Cheat Sheet Finance

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* Sole proprietorships and partnership are subject to less regulations, easy and less expensive, no corporate inc tax. * Corporation easy to raise capital, transfer of ownership,limited liability ,unlimited life. * The conflicts between bondholders and stockholders can be reduced with the use of restrictive bond covenants. * Stockholders are more likely to prefer riskier projects, because they receive more of the upside if the project succeeds. * By contrast, bondholders receiving fixed payments are more interested in limiting risk. * Bondholders are particularly concerned about the use of additional debt * Bondholders attempt to protect themselves by including covenants in bond agreements that limit the use of additional debt and constrain manager. * new shares of stock are being issued, this is a primary market transaction. * no new shares are created, this is a secondary market transaction * An initial public offering (IPO) is where a company issues stock in the public market for 
the first time. Its primary market. * Highly Inefficient:Small companies not followed by many analysts. Not much contact with investors. * Highly Efficient:large companies followed by many analysts. Good communications with investors. * Hedge funds have traditionally been unregulated.

* derivatives can be used either to reduce risks or to speculate. * a larger bid-ask spread means the dealer will realize a higher profit. * Compensating managers with stock options can help reduce conflicts of interest between stockholders and managers, but if the options are all exercisable on a specific date in the near future, this can motivate managers to deceive stockholders. * A stock is considered overvalued if its intrinsic value is smaller than its market value. * The income statement shows us the firm’s financial situation over a period of time. * Last year, Blanda Brothers had positive cash flow...
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