business finance

• The cost of equity is the return required by shareholders to compensate them for investing their money into the company.
• The cost of debt is the interest rate charged on borrowed funds, which represents the opportunity cost of using that capital instead of other investments.
• Capital structure refers to the mix of financing sources used by a firm to raise capital.
• investment decision = deciding whether or not to invest in new projects
• finance is a way of how financial systems work in activities such as acquiring, spending, and managing finances
• money is a medium of exchange, a store of value, and a unit of account
• areas of financial environment - financial institutions and markets, investments. financial management
• financial institutions are organization that intermediates consumers and the captial of the debt markets in managing money such as banking, investment services, insurance, and loans.
• financial market is where traders buy and sell assets in which it can be in a physical medium such as Philippine Stock Exchange
• investments are an asset acquired to generate income or appreciation in the future.
• financial management aim in deciding to increase the value of stakeholders by planning and asset management - planning, organizing, directing and controlling.
• financial management often deals with cash flows to operational
• financial instruments are any physical or electronic document that has intrinistic monetary value or can transfer value
• securities goal is to generate cash or to acquire an asset in the form of a debt security or an equity security
• debt security covers corporate bonds
• equity security covers coroporation shares which represents an ownership interest
• types of financial markets - banks, insurance companies, lending institutions
• types of financial markets - money makers, capital markets, primary markets, and secondary markets
• primary market involves issuing new securities
• money market deals with short term borrowing and lending
• capital market deals with long term borrowing and lending
• secondary market involves trading existing securities
• money markets are short term loans with maturity period less than one year
• capital market is the long-term financing source
• treasury bills are short-term debt obligations backed by the full faith and credit of the U.S. Government
• corporate bonds are issued by corporations to raise money for capital expenditures
• preferred stocks have priority over common shares when it comes to dividends and liquidation rights
• common stock represents ownership interest in a corporation
• equity instruments have varied returns based on the performance of the issuing company.
• financial asset is any asset that is cash, an equity instrument of another entity.
• finanical liability - the amount of money that a business owes to its creditors
• equity instrument - a security that represents a share of ownership in a company
• suppliers of fund - holders of financial assets
• user of funds - makers of financial liabilities and equity instruments
• debt instruments have fixed returns due to fixed interest rates
• initial public offering (IPO) is the first time a company offers shares/new securities to the public
• pension funds are a type of investment fund that is set up to provide retirement benefits to employees
• mutual funds are a collection of securities that are bought and sold by investors
• primary goal of financial manager is to maximize shareholder wealth and maximize shareholder value
• Chief Financial Officer (CFO) - The person responsible for the financial affairs of the organization.