Secured Mezzanine Financing

CRE Broker

Setting up deals between buyers and sellers.

Which of the following is generally the last step in a payment system?

Settlement of the instrument

Diversification

Tailor short-term portfolios to meet diversification and maturity requirements

Supplementary Fit

Target reinforces strength of the acquiring firm Example: DuPont acquires Desalitech in 2019 to get desalinization tech

Which of the following factors will have an impact on a company's days' receivables?

The average number of days required to convert a credit sale into a collection

According to class session, which of the following items represents a key problem of D'Leon?

The company expanded fast by investing a lot of capital into new equipment that then didn't always work properly.

Academic View

The degree of underpricing is what it takes to induce investors to spend time on evaluation The first-day Pop covers the time and effort investors take to evaluate the issue more carefully, resulting in a more accurate issue price

Which of the following is not an important advantage of debt financing?

The firm owner can cancel the debt within six months with no penalty.

Diversifiable Risk

The portion of a security's stand-alone risk that can be eliminated through proper diversification

Market Risk

The portion of a security's stand-alone risk that cannot be eliminated through diversification - Measured by Beta

Book Building

The process whereby the bank managing the IPO establishes a sort of demand curve called the order book that shows the price investors intend to offer and the volume of the security they want

Profit Sharing View

Underwriters underprice IPOs to ingratiate themselves with investors receiving undervalued shares in return for favors. To buy these favors, underwriters price the stock below the fair value, which explains the first-day Pop

What is an Investment Bank

Underwriting - purchase of new securities from government and corporate issuers and resell them to the public They often provide a wide range of financial services to a wide array of clients -Financial institutions engaged in the underwriting, purchase, sale, and brokerage of securities and other financial contracts on their own account and for the accounts of others

Leverage Buyouts

Using debt as a substantial portion of the purchase price of a company.

Seasoned Equity Offering

When additional shares of an already listed stock are offered

In 30 years, the number of FDIC-insured banks has dropped to about 5,000 from about 15,000. According to class session, nearly all of that decline has happened due to...

acquisitions

A typical liquidity event for investors in a growing company is...

an IPO.

If you can buy an asset in one market and sell it right away for a higher price in another market, then you may have made...

an arbitrage profit

purchasing power parity

a more sophisticated version of LOP, says: foreign exchange (FX) rates should adjust to account for relative inflation between countries

arbitrage

ability to profit from buying and selling same asset in different markets, usually simultaneously (or very close in time) at different prices; it's essentially guaranteed profit with no risk

The workshops we will continue discussing in F100 are managed by the finance department, except for consulting. The Consulting Workshop is managed by...

the Management and Entrepreneurship Department.

If businesses in Japan sell more of their goods and services to US businesses than is usual, then it is likely (assuming nothing else significant changes) that...

the US dollar will weaken relative to the yen.

Earnings per share (EPS) indicates...

the amount or company profit per share of common stock.

Government T-Bills are considered to be...

the benchmark for risk-free rates.

GAAP references...

the standard accounting rules and conventions used, mostly in the US.

An IPO takes place...

when a company chooses to issue shares to the market for the first time.

A bond that has a $1,000 face value and a $50 coupon...

will pay interest of 5.0%.

One of the benefits of using Value Line for financial information is that...

you can usually obtain a lot of history - back to 2005 in some cases - and projections for key performance measures out two years.

According to class session, the basic job responsibilities of a financial analysts consist of...

analyzing the financial status pf the company by collecting, monitoring and studying data, as well as by recommending actions.

cap rate

annual net operating income / market value of the property

The accounting identity or equation is...

assets = liabilities + equity

Based on class sessions, restructuring refers to...

changing the company's capital structure - its proportion of equity and debt used to finance assets.

Usury in its modern context refers to charging interest that is uncommonly high. In the European middle ages, usury was..

charging any interest at all and was prohibited by the Roman Church.

Say that Apple buys Netflix. This would be an example of...

company growing inorganically.

law of one price

prices can't allow arbitrage by buying in one place and selling in another (given FX rates and transactions costs)

Venture capitalists are usually...

professionals collaborating inside a formal venture capital firm.

According to class session on the D'Leon case, financial statements that project details into the next year or so are called...

proformas.

Balance Sheet

provides a snapshot of a firm's financial position at one point in time.

Investment banks usually have several sources of revenues. These different sources were highlighted in class sessions. Which of the following is not one of those revenue sources?

real estate sales

Fiscal Policy

refers to the use of government spending and tax policies to influence economic conditions, especially macroeconomic conditions, including aggregate demand for goods and services, employment, inflation, and economic growth.

According to class presentations, the price paid for an asset should...

reflect the expected cash flows generated by that asset.

Statement of Cash Flows

reports the impact of a firm's activities on cash flows over a given period of time

Because every kind of stakeholder gets paid before common shareholders, these shareholders are often called...

residual investors.

Liquidity or Working Capital

Measures firm's ability to meet its payment obligations and cash management efficiency

Debt Management

Measures level of debt and ability to service it

Profitability

Measures profitability in relation to revenue and investment

Quick Ratio

Measures the degree to which a company's current liabilities are covered by its most liquid current assets

Eurodollar Market

(USD deposits/issues held outside of the US)

Yankee CDs

(USD deposits/issues in US branches of non-US banks)

London Interbank Offered Rate (LIBOR)

- interest rate at which major global banks borrow/lend to each other

Commercial Bank

-Accepts demand deposits -Makes commercial loans -Usually referring to a depository or commercial bank -Serve as an intermediary between savers and borrowers

Underwriting

-Act of purchasing all or part of a block of securities issues by company -IB is acting as an intermediary between the issuer and the investors

Fair Disclosure

-Addresses selective disclosure of information by publicly-traded companies and other issuers -The release of any material nonpublic information must be released to all parties at the same time

Export Financing Advantages and Disadvantages

-Advantages: Lower interest rates, government involvement may offer some protection against foreign government expropriation/interference -Disadvantages: Time to get necessary approvals!

Horizontal

-Combinations of two firms producing the same products and/or services -Both companies are generally at the same level in the production to market process Example: Exxon/Mobil

Disadvantages of Debt Financing

-Debt has a priority of claim over equity and is paid from pre-tax earnings -Debt service must be made in a timely manner or the company runs the risk of financial distress -Debt increases the financial risk of a company -Debt can be accompanied by liens on assets -Debt financing may involve covenants or other restrictions on senior management decisions and actions to protect the lender

Advantages of Debt Financing

-Debt usually costs less due to lower risk and tax-deductibility of interest -Payments on LT debt are usually fixed, or limited - providing more return to equity -Capital markets for debt are usually very efficient across a broad range of options -If funds are raised through debt, the earnings to equity holders will not be diluted -Debt holders do not get to vote in elections, providing a control advantage to the equity holders

Three Important Components in Forecasting Cash Flows

-Determine the length of the extraordinary growth period -Estimating the cash flows during the high growth period -The terminal value calculation

Good Things About Debt Financing

-Entrepreneur and small business owner retains complete ownership. -Cost of capital is low. -Loan payments are predictable. -There is a 5 to 7-year payback period. -Value-added lenders.

Interest Risk Rate

-Fixed-rate investments will be hurt by rising interest rates -Variable-rate investments will be hurt by falling interest rates

Default Risk

-If an issuer defaults, investors will receive less than the promised return -Default risk has a big impact on bond ratings

Price Risk

-If the price of an issue changes, it will impact the overall promised return -Prices will move inversely with the underlying interest rate in the economy

Distribution

-Involves the sale of securities by an IB or a syndicate -Lead bank manages process and receives most of the fees

Government Paper

-Issued by national, state and local government entities -Typically called T-bills or tradable promissory notes issued by governments -Market is generally liquid and highly active, with a wide range of maturities available -Default risk and returns are usually low -Most short-term government debt is issued at discount -U.S. T-bills are considered to be risk-free the benchmark for government issues -Some sovereign debt may be very risky

Disadvantages of Stock Financing

-May extend voting rights and control to more shareholders and shareholder value may be diluted -Underwriting costs of new common stock are often significant -No tax shield provided with common equity financing - and after-tax cost of equity is usually higher than debt -Issuing shares to more shareholders can erode the stock price, especially if net income is not sufficient to maintain or increase EPS

Bad Things About Debt Financing

-Personal guarantees often required. -Lender can force into bankruptcy. -Amounts may be limited to value of assets or collateral. -Payments are due regardless of company's profits or economic conditions.

Benefits of Organized Exchanges

-Provide a market system where the competitive forces of supply and demand determine securities prices -Sustain a market where frequent trading minimizes price volatility between individual trades -Maintain a market large enough (i.e., increased depth) to enable issuers to raise large amounts of capital through securities offerings -Ensure a fair market for exchange participants

Valuation of Long-Term Securities

-Publicly traded corporate securities are valued by financial markets -The value is based on the cash flow stream expected by the investor as well as the relevant discount rate

Responsibilities of the SEC include:

-Registering public offerings of debt or equity securities by banks, bank holding companies and other corporations -Setting financial disclosure standards for corporations that sell securities to the public -Requiring companies with publicly owned securities to file quarterly and annual financial statements -Regulating mutual funds and investment advisors -Monitoring insider trading to enforce related regulations

SEPA

-Single Euro Payments Area -Credits, Debits and Card Payments

Origination

-The IB consults with the issuer regarding the characteristics of the issue -The IB monitors the market conditions

Basic Recipe for Value Creation

-The company MUST BEAT its cost of capital -They must beat this cost for MANY YEARS -They must REINVEST additional profits at high rates through growth

Why do financial institutions (FIs) need to be regulated?

-They serve a critical role in the economy -Primary role is intermediation of funds -Transfer of capital from savers to users Because of this vital role, FIs are generally closely regulated by monetary and other government authorities

Commercial Paper (CP)

-Tradable promissory notes issued by companies -Maturity from overnight to 270 days (but average maturity is 30 days) -Issued at a discount with face value paid at maturity -Active secondary market, but most is held to term Standard CP is not secured but may be credit enhanced

Equity and Buying Back Company Stock

-Way of returning cash to shareholders. -For companies with extra cash. -Expense for this is recorded under "treasury stock" in equity on balance sheet. -Treasury stock is negative. So it reduces shareholders' equity.

Initial Public Offering (IPO)

-When a company's stock is sold to the public for the first time -It allows a company to tap a large pool of equity capital

Cash Turnover

365/CCC

Repurchase Agreements (REPOs)

A bank or securities dealer sells government securities to an investor and agrees to repurchase them at a later date and at a slightly higher price

Fixed Price Offerings

A certain number of shares are offered to investors as a preset price

Banker's Acceptances (BAs)

A time draft arising from a commercial trade obligation that has been "accepted" by a bank Represents an unconditional promise by the bank to pay the draft upon maturity

According to the video available in a class presentation, the worst merger of two large companies is considered to be...

AOL and Time Warner

Which of the following items below is a description of the difference between accounting and finance as addressed in F100 class sessions?

Accounting is about documenting past activities and performance; finance is about plans and decisions for the future.

Corporate Financial Analyst

Analyzes financial status by collecting, monitoring, and studying data; recommending actions

Carry Trade

Banks borrow short-term to invest in higher yielding long-term bonds

Cash Conversion Cycle (CCC)

Calculates the time required to convert cash outflows (necessary to produce goods) into cash inflows (through the collection of accounts receivable)

The Five C's of Credit include which of the following factors?

Character, Capacity, Capital, Collateral, Conditions

The local startup covered in class that uses an app to match up nonprofits with potential volunteer is...

Civic Champs

The key step in the payment process where banks or other parties exchange the payment information in order to transfer money between themselves is know as what?

Clearing

Conglomerate

Combinations of firms in different (but maybe related) industries Main goal is usually diversification Examples: GE; United Technologies; Ingersoll/Rand

Vertical

Combinations of two firms up or down the supply chain Benefits: Synergies (Financial/Managerial/Operating) Examples: Ford/Hertz; LiveNation/Ticketmaster

Advantages of Stock Financing

Common stock does not obligate a company to make fixed payments to investors Common stock does not mature For creditors, stock offers a cushion against losses - also if a company is profitable, additional stock can be sold at attractive terms to the issuer

CRE Developer

Creating and executing the vision of making a plot of real estate productive.

Commercial Real Estate

Develop properties that will generate income from business offices, retail operations, multi-family residences, and industrial uses. Income might be from the leases and rents. It might be from developing and then selling to investors.

All of the following are typical uses for ACH debits, EXCEPT:

Direct deposit of payroll

Which of the following statements regarding billing and collection methods is FALSE?

Effective A/R management includes increasing invoicing float as much as possible

Settlement

Final step in the process when the payee's bank account is credited and the payor's bank account is charged

Which of the following is NOT considered part of Monetary Policy?

Government Spending

Investment Management

Help clients invest money.

Investment Banking

Help companies raise capital or do M&A.

Wealth Management

Helping clients - individuals and families - meet their financial and life goals with smart allocation of their available funds.

Investment Mangment

Helping clients - individuals and institutions - meet their financial goals with smart allocation of their invested funds.

Complementary Fit

Helps to compensate for some weakness of the acquiring firm Example: The acquiring company has strong manufacturing but weak marketing or sales. The target may have strong marketing or sales, but poor quality control in manufacturing. Specific Example: Amazon acquiring Whole Foods

burn/bleed rate

How much cash is the business using up and how fast?

Payment card systems manage the processing of which types of payments I. Debit cards II. Credit cards III. Stored value cards IV. Smart cards

I, II, III and IV

If interest rates go UP => Bond prices go DOWN

If interest rates go DOWN => Bond prices go UP

Beta and the Capital Asset Pricing Model (CAPM)

In a diversified portfolio, Beta is the only relevant measure to an investor

Payment instructions

Information contained in an electronic transfer or a check

What is the appropriate rate to use for time value analysis?

Investors look to alternative investments in a particular risk class to discover the best rate of return available By investing in one particular company or investment, the investor loses the opportunity to invest in other securities The firm must provide a return that equals the investors' opportunity cost

According to class presentations, what is financial intermediation?

It is the service of transferring of capital from savers to users.

This person founded the first investment bank in Philadelphia in order to help fund the American Civil War.

Jay Cooke

Which stage of money laundering involves a series of financial transactions designed to separate cash proceeds from their criminal or terrorist origins?

Layering

Which of the following banks was allowed to fail during the financial crisis of 2008?

Lehman Brothers

Interest Rate Risk

Longer term bonds will fluctuate more in price for a given change in interest rates than shorter term bonds

Department of the Treasury

Manages the federal government's finances Core role is to promote the strength of the US economy

Say that Home Depot raises capital by issuing bonds in Canada that are denominated in Canadian dollars. These bonds will be called...

Maple bonds.

What is the traditional financial goal we use for publicly traded corporations in the U.S.?

Maximize shareholder wealth

Which of the following is an email newsletter arriving in inboxes early mornings?

Morning Brew

All of the following statements are true, EXCEPT:

Most treasury functions are set up as a profit center.

The difference between the interest rate at which a bank lends to borrowers and the interest rate the bank pays to depositors is known as:

Net Interest Margin

According to class sessions, which of the following is the best (of those available) explanation of one of the key strategies for helping the company have a better year in 2020?

Obtain more equity capital from shareholders in order to pay down some of the debt capital that had increased recently.

CRE Financial Analyst/Manager

Obtain the financing when needed, manage the financial operations of development.

Office of the Comptroller of the Currency (OCC)

Oversees national banks as well as federal savings banks

Federal Deposit Insurance Corporation (FDIC)

Oversees state-chartered banks that are not part of the Federal Reserve System

Capital Components and Costs

Primary sources of "permanent" capital are long-term debt (bonds) and equity (common stock and retained earnings)

Clearing

Process where banks use the payment information to transfer money between themselves

Days Cash Held

Provides a measure of a firm's liquidity as it shows how long a firm can continue to pay operating expenses without any additional revenue

Banks Respond to Trade and Risks

Reduced impact of asymmetric information. Facilitated local trade and economic growth. Created safer payments systems - the bill of exchange.

Board of Governors of the Federal Reserve System (Fed)

Regulates state-chartered member banks and bank holding companies

Different type of foreign bonds:

Samurai bonds Yankee bonds Matilda bonds Bulldog bonds

Auctions

Shares are offered for sale, on a predetermined schedule, to several competing potential buyers

Secondary Offering

Shares are sold by existing shareholders

Primary Offering

Shares are sold by the company itself

Fiduciary

Someone who must act in the best interests of their client (and not in their own or their firm's best interests).

Pitchbook View

The initial filing range is found by looking at comparable listed stocks and subtracting a liquidity discount This explains the first-day Pop

Asset Allocation Decision

The mix between fixed-income (debt) and equity (stock) is a key decision in the management of long-term portfolio

Which of the following statements is NOT correct regarding the information provided in an aging schedule?

The report is calculated by dividing outstanding accounts receivable at the end of period by the average daily sales for that period.

Rules of Accrual Accounting

The rules of accrual accounting try to smooth out both revenues and costs in an effort to better reflect economic reality. Depreciation is a good example of this concept. This also means that accounting figures and cash flows are often NOT in sync with each in either amounts or timing.

What is the definition of the Cash Conversion Cycle?

The time it takes to convert a cash outflow into a cash inflow.

The CDO-squared (CDO2)referred to in the text are actually synthetic CDOs created from tranches of other CDOs

There were created to help meet the tremendous demand for CDOs, when there were not enough mortgages to create the primary CDOs obligations

Transfer Pricing

This is the process of pricing intra group transactions, including financial transactions such as inter company loans

What is the primary financial goal for non-profit agencies?

To efficiently use the resources available to provide maximum benefits

Payment Generation

Where the instructions are entered into the payment system itself

The primary business-to-business payment system in most countries outside of the U.S. is:

Wire transfer

Financial Planning

You will help clients save, invest, and build wealth for life events: buying a house, having kids, education, starting a business, retiring, passing wealth to another generation.

Private Equity

You will help direct large funds into equity positions in private firms. Usually with a goal of turning around troubled firms so that a high return is available in a 3-5 year period.

Corporate Finance

You will help firms manage a wide range of financial responsibilities: managing cash, raising capital, making capital investments, financial analysis and planning.

Commercial Banking

You will provide bank clients various services: cash management, loans, credit lines, payments, international transactions.

Consulting

Your firm might be hired to do any number of tasks that a client has decided they can't or don't want to do themselves.

After several class presentations, you know that when Professor Masson refers to a very large market or a very large firm he often says something informal like...

a "big honking" company.

All companies that have publicly traded stock submit an annual report to the SEC. This report is called...

a 10-K

The benchmark money market instrument, as covered in class, is...

a US T-bill

political risk

change in asset values due to political actions

According to a recent class session, accounting is great at bringing attention to revenue, expenses, and profits. Finance focuses more on...

cash flow

forward rates

contract now locks in price to buy or sell for some time in the future

Eurocurrency

currency issued or held outside the country of the currency

According to class presentations, which of the following lists the key inputs to discounted cash flow models?

expected cash flows, timing of the cash flows, and discount rate

Financial Buyer's View

price based on improved cash flows from efficiencies and better operations

cross rates

price of two currencies working through the US$.

Charging borrowers interest was prohibited by the powerful Roman Church in the Middle Ages. Banks made interest-like money, however, by

demanding borrowers pay their loans late and pay an accompanying late fee

Two competing approaching for basic valuation are...

discounted cash flow and relative valuation.

According to class sessions, FP&A refers to...

financial planning and analysis.

Types of Mergers

horizontal, vertical, conglomerate

Conservatism

implies that companies should record lower estimated values on their assets and, by extension, higher estimates of their liabilities - in short, the err on the side of being conservative.

The world's oldest continually operating bank is...

in Siena, Italy.

FED

include conducting national monetary policy, supervising and regulating banks, maintaining financial stability, and providing banking services.

Apple ends its fiscal year on September 30, 2021. So current TTM for Apple will...

include financial results for their quarters ending June and March 2021 and December and September 2020.

Strategic Buyer's View (or investment value)

includes the synergies resulting from an acquisition

According to class presentation, stocks have two kinds of investment risk. These are stand-alone risk and...

portfolio risk.

Fair Value View

price a reasonable and willing buyer would pay in usual circumstances

Interest rates and bond prices are...

inversely related.

SEC

is a U.S. government agency created by Congress to regulate the securities markets and protect investors.

Eurobond

issued anywhere in a currency that isn't the company's local currency

foreign bond

issued in a country by a foreign company but denominated in that country's local currency (also same as a Eurobond)

Benefits of economies of scale

low transaction costs

global financial center

major area of international finance for banking, financial services, capital markets

A "broad" market is one...

that offers a large range of investment opportunities.

A typical business lifecycle consists of the startup and growth phases, followed by...

maturity and decline.

Efficiency or Asset Management

measures how efficiently assets are utilized

American depository receipt (ADR)

mechanics for making it easier to invest in foreign companies

exit strategy

plans for ending its investment or relationship; usually tied to liquidity event

A normal yield curve is one in which...

short-term interest rates are lower than long-term interest rates.

Statement of Stockholders' Equity

shows how much of the firm's earnings were retained, rather than paid out as dividends.

One of the key differences in the distribution of assets between small and large banks is...

smaller banks make a greater proportion of commercial real estate loans.

Paying dividends is highly valued by some shareholders who want a constant receipt of income. Paying out dividends also means that...

some earned cash is not used to reinvest in the firm.

liquidity event

something that leads to early investors getting their returns in cash

Income Statement

summarizes a firm's revenues and expenses over a given period of time.

According to class session, Goldman Sachs is organized into four business segments. Which of the following is not one of this segments?

support management

How might you use financial statements to estimate an effective tax rate?

taxes paid / taxable income

Company assets represent things the firm owns. Liabilities and equity represent...

the claims on those assets.

According to class session, the world of investment banking is broader than the Investment Banking Workshop at Kelley. It includes...

the content and interests of the Capital Markets and Banking Workshop as well as the Investment Management Workshop.

Concept of Credit Spread

the difference between the yield on a corporate bond and government bond of the same maturity

Target Capital Structure

the estimated "best" and/or most practical mix of capital that will be used for future financing.

If your firm invests $6.5 million in robotic welders that provide the present value of an estimated $7.2 million in cash flows in return, then...

the investment added value to the firm.

According to class session, a lot of the work in commercial banking is sort of...

the mirror equivalent of work in corporate finance.

spot rates

the price to buy a currency (or any good or service) right now for delivery right now.

If British consumers and/or businesses increase their demand for the US dollar - and little else of significance changes - then it is likely that...

the value of the dollar relative to the British pound will strengthen.

Shadow Banking

to describe financial activities that take place among non-bank financial institutions outside the scope of federal regulators

According to class presentation, the primary role of financial institutions is...

to provide intermediation of funds.

foreign exchange

trading of one currency for another

intermediation

transforming one thing into another.

The finance professional who is primarily responsible for arranging external financing and managing relationships with banks and other financial institutions is the

treasurer

According to class session, a lot of CFOs today come from what part of the finance function in the firm?

treasury management

Operating income and EBIT are often the same numbers...

unless a company reports some non-operating income or expense.

Say the Thailand government was concerned about the weakening of its currency, the baht. To boost the price of the baht, the Thai government would mostly likely...

use US dollars to buy the baht, increasing demand and price for the baht.

As covered in the most recent class presentation, intermediaries play a role that looks very much like a middle person between those who have excess capital and those who need capital. They also...

usually transform things, such as changing many small bank deposits into one large commercial loan.

An important early insight by financial manager looking over the D'Leon financial statements...

was the realization that the fourth quarter performance was pretty good.