capital budgeting

the reason why a business is getting a loan is that they should never run out of cash.

transaction motive

precautionary motives

speculative motive

kinds of partnership

general partnership

general professional partnership

debt financing

equity financing

market reflex information

Chapter 2 financial marketplace:

Types of interest:

If corporation needs fund, either they borrow or sell stocks

Structure of financial markets

1. Borrowers- Those who need funds

2. Savers (investors) – those who have money to invest, for ex. in financial instutions like banks
3. Financial Institution – links borrower and savers

Unsecured loan- no collateral

Secured loan – collateral

Financial institutions- facilitates movements of money from borrowers and savers

1.Commercial banks -called as everyone’s financial marketplace since most people do their banking

-they earn money from interest

2. Finance service corporation

3. Insurance companies-

Insurance- like an investment

Insurance companies have many process to identify who are suited for their sercices.

4. Investment banks- Help corporations to have possible investors ( bonds and stocks)

5. investment companies – saves for investment purposes. Pool funds for investment purposes

6. mutual funds and exchange funds -collect and pool money from many investors. They will search for
investments. ( small investors can be in favor of mutual funds)

7. Hedge funds- this is like mutual funds but more aggressive and riskier.

It is recommended for students to have savings account.

8. Private equity firms- offers financial bankings.

Debt financing – bonds

Equity financing – stocks

Retained earning- earning that will be invested again

Types of financial securities

1. Equity securities – stocks. Buyers of stocks represents ownership in the company

2. Debt securities – bonds. Investment of savers or investors. This will be loans of corporation
3. Hybrid security – debt security that can be converted into stocks when matures.
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Accumulated income - retrained earning

Income will go to dividends, taxes , retained earning

Kontra assets account

Why do we study financial statements

1. Financial statement analysis – we can we if there is available funds to be used in or assess the overall
financial income

2. Financial control - cash management control

It is better to invest in marketable securities than hold large amount of money

3. Financial Forecasting -

Current or historical data – this will be the basis about the future

3 important principles of accounting

Revenue recognition principle – we do not record income if we do not receive the cash

Matching principle –

Historical cost principle –

Statement of financial position / balance sheets- it will tell us how large a company owns and their
debts.

We arrange accounts based on liquidity in balance sheets.

2financial position and 2 income statament

Scrambled financial statement and income statement