fina 411 class notes

Topics: Inflation, Monetary policy, Unemployment Pages: 4 (676 words) Published: October 18, 2014
FINA 410

Revenue – Total Cost = Earnings
in firm

We analyze a firm in a certain order
1) Global Economy
2) Local Economy
3) Industry
4) The Firm
Earnings are (rev – costs)
Expenses: variable(depend on production) + fixed costs(incurred, pay them once) Operating Costs
Non-Operation Costs
Earnings depend on factors that:
Firm Specific
Management decisions (Apple pricing decisions)
Corporate culture (Banks take excessive risks)
Labor productivity
Industry Specific
Competition (Low profit margins for a competitive industry)
Input costs
Regulations (Government interference in a sector of an industry, preventing banks in the amount of loans or trading) Domestic Economy
Local demand
Local supply of inputs
Domestic rates
Global Economy
Global supply of inputs
Global demand
International competition
Foreign exchange
Domestic Macroeconomy
GDP: market value of goods and services produced over a period of time Unemployment rate: ratio of number of unemployed to total labor force Inflation: rate at which general level of prices for goods and services is rising If inflation rate is high, banks will raise interests rates, which makes it more expensive to lend, it will be much more expensive for companies to borrow from banks (to pay salaries) Interest rates: high interest rates reduce present value of future cash flows Fiscal policy (budget deficit): government spending in excess of government revenues. Sentiment: consumer optimism/ pessimism are determinates of economic performance. **Recap**

Buying a stock enables access to a firm’s earnings
These earnings are affected by the global economy & domestic economy For most countries, the global economy affects the domestic economy For the USA, the US economy affects the global economy.
Commercial airplanes
Airbus (EADS)
Factors that may affect the commercial airplane industry
Price of metals
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