Midterm study guide
Why this Topic Matters
2026
GUIDE
Finance helps you understand how money moves in businesses and
investments.
Companies must decide how to raise money "One step at a
How to invest money time. You'll get
How to measure profit and risk there."
How time and interest affect money
– @reallygreatsite
Understanding finance helps businesses make better financial decisions.
Main Points
5 Principles of Finance
Cash flow matters • Time value of money • Risk requires reward • Markets usually correct • Agency
problems exist
• Agency Conflict
Managers vs shareholders goals
• Business Structures
Sole prop • Partnership • Corporation • LLC
• Income Statement Order
Sales → COGS → Gross Profit → Expenses → EBIT → EBT → Net Income
• Balance Sheet
Assets = Liabilities + Equity
• Net Working Capital
Current Assets − Current Liabilities
• Debt Ratio
Total Liabilities / Total Assets
• Time Value of Money
Money today > money later
• Present Value
PV = FV / (1+r)ⁿ
• Future Value
FV = PV(1+r)ⁿ
• Annuity
Equal payments over time
• Loans / Mortgages
PMT based on loan, rate, time