Finance 301 Exam 1
liabilities and equity
ST loans, accounts payable, day-to-day financial activities
GAAP
Generally Accepted Accounting Principles. The standards and rules that accountants follow while recording and reporting financial activities.
efficiency, accountability, stake in the company, role of liberator
basic management tenets
proxy contest
bidder buys shares of target company, attempts to get other shareholders to vote their shares(through proxies) for their candidates for the board of directors
transaction costs
brokerage commissions, sales loads, 12b-1 and redemption fees, and yearly asset management fees
net income+depreciation+change in current liabilities-change in AR-change in inventories-change in fixed assets
calculation of net cash flow
assets
cash, accounts receivable, inventories
product/sevice markets
challenge of management- provide high quality products/services at competitive prices
capital markets
challenge of management-provide competitive return to investors
too much focus on markets and expectations, ST horizon (quarterly profits), issues with capital market (crisis, flash crash), financial scandals, and CEO compensation
challenges to the shareholder value standard
new paradigm
characteristics include: working capital is bad, reflects poor planning, use of funds, measure: working capital/sales, reduce inventory by changing processes and working with suppliers, timeliness of delivery may be more important thanprice, good purchasing includes terms, quality, and delivery, and the cost of not taking discounts is prohibitive
old paradigm
characteristics include: working capital is good (liquidity), measure:current ratio of 2.0, excess inventory adds valure to customers, the supplie is an adversary, key issue:lower prices
thrived in the past decade in terms of number and value of deals but the returns in the US have come back to public market equity returns-hit hard by covid with bankruptcies especially in retail, travel, and leisure-internatonally returns are still high-the number of value of PE deals is at the highest since 2008-2009 but has dropped a little in 2020 due to covid
describe the current state of the PE industry
crash and scandals, then growth with debt, financial crisis, then recovery with bumps
describe what happened in the US in 2000s
corporate control mechanisms
designed to insure that management acts in shareholder interests internal: board of directors, audited financial statements, stock value (based compensation), stock ownership interest external: hostile takeover(offer higher price for another firm's stock), proxy contest (gain control of another company's board), shareholder activism (large investor buys stake)
ease of formation, double taxes (corporation and investor)
disadvantages of corporations
taxes
dividends and long term capital gains=15-20% short term capital gains=ordinary income
no
do US Tresury Securities have default risk?
longer (10 mins)
do bitcoin transactions take a shorter or longer amount of time then credit card or ipay?
higher
do larger yield maturities get higher or lower returns?
less
do you use more or less debt with the relative degree of business risk, intangible assets, and financial slack?
more
do you use more or less debt with the tax shield, and tangible assets?
lower
does a utility typically have a higher or lower asset turnover than a grocery store?
smaller
does bitcoin have larger or smaller fees than a credit card or ipay?
earnings/profits
drives stock prices in the long run
asset allocation is a very important decision
eighth principle of finance, diversify investment holdings over an array of asset classes: cash and short maturity deposits or securities, fixed income securities and bonds, and common stock-most important:stocks, bonds, and cash allocation
agency costs
expenses and investments that serve management's interests and not shareholders small scale:management perks large scale:large investments, especially acquisitions
matching principle
expenses incurred in providing a good or service are recognized in the period that the sale is made
corporate managers should make decisions that max shareholder value
fifth principle of finance, managers have a fiduciary responsibilty to act in shareholder's interest
treasury
finance cfo activities-financial planning, capital budgets, ST and LT capital requirements, cash management, and working capital - traditional
higher returns require taking more risk
first principle of finance, safe investments have low returns, positive relationship between risk and returns
supply and demand drive stock prices in the short run
fourth principle of finance, stock buying and selling is driven by news regarding the overall market, industry or sectors announcements and reports, and company events and announcements
store of value
function of money- money must be able to be reliably saved, stored, and retrieved- be predictably usable as a medium of exchange when retrieved-value must remain stable overtime- bitcoin has high volatility and acceptance is unknown in future due to unpredictability
unit of account
function of money- standard monetary unit of measurement of value/cost of goods, services, or assets-lends meaning to profits, losses, liabilities, or assets-bitcoin fairs poorly because not generally accepted
medium of exchange
function of money-intermediary used in trade to avoid the inconviences of a pure barter system- to be widely acceptable it must have stable purchasing power (value) and therefore should possess: value common assets, constant utility, low cost of preservation, transportability, divisibility, recognizability, resistance to counterfeiting, high market value in relation to volume and weight,- gov doesn't get involved with bitcoin so less complications but volatility of value when compared to the USD
high asset turnover
grocery stores tend to focus on which performance metric?
operating income (profit after accounting for all business expenses)
gross income-SGA-RD-depreciation= what on the income statement?-measures overall profitability and health of a business
the finance environment
had lots of growth and volatility which results in stress
behavioral finance
investor psychology is examined- investors aren't always rational, emotions play a factor, markets aren't always perfectly efficient and should be managed because it reflects these emotions and biases- stock traders firmly believe this
exxon
invests most in their plant
yes
is depreciation a source of cash?
poison pills
used to make a stock unappealing to others by making a takeover extremely expensive- give current shareholders the right to purchase shares of the company at a bargain price, contingent on another firm acquiring control-dilutes the stock and makes a stock acquisition not economically feasible
70
what % of capital for a typical firm is generated internally from operations?
90
what % of capital from markets is raised through debt?
35
what % of debt is average?
dividends
what are cash payouts to investors (quarterly),and are expected to be maintained by companies?
junk debt/ high yield
what are ratings from double B and down called?
investment grade
what are ratings from triple B and up called?
depreciation (asset value as expense but no physical check given out), matching costs with revenues
what are some noncash items on the income statement?
fixed vs variable costs, product cost (RM, DL, and OH), and period costs (selling general admin)
what are some time and cost items on the income statement?
interest is tax deductible, retain control, and is cheaper
what are the advantages of raising debt with capital?
carrying and shortage
what are the costs of holding current assets?
dilutes ownership interest and its more expensive than debt
what are the disadvantages of using common stock to raise capital?
working capital management, capital budgeting, and capital structure
what are the key ftrategic financial decisions for a company?
warehousing and capital
what are the two biggest costs of maintaining inventory?
ratios
what are used to track trends?
accounting and auditing
what bent the rules in 00s because it was needed to keep clients? (Arthur Andersen)
companies tried to keep up with wall street expectations
what caused the crisis in corporate governance in 2000s?
volatility
what characteristic of bitcoin is driven by media reports, hacks, exchange failure, legal issues, China, competitors, security issues, wild speculation, illegal transactions and tech issues?
ge
what company had a 22 B non cash charge in its slumping power division tied to acquistions, and cut its dividends?
moody's- standard's and poor's
what company receive fees to rate the bonds of companies and gov and these ratings are used to indicate the probability of default?
enron
what company was named the most innovative company?
wall street analysts
what contributed to the corp gov crisis in 00s because they had biased stock recommendations and was only aimed at bringing in new business?
lending club
what corp sold investor 22M in faulty loans and altered 3 M of those loans to comply?
minimum cost
what cost occurs at the point where the carrying costs=shortage costs?
carrying
what costs are easy to measure, include capital costs (costs of funds invested), includes inventory costs (warehousing, insurance), includes bad credit costs (A/R), and increase with an increase in current assets?
shortage
what costs are tough to measure, include stock outs (run out of inventory), includes sales (tight credit limit sales), and decrease with an increase in current assets?
executive compensation
what crisis in corp gov (00s) that was dominated by stock options and included incentives to keep stock price up?
tender offer
what devito did for company shares which eventually turned into a proxy fight-where a bidder company offers to buy shares of a target company from shareholders, usually at a premium
add to pay dividends or buy back debt or equity
what do companies do when the cash flow from operations- cash flow from investing(acquisitions) is positive?
issue debt or equity
what do companies do with excess cash when cash flow from operations-cash flow from investing is negative?
capital
what do companies need for growth?
private companies, buyouts of public companies (result in the delisting of public equity), private debt, and real assets (especially in real estate and natural resources)
what do the funds and investors the make up private equity firms directly invest in?
capital intensity and barriers to entry
what economic forces act on ROA?
accounting entries
what effects the income statement but not the statement of cash flows?
low degree of managerial stock ownership
what failure of internal control mechanisims made managers less likely to think like investors? (80s)
corporate raiders
what failure of internal control mechanisms included people such as t. boone, pickens, carl icahn, victor posner, robert bass, and robert pearlman- they bought out stake in company to force changes and sell out (more leverage, sell assets)? (80s)
unfair corporate voting procedures
what failure of internal control mechanisms included proxy solicitation procedures, access to stockholders, and nonconfidential voting? (board members and management) (80s)
diffusion of stock ownershhip
what failure of internal control mechanisms reduced stockholder influence in corp gov issues-costs of monitorin management performance was too high? (small investors)(80s)
easy financing
what failure of internal control mechanisms was known as "junk bonds" and was practiced by milken and burnham? (80s)
profit margin and return on equity
what financial metrics does Buffet use in his analysis of companies?
lehman brothers
what global financial services firm hid 50B loans as sales by selling toxic assets and got caught by going bankrupt?
borad's role changed(CEOs fired for poor performance), debate over executive compensation (management pay vs. performance and issue of management stock ownership), institutional investors became more involved in corp gov issues (proxy rules changed (voting), shareholders communication permitted, and move to shared governance)
what happened in the 1990s in regard to corporate governance issues? (3 improvements)
8 years of growth then bust in 2000s
what happened in the 1990s in the US? (how many years of growth/ when did it bust?)
commodity, stock, bond, and currency markets
what instantly impacts markets around the globe?
operation profit
what is EBIT (earnings before interest)?
games accountants play
what is GAP-actions or omissions intended to hide or distort the real financial performance of a business?
expected growth
what is a company's P/E ratio primarily driven by?
customer pays the company before the company pays the supplier
what is a negative ccc?
R&D expense
what is an investment in research, ideas, and innovations that is expensed on the income statement?
current assets, tangible (PP&E-net accumulated depreciation), and intangible (Goodwill-mainly from acquisitions)-listed at book value
what is included on the asset side of the balance sheet?
current liabilities, LT debt (bonds), common equity (previous sales of stock and reinvested earnings)
what is included on the liabilities and equity side of the balance sheet?
cost of capital
what is one of the most fundamental concepts in finance, used to measure economic volatility of corp investments, and management seeks to minimize it through financial strategy?
free cash flow
what is sometimes a better measurement of corporate performance than reported earnings?
no fixed financing obligation
what is the advantage of using common stock to raise capital?
high stock price and shareholder value
what is the best defense from acquisitions?
7%
what is the common growth rate including GDP, sales, profits, and EPS?
incur a fixed financing obligation in the form of interest and principle payments which can lead to financial distress
what is the disadvantage of raisng debt with capital?
40%
what is the dividend payout ratio of the S&P 500?
2%
what is the dividend yield of the S&P 500?
corporate capital expenditures
what is the driving force and extremely sensitive to the economy?
capital budgeting
what is the evaluation of an investment in LT assets to fuel growth? (including capital expenditures (tangible) and R&D (intangible))?
hands-on investment
what is the key element of PEs that states that PE firms must overhaul how a business is mananged- In early years it was brute-force cost-cutting, and layoff-now: PE employs enhanced management and operational strategies and reorganizations with the aim of leaving the company better off then they found them-acquisitions need financing to grow so the PE industry has been at the forefront of the financialization of the economy?
leverage
what is the key element of PEs that states that acquisitions are typically financed with a lot of deby that ends up being owed by the acquired company-PE firms can put in a comparatively small amount of cash, magnifying gains if they sell at a profit?
fees
what is the key element of the PE that states the these changed by PE are huge-money managers are lucky to get 1% of assets a year-traditional ="2 and 20"- 2% annual this and 20% of profits above a certain level - 20% part is known as the carried interest and is especially lucrative because it gets favorable tax treatment?
fraud
what is the main shenanigan?
financing activities
what is the net cash flow from sources of funding?
investing activities
what is the net cash from investments in or disposition of fixed assets or acquisitions?
operating activities
what is the net cash generated from selling a product or service?
cash conversion cycle
what is the number of days from when you pay the supplier to when you get paid by the customer?
operating activities
what is the primary source of cash?
yield curve
what is the relationship between the yield-to-maturity and time-to-maturity on US Treasury Securities, has a positive slope, and indicates the base cost for LT capital in the economy?
financing activities
what is the statement of cash flows balanced with?
ex date
what is two business days before the record date and as of this date stock does not include the dividend and you must own stock as of close on day before sales and is the stock opens at previous close minus dividend?
stock splits
what is when a company divides its existing shares into multiple shares, has no impact on stock value in theory, may signal that management expects higher stock prices, has declined over the years, and usually shows large growth before and then levels out after?
stock repurchases
what is when you use cash to buy back shares, another way to return cash to investors, usually viewed positively, reduces cash and equity, increase ROE and EPS, have overtaken dividends, doesn't commit a company to a dividend, many are poorly timed, and go up in up markets and down in down markets?
aig
what multinational insurance company proved SOX did not always work, had massive acctg fraud along with bid rigging and stock manipulationby booking loans as revenue and was caught by SEC regulator?
net income
what must businesses grow faster than sales?
fundraising
what part of the PE process comes from outside financial sources, such as pensions, wealthy individuals, or other larger funds to help raise capital for investment in private companies?
sourcing deals
what part of the PE process finds investment opportunities that align with the professional expertise of the firm and investment criteria?
exiting
what part of the PE process is the investment through a sale of company to other entities, initial public offering, or liquidation?
creating value
what part of the PE process is through targeted acquisitions, process engineering, reduction of overhead and other expenses, and targeted consulting to improve efficiency, growth, and profitability?
20
what percent of ceos say they may use accounting adjustments to meet earnings estimates?
revenue recognition
what practice accounts for 2/3 of primary accounting issues?
liquidity
what ratios are of most interest to suppliers and bankers?
common size balance sheet
what sheet shows all asset accounts expressed as a percentage of total assets and liabilities and equities as a percentage of total liabilities and equities and helps businesses look for trends over time and compare with other stores?
fail to record/disclose all liabilities
what shenanigan includes failing to record expenses and related liabilities when future obligations remain, recording revenue when cash is received, yet future obligations remain, management engages in transactions to keep debt of the book: FASB attempting to correct swaps, in-substance defeasance of debt, defined benefit pensions, operating leases, subs and joint ventures, and special pupose entities when a firm incurs a liability if it has an obligation to make future sacrifices?
no
is the validity of bitcoin certain?
equity capital markets
issue stock, allocator of risk capital, essential to finance econ growth, barometer of econ health
walmart
leads us in sales
wells notice
letter sent by SEC to prospective respondents notifying him of charges that the regulator intends to bring against the respondent and giving the respondent the opportunity to submit a written statement
personal assets: house, life insurance/pension,bank deposit, equity liabilities: debt financial crisis lowered financial conditions for households
list the assets, liabilities, and financial crisis result for aa household balance sheet
admin control, resource allocation, management stewardship
list the basic accounting concepts
accounting statements and ratios, pv, risk and return models, and spreadsheet modeling
list the contents of the financial decision tool box
revenue recognition, fraud capitalization, and failure to record liabilities
list the primary accounting issues
debt issue
low interest rates and high credit rating-low borrowing rates-cheaper than bringing offshore cash back to states due to taxation
investors, community, suppliers, employees, creditors, customers, analysts, gov.
major external stakeholder groups
board of directors, management, employees
major internal stakeholder groups
finance
management of money
capital structure
managing financing mix between debt and equity-goal: to minimize the cost of capital and to enhance performance (liability management)
capital budgeting
managing investments in long-term assets- goal: to allocate capital to investments offering the highest risk adjusted returns
beta
measure of risk and volatility of a stock relative to the stock market: greater than 1 is more risky and less than one is less risky
standard deviation
measure of risk, larger=more risk
increase inventory turnover high
monitor in depth product category and unit aging with software to determine which products to liquidate results in
walmart
most inventories
shareholder's equity
net worth, common equity, stakeholder's equity
asset diversification will reduce risk
ninth principle of finance, spread investment over different stocks to reduce risk
diluted EPS
number of shares outstanding + shares part of executive compensation= what wallstreet looks at-also equals (net income- preferred dividends)/sum of the weighted average number of shares outstanding
profit before taxes
operating income-interest expense = what on the income statement?
classic deals in the 80s
pickens:Gulf icahn:TWA pearlman:Revlon
53
price for barrel of oil (WTI)
1900-2,000
price of gold per ounce- fear index
deferred taxes
primary source results because companies can use straight line depreciation on assets in determining net income and accelerated depreciation on assets for tax purposes- results in a timing differenct for taxes-provides lower tax current bill, but these taxes will eventually need to be paid when the accelerated depreciation falls below the straight line depreciation- usually placed under liabilities
mining process
process that bitcoin follows-open source-controlled supply-record keeping service-keeps blockchains consistent and unchangeable-prood of work required for acceptance- controlled supply associated with increased difficulty-limits new blocks every 10 mins
residual claim
profit after tax-whatever's left over
net income (profit)
profit before taxes-taxes = what on the income statement?
fixed assets
property, plant, and equipment
long term assets
property, plant, and equipment-invest in for growth
golden parachute
provides compensation to top-level executives in the event of a change of corporate control
debt capital markets
raising capital by issuing bonds interest rates reflect the base cost of capital in economy
inflation
reduces value of future dollars you receive on your investment and reduces your real return on investments
balance sheet
reports, as of a certain time, the resources (assets), obligations (liabilities), and equity of owners
statement of cash flows
reports, for a certain interval, the amount of cash generated and consumed by a company through operating, financing, and investing activities
income statement
reports, for a certain interval, the net assets generated through business operations (revenues), net assets consumed (expenses), and net income
goodwill
results when one company is purchased by anothers and the amount the acquiring company pays for the target company is over the target's book value-reflects the value of the company's brand name, customer base, good customer and employee relations, and any patents or proprietary tech
revenue recognition
revenue is recognized when a good/service is provided
gross income (profit)
sales-cogs= what on the income statement?
efficient capital markets are tough to beat
second principle of finance, stock market is brutally efficient, current stock prices reflect all publicly available info, and stock prices react completely, correctly and almost instantaneously to new info- useless to forecast future prices by technical analysis and fundamental analysis-impossible to beat
lowers outstanding inventory
selling older inventory results in
the agency problem
separation of ownership and contol (asset)
time and value of money are closely related
seventh principle of finance, a dollar today is worth more than a dollar tomorrow, compare pv with fv by accumulating and discounting to asses if the investment is worth it
transaction costs, taxes, and inflation are your enemies
sixth principle of finance, these enemies reduce investment returns
market cap
the aggregate market value of a company= shares*price per share- important in growing, investing, acquiring, and compensating
high shareholder value and stock price
the best defense from acquisitions
rational investors are risk averse
third principle of finance, rational investor takes small risks but tries to avoid more risk
shift future expenses to the current period
what shenanigan includes management accelerating discretionary expenses into the current period: prepayment of operational expenses, improper write-off of inventory which lowers current earnings so as to increase future earnings, management has the firm 'take the big bath': new management often writes-off old projects to relieve future periods of the expenses, large nonrecurring gains offset with large expense or vv, and decreases future expenses to increase future profits when the firm is supposed to charge expenses against income in the period in which the benefit is received?
shift expenses to a later period
what shenanigan includes management improperly capitilizing costs: start-up costs, r&d costs, advertising expenditures, and admin costs, management depreciates or amortizes costs too slowly: excessively long amortization periods, increases in depreciation/amortization schedule and results in an increase in current profit when you should only capitalize costs that produce a future benefit and expense those that produce no such benefit?
boosting income with one time gains
what shenanigan includes management selling undervalued assets, including investment income or gains as revenue or reduction in operating expenses whe really gains should be reported only after an exchange has taken place?
shift current revenue to a later period
what shenanigan includes managemnt deferring recognition of revenue through unearned revenue, management creates reserves to shift income to a later period (cookie jar reserves-smooth income), and increases future revenues and profits when a firm is supposed to record revenue/expenses in the period in which it is earned?
recording bogus revenue
what shenanigan includes recording cash received as revenue, recording sales laccking economic substance (wash sales- trade back and forth)?
recording revenue too soon
what shenanigan includes shipping goods before sale is finalized, billing in advance, shipping defective goods, using an aggressive revenue approach (LT licenses), recording when future services are still due(enron-operation braveheart)?
common size income statement
what statement shows all accounts expressed as a percentage of net sales and provides insight?
customer focus and commodity items
what strategic forces act on ROA?
mezzanine financing
what strategy of PE includes investment for certain companies that are in need of interim financing in form of subordinated debt or preferred stock?
distressed investing
what strategy of PE is aka turnaround and is where capital is allocated to companies in this category are typically bought in or near bankruptcy with declining finances?
leveraged buyout
what strategy of PE uses large amount of debt to finance(buy) the deal with expectation that a mature company will generate enough cash to pay off large amount of debt?
static trade off theory
what theory states that there is a trade off between tax savings and financial distress costs of debt?
insurance companies
what type of companies does Warren Buffet like to invest in?
grocery stores, retail, and commodity items
what type of products experience high asset turnover?
utilities and luxury items
what type of products experience high profit margins?
positive
what type of relationship does expected EPS growth and the P/E ratio have?
positive
what type of relationship does performance (return on equity) and the P/E ratio have?
negative
what type of relationship does risk (size and volatility) and the P/E ratio have?
19,666
what was the highest value of bitcoin?
hostile takeovers
what was the solution to corporate governance issues in the 1980s?
shared governance between management and board and large investors
what was the solution to corporate governance issues in the 1990s?
serbanes-oxley act
what was the solution to the corp gov crisis in 00s?
early 2000s (enron), financial crisis-ratings of mortgage bonds issues, 2011-downgrade of USAs AAA bond rating, regulation, and US sued S&p for ratings
what were some issues with the bond offerings of Moody's?
early-stage venture capital
whcih strategy of PE includes investments that are equity stakes in new and unproven business models?
white knight
when a target company looks for another friendlier company to acquire it- current shareholders may also receive greater after-tax market value of securities if the deal is a "tax-free" exchange of stock
ROI>COC
when should companies invest in a project (yields +NPVs)?
2008
when was the first bitcoin introduced?
new investors
where are the proceeds that investors are paid in a ponzie scheme from?
balance sheet
where do capitilized expenses go?
markets
where else is capital raised other than operations?
minimum cost
where is the tax advantage of debt equal to the cost of financial distress?
investment
which basic corporate financial decision involves allocating scare resources across competing uses?
financing
which basic corporate financial decision involves raising funds to finance these projects?
dividend
which basic corporate financial decision involves returning funds to investors?
heinz
which company was recently taken over by a private equity group?
anglo-american
which global odel of corp gov has minority shareholders with board which are elected to represent shareholder interests? (takeovers in 80s)
fluid capital
which model is a subset to the anglo-american in which capital flows to firms with best prospects to create shareholder value?
japan-germany dedicated capital
which model of corp gov has large equity holders that procide oversight, very few takeovers, equity is not sold which may result in issues, includes a hausbank(db) which is a major provider of debt and equity capital and is on a supervisory board, and includes kierstu (combo, mitsubishi) where companies are in business together and own each other's common stock?
rest of the world
which model of corp gov has majority equity owners that oversee management? (temasek holdings-singapore gov owns 53% shares)
profitability ratios
which ratios are also known as operating ratios, vital in assessing managers' performance, and include GM,OM,PM,ROA, and POE?
valuation ratios
which ratios determine value investors place on a company and includes the P/E ratio and market cap?
activity ratios
which ratios include asset turnover ratio (higher is better), asset utilization ratios, measure how well firm uses productive resources, related to amount of sales generated per dollar invested in a particular asset, related to receivables, inventory, and total assets, and includes TAT,IT,DSI,ART,DSO,and FAT?
liquidity ratios
which ratios measure a firm's ability to meet short-term obligations, closely related to size and composition of working capital position, and other things equal, higher working capital implies more liquid position?- includes cr and qr
financial leverage ratios
which ratios measure risk focusing on financing mix, examine extent to which firm uses debt to finance operations, examine balance sheet: higher this result in higher risk, examine income statement: coverage ratios, and include APT,DPO,TIE,D/E. and LM?
activity
which ratios measure the efficiency of management?
growth equity
which strategy of PE includes investment in companies that are young and positioned for growth but more established then ESVC?
Tesla, galactic, overstock
who accepts bitcoin? (3 in s&p 500)
g: stakeholders d:stockholders
who are greg peck and danny devito talking to?
amazon
who has the largest R&D budget?
toyota
who has the largest capital expenditure?
caterpillar
who has the longest operating cycle?
citigroup
who has the most debt? (financial firms)
chipotle
who has the shortest operating cycle?
ivan boesky
who is gordon gekkos greed speech based on?
apple
who is ranked as having the most efficient supply chain in the world, vertically integrates, upgrades facilities, and increases in-house operations?
home depot
who is the largest home improvement retailer, sells a wide assortment of building materials, home improvement products, and lawn and garden products, and had about 2284 stores in 2017?
apple
who is worth the most?
limited partner
who own 99%shares in a company and has limited liability?
general partner
who owns 1% of shares and has full liability and is responsible for execution and operating the investment and selects investments, negotiates terms, arranges debt financing, and manages the investment in a PE firm?
ceos and activist investors
who replace devito in the public's eyes?
mcdonald's
who serves 1% of the total world population daily, simplifies supply orders, price plans, and uses 'cold chain management'?
board of directiors
who was not overseeing management and wasn't independent in the 00s resulting in crisis in corp gov?
government
who was to blame for the 2000s financial crisis because of their lax regulation and oversight, promotion of home ownership, low interest rates, and missed housing bubble?
individuals
who was to blame for the financial crisis due to their greed and overbuying of houses?
wallstreet (institutions)
who was to blame for the financial crisis due to their tax underwriting standards on mortgages, promotion of risky products, excessive leverage and risk taking, and poor risk management?
dell
who's ccc is iconic?
justice dept and sec
whos lack of enforcement and transparency contributed to the corp gov crisis in 00s and was unable to keep up?
lower cost component structure
why are current profit margins at an all time high?
aimed at increasing the value of the firm and stock price
why did companies start to focus on shareholder value?
influence stock, outside and inside pressure to hit earnings benchmarks , influence exec compensation, and senior managers fear for their career
why do companies cook the books?
take advantage of low short term interest rates
why do companies offer floating rates?
to meet wallstreet expectations
why do companies participate in the primary accounting issues?
interest payments are tax deductible
why do firms choose to raise capital with debt?
investors believe these are +NPV projects
why do stock prices increase when companies announce capital investment plans?
companies are expected to maintain dividends (the news itself)
why do stock prices increase when firms announce increases in dividend payments and decrease when firms announce decreases in dividend payments?
stock buy backs
why does home depot have negative equity?
take advantage of positive conditions in financial markets and increase the share buyback program
why is convertible bond offering done?
partnership
you and your friend start a business-more difficult to form, profits taxed as inc, more difficult ease of transfer,liable for liabilities, and difficulty in raising capital
sole proprietorship
you start a business- easy to form, profits taxed as income, difficult transfers, liable for liabilities, difficulty raising capital
serbanes-oxley act
2002- CEOs must sign off on financial statements- management is accountable for accuracy of financial statements- audit committees must be composed of outside directors-companies cant make loans to directors
aggressive accounting
A forceful and intentional choice and application of accounting principles done in an effort to achieve desired results, typically higher current earnings, whether the practices followed are in accordance with GAAP or not
income smoothing
A form of earnings management designed to remove peaks and valleys from a normal earnings series, including steps to reduce and "store" profits during good years for use during slower years
activist investors
An individual or group that purchases large numbers of a public company's shares and/or tries to obtain seats on the company's board with the goal of effecting a major change in the company-making it more valuable- once they own 5% of shares, a sec 13-d form must be filed-normally follows a period of poor performance- examples:icahn (caesars and highest in 2020=occidental), singer(runs elliot management corp-roundup) and rosenstein(runs jana partners- jack in the box and whole foods)
creative accounting practices
Any and all steps used to play the financial numbers game, including the aggressive choice and application of accounting principles fraudulent financial reporting, and any steps taken toward earnings management or income smoothing
stockholders
(the owners) have residual claim on the firm's cash flow-no contract to get paid
net change in cash
CFO+CFI+CFF=
operating cycle
DSI + DSO=?
11,500
NASDAQ level (tech and small stocks)
earnings management
The active manipulation of earnings toward a predetermined target, which may be set by management, a forecast made by analysts, or an amount that is consistent with a smoother, more sustainable earnings stream
crown jewels
When threatened with a takeover attempt, the target company may sell off some of its major assets
corporations
a legal entity which serves as nexus of contracts, state chartering process (delaware), became dominant with industrial revolution
controller
accounting cfo activites- financial statements and reports, financial systems, operating budgets, audits, and taxes-traditional
elements of the new environment
advances in info systems and telecommunication tech, growth in trade and direct investment, deregulation and growth of global markets, greater economic volatility and risk, new complex financial instruments, institutionalization of markets, new markets and financial institutions, net result: global focus on financial markets
transferred directly (p2p), lower fees, accounts cant be frozen
advantages of bitcoin?
limited liability, ability to raise capital, ease of transfer
advantages of corporations
stakeholder
anyone who has an economic interest in a corporation-employees, customers, communities, lenders, suppliers, and stockholders- protected
no
are dividends a cash flow from investment activities?
under
are you allowed to include one time gains under or above the operating line?
declines
as debt increases what happens to the cost of capital because interest is tax deductible?-at first
increases
as debt increases what happens to the cost of financial distress and risk, causing the cost of capital to follow?-as time goes on
separation
assets owned by stockholders but controlled by management
15%
average roe of the s&p 500?
cfo expanded roles
corporate communicator with markets, financing and capitalization (insure that capital is available to fund strategic plan), risk management, strategy, growth, and acquisitions
1.5%
current 30-year treasury yield-base cost of capital for US companies
pier 1 poison pill vs aiden global capital llc mens warehouse vs joseph bank pac man sothebys enacts poison pill
current examples of defense mechanisms
company buyouts
current examples of this include elliot management and barnes and noble, bain capital focused on these, blackstone bought logistic assets from singapore based investment manager glp to sell to amazon, apollo, ifm, and advent
28,000
current level of DJIA-best known stock market index
funds flowing into funds run by activist investors have grown significantly in recent years, ST stock goes up 6% immediately, and LT includes better performance-all positive changes
current trends with activist investors
106/1.2
current yen/dollar and euro/dollar
random walk hypothesis
day to day stock prices are independent or a succession of random moves- future prices are unpredictable making fundamental and technical stock analysis useless
buy back shares
how can you grow EPS faster than net income?
expedite collections from customers, increase IT, lengthen payable period
how can you improve the ccc?
earnings dont correlate with cash flows, earnings deviate from company's peers or the norm. sudden changes in reserves, earnings growth is too consistent and large and frequent one time gains
how can you spot earnings mismanagement?
Sherri Watkins
how did enron get caught?
kept huge debts off balance sheet
how did enron's (commodities, energy, and service) shareholders lose 74 B, employees and investors lose their retirement funds, and employees lose their jobs?
unprofitable operations
how did saturn bankrupt GM?
return on investment is greater than the cost of capital
how does management create shareholder value?
3 cents
how much was one bitcoin originally worth?
low
if you have high return investments, are dividends low or high?
fraudulent financial reporting
intentional misstatements or omissions of amounts or disclosures in financial statements to deceive users that are determined to be fraudulent by an administrative, civil or criminal proceeding; often called management fraud
(pT-pT-1+d)/pT-1
stock return formula
wallets
stores info to transact bitcoins- connected to blockchain transaction ledger- stores the digital credentials for bitcoin holdings
days payable outstanding
sync info systems with over 1000 vendor partners to prevent mismatches on inventory orders lowers what
self-tender offer
target company agrees to purchase some of the current outstanding shares from its shareholders usually at a price above what the acquiring company is offering
PacMan
target company employs a counter-takeover bid for the aggressor - will announce that they are acquiring the aggressor and make advances to do so
an asset pricing model should be used to value investments
tenth principle of finance, CAPM estimates the rate of return an investor should expect to receive on a risky asset
working capital management
the managing of short-term assets and liabilities-financial position of the firm- goal: to minimize the amount of capital required to achieve the company's objective
corporate governance
the system of rules, practices, and processes by which a company is directed and controlled-battles often result from companies not being managed in the interest of the owners-many of these battles involve corporate control including hostile take-overs and proxy contests
greenmail
the target company purchases the acquirer's shares at a premium over the market price
blockchain tech
the technology in bitcoins that keeps a list of recods-decentralized public ledgers that cant be altered-hold batches of transactions, which are linked to prior transactions (chains)