fundemental of finance

• The time value of money is the concept that money today has more value than an equal amount of money received at some future date.
• Finance is a broad term that describes two related activities: the study of how money is managed and the actual process of acquiring needed funds.
• Finance encompasses the oversight, creation and study of money, banking, credit, investments, assets and liabilities that make up financial systems.
• Finance involves the earning and use of capital, which includes collecting, using and managing capital.
• Private Placement is a type of public offering where the securities are offered and sold to a limited number of investors.
• The issuing firm never actually meets the ultimate purchaser of securities.
• Initial Public Offering (IPO) is a type of public offering and it is the first time a company issues its stock.
• Public Offering allows both individuals and institutional investors to purchase securities.
• The securities are initially sold by the managing investment bank firm.
• Finance focuses on the maintenance and creation of economic value or wealth.
• Finance is concerned with the decision making toward creating wealth.
• Cash flow is what matters in finance.
• Accounting profits are not equal to cash flows.
• Cash flows, and not profits, drive the value of a business.
• Incremental cash flow is the difference between the projected cash flows if the project is selected, versus what they will be, if the project is not selected.
• A dollar received today is worth more than a dollar received in the future due to inflation.
• Financial markets play a critical role in a capitalist economy by facilitating the transfer of funds from “saving surplus” units to “saving deficit” units.
• The two key financial markets are the Money Market, which is a market for short-term debt instruments with maturity less than 1 year, and the Capital Market, which is a market for long-term financial securities with maturity greater than 1 year.
• The Secondary Market is a market in which previously issued securities are traded, the issuing corporation does not get any money for stocks traded on the secondary market.
• The goal of a firm is to maximize shareholder wealth, which is measured by share prices.
• Corporate Forms have benefits such as limited liability, easy to transfer ownership, easier to raise capital, and unlimited life.
• The drawbacks of Corporate Forms include high tax rate, more expensive to establish, no secrecy of information, maybe delays in decision making, and greater regulation by government.
• The Primary Market is a market in which new issues of a security are sold to initial buyers, this is the only time the issuing firm ever gets any money for the security.
• Investors expect to be compensated for delaying consumption and taking on risk.
• In an efficient stock market, the prices of all traded assets at any instant in time fully reflect all available information.
• Stock prices are a useful indicator of the value of the firm.
• Prices changes reflect changes in expected future cash flows.
• In Malaysia, the Company Act 1965 requires companies to provide their annual reports to the Companies Commission of Malaysia.
• Financial statements users can be classified into two types: internal users who are people within a business organization who use financial information, and external users who are people outside the business entity (organization) who use accounting information.
• Examples of internal users are owners, managers, and employees.
• Examples of external users are suppliers, banks, customers, investors, potential investors, and tax authorities.
• The Income Statement, also known as Profit and Loss Statement, measures the results of a firm’s operation over a specific period.
• Purchase of new equipment, invest in new technology is a component of cash flow from financing.
• A Statement Of Cash Flows is a type of financial statement that provides details of a company's cash flows.
• Net Changes in Cash will be added to the Beginning Cash Balance in order to get the Ending Cash Balance.
• Borrowing funds, payment of dividends is a component of cash flow from financing.
• Increasing(decreasing) of net cash is total cash flow from operating, investing and financing activities.
• Beginning Cash Balance + Net Changes in Cash = Ending Cash Balance.
• The bottom line of the income statement shows the firm’s profit or loss for a period.
• The usefulness of the income statement includes evaluating the past performance of the firm and providing a basis for predicting future performance.