FINANCIAL MANAGEMENT (C214) FINAL
EXAM REVISION NOTES (summarized and
with diagrams) A+ GRADED WESTERN
GOVERNORS’ UNIVERSITY
,1. Bond: Loan from Investor to firm. Firm pays interest payments periodically until the bond
matures plus the bond price.
2. Stocks: ownership in the corporations.
3. Goal of a corporation: enhance long run stock value. Balance risk versus profit
4. Essentials for success: Equity, productive employees and capital equipment, customer demand
5. Corporations are simply passthrough legal entities: benefits and costs are shared by
shareholders, employees, and customers
6. Agency cost: management makes self-interest to benefit themselves rather than achieving
organizational goals.
7. Principles of financial decision making
• Efficient market prices – competitive, liquid, transparent, standardized
• Balancing risk and return – return must compensate for risk: Risk aversion (Risk premium for
buying a riskier stocks or bonds or securities)
• Time value of money- the value of money depends upon size, timing, and certainty of
receipt.
8. Financial Market
• Non-Financial Firms such as Walmart, Microsoft, GM (sell bonds and stocks)
• Financial Firms such as BlackRock, fidelity (manage pensions, 401-k and buy bonds and
stocks)
9. IPO (Initial Public offering): selling for the first time in the primary market
10. Prospectus: Disclosure of potential risks & returns
11. Syndicate: Group of investment banks underwriting security issuance
12. Primary Markets: Firm issues stocks/bonds to be bought by the investors. Every time they issue
bonds or stocks they do in the primary markets. Corporations get cash (cash inflow)
13. Secondary Markets: Stock/bonds are traded among investors; Firm not involved
• Auction market: Competitive bid/ask from many buyers and sellers (NYSE) - stocks
• Dealer Market: a dealer buys and sells securities upon investor inquiry: NASDAQ – bonds
having different prices and maturity date
14. Financial statements (8 questions in OA, 5 in statement of cash flows) – 10K reports (balance
sheet, income statement and cash flows
• Balance Sheet: Assets=Liabilities+equity. Increase in Asset=cash outflow. Increase in
Liability/Equity=cash Inflow
• Income Statement: Sales Revenue – cost of goods sold = Gross Profit – Operating Expense –
Depreciation = EBIT – Interest = EBT minus taxes (@25%) =Net Income
• Net Margin=Net Income/Sales
• Net Income = Dividends Paid + Added to retained earnings
• Payout Ratio = Dividends Paid/Net Income
• Statement of Cash Flows: Cash Flow from Operations (CFO), Cash flow from Investments
(CFI) and Cash Flow from Financing (CFF).
• 2 questions on CFO : CFO is cash earned by producing and selling the firm’s products
, • CFF is cash raised by selling bonds and stocks (Increase in Stock + Increase in Bonds –
Dividend paid) 1 question in OA
• CFI is cash spent for investment projects.
• Statement of retained earnings : at least 1 question in OA
5 questions on investment (Simple interest and
15. Financial Ratios:
• Liquidity: Bill paying capacity (current ratio, quick ratio)
• Efficiency: Revenue per asset (Total asset turnover and Fixed Asset Turnover)
• Financing: Debt Vs Equity (Debt Ratio and Financial Leverage)
• Profitability: Net Income (Return on equity and Return on Assets)
16. Financial Ratio Analysis: Trend Analysis (compares ratios of a firm over time), Cross sectional
(compares firm to competitors), and Goals (internal performance goals).
EXAM REVISION NOTES (summarized and
with diagrams) A+ GRADED WESTERN
GOVERNORS’ UNIVERSITY
,1. Bond: Loan from Investor to firm. Firm pays interest payments periodically until the bond
matures plus the bond price.
2. Stocks: ownership in the corporations.
3. Goal of a corporation: enhance long run stock value. Balance risk versus profit
4. Essentials for success: Equity, productive employees and capital equipment, customer demand
5. Corporations are simply passthrough legal entities: benefits and costs are shared by
shareholders, employees, and customers
6. Agency cost: management makes self-interest to benefit themselves rather than achieving
organizational goals.
7. Principles of financial decision making
• Efficient market prices – competitive, liquid, transparent, standardized
• Balancing risk and return – return must compensate for risk: Risk aversion (Risk premium for
buying a riskier stocks or bonds or securities)
• Time value of money- the value of money depends upon size, timing, and certainty of
receipt.
8. Financial Market
• Non-Financial Firms such as Walmart, Microsoft, GM (sell bonds and stocks)
• Financial Firms such as BlackRock, fidelity (manage pensions, 401-k and buy bonds and
stocks)
9. IPO (Initial Public offering): selling for the first time in the primary market
10. Prospectus: Disclosure of potential risks & returns
11. Syndicate: Group of investment banks underwriting security issuance
12. Primary Markets: Firm issues stocks/bonds to be bought by the investors. Every time they issue
bonds or stocks they do in the primary markets. Corporations get cash (cash inflow)
13. Secondary Markets: Stock/bonds are traded among investors; Firm not involved
• Auction market: Competitive bid/ask from many buyers and sellers (NYSE) - stocks
• Dealer Market: a dealer buys and sells securities upon investor inquiry: NASDAQ – bonds
having different prices and maturity date
14. Financial statements (8 questions in OA, 5 in statement of cash flows) – 10K reports (balance
sheet, income statement and cash flows
• Balance Sheet: Assets=Liabilities+equity. Increase in Asset=cash outflow. Increase in
Liability/Equity=cash Inflow
• Income Statement: Sales Revenue – cost of goods sold = Gross Profit – Operating Expense –
Depreciation = EBIT – Interest = EBT minus taxes (@25%) =Net Income
• Net Margin=Net Income/Sales
• Net Income = Dividends Paid + Added to retained earnings
• Payout Ratio = Dividends Paid/Net Income
• Statement of Cash Flows: Cash Flow from Operations (CFO), Cash flow from Investments
(CFI) and Cash Flow from Financing (CFF).
• 2 questions on CFO : CFO is cash earned by producing and selling the firm’s products
, • CFF is cash raised by selling bonds and stocks (Increase in Stock + Increase in Bonds –
Dividend paid) 1 question in OA
• CFI is cash spent for investment projects.
• Statement of retained earnings : at least 1 question in OA
5 questions on investment (Simple interest and
15. Financial Ratios:
• Liquidity: Bill paying capacity (current ratio, quick ratio)
• Efficiency: Revenue per asset (Total asset turnover and Fixed Asset Turnover)
• Financing: Debt Vs Equity (Debt Ratio and Financial Leverage)
• Profitability: Net Income (Return on equity and Return on Assets)
16. Financial Ratio Analysis: Trend Analysis (compares ratios of a firm over time), Cross sectional
(compares firm to competitors), and Goals (internal performance goals).
