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Key Concepts Finance

In: Business and Management

Submitted By skdn
Words 449
Pages 2
1. 2. 3. 4. 5. 6. 7. 8. 9.

Accounting Identity Time Value of Money Risk vs Reward Diversification Leverage Cash vs Accrual Cash & Free Cash Flow Sunk Costs Opportunity Costs

A. B. C. D. E. F. G. H. I. J. K.

Agency Conflicts Capital Structure Cost of Capital - WACC Market Efficiency Arbitrage – No Free Lunch NPV vs IRR Relevant Costs CAPM Hedging Inflation Taxes

Financing Growth and Expansion



1. Assets = Liabilities All resources are owed to someone: they belong to someone. 2. Assets = Owner’s equity + (Outsiders’) Liabilities We separate the liabilities because outsiders’ claims have to be settled first. Owner’s get the residual value. If assets increase (owing to operations), owners’ equity increases. If assets fall in value, owners’ equity falls.
3. Assets = Owner’s Equity + LT Liability + ST Liability We separate the liabilities to know what we have to pay for immediately, as opposed to that for which we are not pressed. We can keep on breaking it up till the cost of maintaining and presenting further bifurcations is more than the benefit.







4. Current Assets + Fixed Assets = Owners’ Equity + LT Liability + ST Liability
The detail of the assets shows which assets can be liquidated fairly fast (useful in order to pay off liabilities). No matter which side of the equation we take, it reflects the position (stock) at a point in time.

Financing Growth and Expansion



5. Current Assets + Fixed Assets = Owners’ Equity + LT Liability + ST Liability + Lease Obligations

Separating liabilities further into lease obligation


6. Current Assets + Fixed Assets = Owners’ Equity + Retained Earnings + LT Liability + ST Liability + Lease Obligations



7. Cash + ST Investments + Accts Rec + Inventory + Other Current Assets + Fixed Assets + Intangible Assets = Owners’ Equity + Retained Earnings + LT Liability + ST…...

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