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Applied Finance

Applied Finance. Final Exam Review. Price/Earnings Ratio. How do you calculate it?. Answer: Click Here. Business Lifecycle. Brainstorm steps:. Startup Growth Maturity Decline Cessation. Capital. What is it?.

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Applied Finance

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  1. Applied Finance Final Exam Review

  2. Price/Earnings Ratio • How do you calculate it? Answer: Click Here

  3. Business Lifecycle • Brainstorm steps: • Startup • Growth • Maturity • Decline • Cessation

  4. Capital • What is it? • Any form of wealth that can be used to create more wealth, such as cash, which can be invested to generate more income.

  5. Ways to raise capital • Loan from bank • Private investors • Venture Capital Firms • Stocks • Bonds • Sell equipment or property • Liquidation

  6. Types of Business • What are they? • Sole Proprietorship • Partnership • Corporation • Limited Liability Company

  7. Corporation Disadvantages: • Legally complex to start and operate • One of the two most regulated business forms • Profits are taxed twice - once as corporation income, and again as investor income

  8. Sole proprietorship Disadvantages: • The owner is personally responsible for all actions of the business • The owner is personally liable for all business debts

  9. General partnership Disadvantages: • All partners are responsible for any actions taken in the name of the business by all other partners • All business debts are the personal responsibility of the partners

  10. Sole proprietorship Advantages: • Simple and inexpensive to create and operate • Least regulated of all business forms • All profits are reported on the owner’s personal income tax return

  11. Limited liability company (LLC) Characteristics: Treated as an individual for purposes of ownership and legal standing, but it is not taxed at the higher corporate rates

  12. Corporation Characteristics: • In the eyes of the law, is treated like an individual: • It can own property • It can be sued • It must file a tax return

  13. Corporation Advantages: • Owners are not responsible for the actions taken by the business • Debts are not the responsibility of the owners (limited liability) • The business can sell shares (stock) in the business to the public in order to raise capital

  14. LLC • Can choose to be taxed as the property of the owners (like a partnership) or an individual (like a corporation)

  15. General partnership Advantages: • Simple and inexpensive to create and operate • All profits are taxed as personal income to the partners

  16. LLC Disadvantages: • Governed by complex laws • The owners normally can’t be employees • When a partner dies, the business entity is dissolved

  17. Corporation Characteristics: • Can hire employees, which may include the owners

  18. Lesson 3 – Product or Service Development Cycle • See poster…

  19. Lesson 3 – Product or Service Development Cycle • See this game: • http://www.quia.com/rd/283618.html

  20. Which is more expensive? • Shipping inputs and products a long distance or • Obtaining goods and services locally?

  21. Which is more expensive? • Shipping inputs and products a long distance or • Obtaining goods and services locally?

  22. Profit Margin • How is it calculated? • Profit divided by revenue

  23. What is a monetary guarantee that a financial obligation will be fulfilled? • Surety Bond • Worker’s Compensation • Speculative Risk • Product liability insurance

  24. What insurance protects a company from lawsuits if someone is injured by the company’s products? • Surety Bond • Speculative Risk • Worker’s Compensation • Product liability insurance

  25. What is a situation where there is a chance of either loss or no loss, but no chance of gain? • Surety Bond • Pure risk • Risk Mitigation • Insurance premium

  26. Fact • Only pure risks are insurable; otherwise insurance is akin to gambling.

  27. What insurance protects a business from lawsuits • Risk mitigation • Theft insurance • General liability insurance • Quality assurance

  28. What insurance protects a company in the event that an employee is seriously injured on the job? Worker’s compensation insurance This insurance is required in most states.

  29. Lesson 6: Financial Record-keeping and Analysis Which document is sent to shareholders at the end of every year? These are required by the SEC for corporations. Annual Report

  30. Lesson 6: Financial Record-keeping and Analysis What is a measure of a company’s earnings before income and taxes? EBIT

  31. Lesson 6: Financial Record-keeping and Analysis Which financial statement is a summary of a firm’s assets, liabilities, and owner’s equity on a certain date? Balance Sheet!

  32. Lesson 6: Financial Record-keeping and Analysis What is a document describing a company’s incoming and outgoing money? Cash Flow Statement

  33. Lesson 6: Financial Record-keeping and Analysis What is another word for net income? $Profit$

  34. Lesson 6: Financial Record-keeping and Analysis What is another word for net income? $Profit$

  35. Lesson 7: Financial Strategies How do you make a personal budget? What are the steps? • Track money coming in • Track money going out (spent) • Find the balance. Are you making more than you’re spending, or vice versa? • Set budget • Review regularly

  36. Lesson 7: Financial Strategies Which analysis involves tracking moving averages and looking for trends & cyclical variations? Quantitative Qualitative

  37. Lesson 7: Financial Strategies Which analysis assesses opinions through consumer panels, focus groups and in-house judgements? Quantitative Qualitative

  38. Lesson 7: Financial Strategies What is extrapolation? Using current and/or historical data to estimate or forecast the future.

  39. Lesson 8: Business Financing Options In the term “SBA Guaranteed Loan,” what does SBA stand for? Small Business Administration

  40. Lesson 8: Business Financing Options What organization should you go to to obtain a 504 loan? Small Business Administration

  41. Lesson 8: Business Financing Options What does a CDFI stand for? Community Development Financial Institution

  42. Lesson 9: The Stock Market Which is a rising stock market? Bear Market Bull Market

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