FIN 3331 Lecture Notes
Ch. 1:
1. Career opportunities and fields of study in finance:
A. Corporate finance
B. Banking
C. Investments
D. International finance
E. Mathematical finance (primarily involved in forecasting, econometric modeling, etc.)
Note: In this course, we will be using the term shareholders frequently; shareholders are owners of the firm. If you buy 100 shares of stock in Microsoft Corporation, you are a co-owner of Microsoft Corporation. 2. Goal of the firm: Shareholder wealth maximization (making decisions that will maximize the value of the firm’s common stock over the long haul). Most stockholders care about one of the following two aspects of owning common stock and many care about a combination of the two:
A. Dividends
B. Growth potential (stock price appreciation)
3. Investors are more concerned about EPS than about total corporate profits since EPS represents their personal share of net income.
4. Sarbanes-Oxley Act: Pg. 5
Sarbanes-Oxley Act: A law passed by Congress that requires the CEO and CFO to certify that their firm’s financial statements are accurate.
If the firm is publicly owned, the CEO and the CFO must both certify to the Securities and Exchange Commission (SEC) that reports released to stockholders, and especially the annual report, are accurate. If inaccuracies later emerge, the CEO and the CFO could be fined or even jailed. This requirement was instituted in 2002 as a part of the Sarbanes-Oxley Act. The Act was passed by Congress in the wake of a series of corporate scandals involving now-defunct companies such as Enron and WorldCom, where investors, workers, and suppliers lost billions of dollars due to false information released by those companies.
5. The four forms of business organizations: Pg. 7-8
There are four main forms of business organizations: (1) sole proprietorships, (2) partnerships, (3) corporations, and (4) limited liability companies (LLCs) and limited liability partnerships (LLPs). In terms of numbers, most
1. Career opportunities and fields of study in finance:
A. Corporate finance
B. Banking
C. Investments
D. International finance
E. Mathematical finance (primarily involved in forecasting, econometric modeling, etc.)
Note: In this course, we will be using the term shareholders frequently; shareholders are owners of the firm. If you buy 100 shares of stock in Microsoft Corporation, you are a co-owner of Microsoft Corporation. 2. Goal of the firm: Shareholder wealth maximization (making decisions that will maximize the value of the firm’s common stock over the long haul). Most stockholders care about one of the following two aspects of owning common stock and many care about a combination of the two:
A. Dividends
B. Growth potential (stock price appreciation)
3. Investors are more concerned about EPS than about total corporate profits since EPS represents their personal share of net income.
4. Sarbanes-Oxley Act: Pg. 5
Sarbanes-Oxley Act: A law passed by Congress that requires the CEO and CFO to certify that their firm’s financial statements are accurate.
If the firm is publicly owned, the CEO and the CFO must both certify to the Securities and Exchange Commission (SEC) that reports released to stockholders, and especially the annual report, are accurate. If inaccuracies later emerge, the CEO and the CFO could be fined or even jailed. This requirement was instituted in 2002 as a part of the Sarbanes-Oxley Act. The Act was passed by Congress in the wake of a series of corporate scandals involving now-defunct companies such as Enron and WorldCom, where investors, workers, and suppliers lost billions of dollars due to false information released by those companies.
5. The four forms of business organizations: Pg. 7-8
There are four main forms of business organizations: (1) sole proprietorships, (2) partnerships, (3) corporations, and (4) limited liability companies (LLCs) and limited liability partnerships (LLPs). In terms of numbers, most