Fin 402 Midterm Complete Guide
3 Aspects of Role as Financial Manager ✅Working Capital Management
Capital Structure
Capital Budgeting
Working Capital Management ✅How much money does a firm need? For day to day operations,
ensures sufficient resources to continue and avoid interruptions
How much cash and inventory held?
Credit sales / Sales on Account?
ST Financing in shortfall?
Capital Structure ✅How does a firm acquire money? Financing is a mixture of debt and equity.
Optimal mix of debt / equity
Least expensive source of funds
Time horizon for funds needed
Capital Budgeting - What should a firm do with their money? Planning and managing long-term
investments ✅Size - cash generation
Timing - when will cash be received
Risk - how confident are you estimates are accurate
3 Forms of Business Organization ✅Sole Proprietorship
Partnership
Corporation
, Sole Proprietorship ✅owned by one person, started with business license
Advantages - Easy / inexpensive, least regulated, single owner keeps profits, taxed once
Disadvantages - Limited to life of owner, equity limited to personal wealth, unlimited liability, difficult to
sell ownership
Partnership ✅General (all share gains / losses unlimited liability) or Limited (general partners active and
unlimited liability, limited partners inactive and limited to contribution)
Advantages - Two or more owners share responsibility, specialization and potential for synergy, more
available capital, relatively easy to start, income taxed once
Disadvantages - unlimited liability, negotiate everything, partnership dissolves at death or sale, difficult
to transfer ownership.
Corporation ✅C Corp (double taxation) S Corp (flow through entity for taxed) LLC (hybrid / custom)
Advantages - limited liabilities, unlimited life, separate ownership and management, easy transfer of
ownership, easy to raise funds
Disadvantages - separate ownership and management, double taxation (income, dividends), initial and
ongoing fees, formal documentation
Business Process for Public Companies ✅Shareholders
Elect Board of Directors
Hire Management Team
Run the Company with the goal to maximize shareholder wealth > more demand for shares
3 Aspects of Role as Financial Manager ✅Working Capital Management
Capital Structure
Capital Budgeting
Working Capital Management ✅How much money does a firm need? For day to day operations,
ensures sufficient resources to continue and avoid interruptions
How much cash and inventory held?
Credit sales / Sales on Account?
ST Financing in shortfall?
Capital Structure ✅How does a firm acquire money? Financing is a mixture of debt and equity.
Optimal mix of debt / equity
Least expensive source of funds
Time horizon for funds needed
Capital Budgeting - What should a firm do with their money? Planning and managing long-term
investments ✅Size - cash generation
Timing - when will cash be received
Risk - how confident are you estimates are accurate
3 Forms of Business Organization ✅Sole Proprietorship
Partnership
Corporation
, Sole Proprietorship ✅owned by one person, started with business license
Advantages - Easy / inexpensive, least regulated, single owner keeps profits, taxed once
Disadvantages - Limited to life of owner, equity limited to personal wealth, unlimited liability, difficult to
sell ownership
Partnership ✅General (all share gains / losses unlimited liability) or Limited (general partners active and
unlimited liability, limited partners inactive and limited to contribution)
Advantages - Two or more owners share responsibility, specialization and potential for synergy, more
available capital, relatively easy to start, income taxed once
Disadvantages - unlimited liability, negotiate everything, partnership dissolves at death or sale, difficult
to transfer ownership.
Corporation ✅C Corp (double taxation) S Corp (flow through entity for taxed) LLC (hybrid / custom)
Advantages - limited liabilities, unlimited life, separate ownership and management, easy transfer of
ownership, easy to raise funds
Disadvantages - separate ownership and management, double taxation (income, dividends), initial and
ongoing fees, formal documentation
Business Process for Public Companies ✅Shareholders
Elect Board of Directors
Hire Management Team
Run the Company with the goal to maximize shareholder wealth > more demand for shares
