Preferred vs Common stock
preferred stock- voting rights, receive payout first, guaranteed dividends
Seasoned Equity offering
Check on auditors
have protocol for IPO's (prospectus report)
List sources of financing
List 4 basic financial statements
Statement of Retained Earnings
Statement of Cash Flows
The processes that information flows between the financial statements.
Income statement> Retained earnings> Balance Sheet
International financial reporting standards
US trying to move towards in 2014
objectives of internal control
Policy of company
Records that are accurate
List components of internal control
Environment- overall mood from top level
Control procedures- policies in place
monitor controls- auditing
Internal Control Procedures
Internal control circumvention
collusion- two people working together
costs of IC vs benefits
peachtree internal control
Sarbannes Oxley List major provision
external auditors check on internal auditors
Outside auditor- can't do business with company
Monitor auditors- Public company accounting oversight board
Penalties- 25yrs securities fraud, 20 yrs false exec statements
Purpose of Trial balance
make sure stuff adds up mathematically
4 Reasons for business success
4 Reasons for business failure
Internal control lacking
(face value x coupon rate )/ payments per year
Objectives of a business
customer satisfaction and
introduce/offer a product or service
major function areas of a business
Finance and accounts,
reseach and development,
administration/IT support and
Employees, managers, owners.
suppliers, society, government, creditors, shareholders, customers.
General partnership pro/con
PRO: easier to borrow money b/c two is more trusting than 1
CON:unlimited liability, lack of continuity, limited capital, need collateral for loans.
Limited liability partnership (LLP) pro/con
for professionals who do business as a partnership frequently.
PRO: partner liability limited to the extent of own wrongful act and supervision of party who committed the act. TAXES
CON: statutes vary state by state
Limited liability corporation (LLC) PRO/CON
PRO: liability is capped to your investment. Flexibility to be taxed as a corp or a partnership.
CON: state LLC statutes not uniform. LAck of case law due to the newness of organization form.
why do businesses need money
-sustain entrepreneurs salaries and benefits.
equity pro/con & private/public
sells company ownership
pro: gets the cash needed and may also bring in the investors expertise, shared risk
con: may give up too much control to investors, difficult and time consuming.
Private equity: company is required to discole info to investors.
public equity_ selling shares to he public
Debt pro/con & private/public
Pro: dosent give up control of company, and interest paid on loan reduces taxable income.
Con: have to repay by specific date, higher risk. more difficult to get. missed payment may cause backruptcy, higher risk rate = higher interest rate. asset backed loans.
Private: loans, term loan, revolving line of credit and asset backed.
private and public equity
public: company sells share to anyone willing to buy. Common stock is for residual owners and last to get paid in financial distress.
private: angel investors, venture capitalists, institutional investors, other corporations
Seasoned Equity offering (SEO)
any other sale of stock to the public after an IPO.
Primary market and secondary market
Primary: comes from $ from IPO and SEO only time its primary. (market in which new stocks and bonds are bought and sold by firms and governments)
secondary: money goes from buyer of stock to seller of stock, nothing goes to company (Market in which existing (not new) stocks and bonds are sold to the public)
looks at change for each account from one year to the nect
all accounts on income statement are a % of total sales and all accounts on the balance sheet are a % of total assets
current assets/ current liabilities
total liabilities/ total equity
independent external auditors vs. managment responsibilites
independent external auditors look over everything to make sure its all in compliance with GAAP. Managment makes sure they have reviewed everything they send it for accuracy.
Accountant unqualified opinion
statement said "in our opinion the financial statements give a true and fair view" ideally what should happen
Accountant qualified opinion
auditor disagrees with the information given
Accountant adverse opinion
If there is a material difference between the financial statements as reported by a company and the auditor's opinion of what the accounts should show
Accountant disclaimer of opinion
not enough facts to make judgement
Determining cost of goods sold
Specific ID: when we know the exact units
FIFO- first in first out, assumes first goods purchased are first goods sold
LIFO- last in first out, assumes the most frequently purchased goods are sold first
Average costing- uses an average of costs of all items
the fraud triangle
incentive/pressure: what the employee gets out of the fraud
opportunity: is the chance or circumstances that allow an employee to commit fraud
attitude: specific attitude or character traits of an employee commiting fraud. also the employees ethical values
Dividend Discount Model
Dividend constant/ rate
Classified Balance Sheet
Current Assets/ Liabilities
things that will be converted to cash, sold, or used within the operating cycle
time between: inputs and outputs