Applied FinanceApplied FinanceApplied FinanceApplied Finance

Final Exam ReviewFinal Exam Review

Taxonomy• What is a taxonomy?

Business Lifecycle• Brainstorm steps:

– Startup– Growth– Maturity– Decline– Cessation

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.

Ways to raise capital• Loan from bank

• Private investors• Venture Capital Firms

• Stocks

• Bonds

• Sell equipment or property• Liquidation

Types of Business• What are they?

• Sole Proprietorship• Partnership• Corporation• Limited Liability Company

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

Disadvantages:• The owner is personally

responsible for all actions of the business

• The owner is personally liable for all business debts

Sole proprietorship

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

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

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

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

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

LLC

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

General partnership

Advantages:• Simple and inexpensive to

create and operate• All profits are taxed as personal

income to the partners

LLC

Disadvantages:• Governed by complex laws• The owners normally can’t be

employees• When a partner dies, the

business entity is dissolved

Corporation

Characteristics:• Can hire

employees, which may include the owners

Lesson 3 – Product or Service Development

Cycle• See poster…

Lesson 3 – Product or Service Development

Cycle• See poster…

Which is more expensive?

• Shipping inputs and products a long distance or

• Obtaining goods and services locally?

Which is more expensive?

• Shipping inputs and products a long distance or

• Obtaining goods and services locally?

Profit Margin• How is it calculated?

• Profit divided by revenue

What is a monetary guarantee that a financial obligation will be fulfilled?

a) Surety Bond

b) Worker’s Compensation

c) Speculative Risk

d) Product liability insurance

What insurance protects a company from lawsuits if someone is injured by the

company’s products?

a) Surety Bond

b) Speculative Risk

c) Worker’s Compensation

d) Product liability insurance

What is a situation where there is a chance of either

loss or no loss, but not chance of gain?

a) Surety Bond

b) Pure risk

c) Risk Mitigation

d) Insurance premium

Fact

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

What insurance protects a business from lawsuits

a) Risk mitigation

b) Theft insurance

c) General liability insurance

d) Quality assurance

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.

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.

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.

Lesson 6: Financial Record-keeping and Analysis

What is a measure of a company’s

earnings before income and

taxes?

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?

Lesson 6: Financial Record-keeping and Analysis

What is a document describing a

company’s incoming and

outgoing money?

Lesson 6: Financial Record-keeping and Analysis

What is another word for net

income?

Lesson 6: Financial Record-keeping and Analysis

What is another word for net

income?

Lesson 7: Financial Strategies

How do you make a personal

budget? What are the steps?1.Track money coming in2.Track money going out (spent)3.Find the balance. Are you making

more than you’re spending, or vice versa?

4.Set budget5.Review regularly

Lesson 7: Financial Strategies

How do you make a personal

budget? What are the steps?1.Track money coming in2.Track money going out (spent)3.Find the balance. Are you making

more than you’re spending, or vice versa?

4.Set budget5.Review regularly

Lesson 7: Financial Strategies

Which analysis involves tracking moving averages

and looking for trends & cyclical variations?

Lesson 7: Financial Strategies

Which analysis assesses opinions through

consumer panels, focus groups and in-house

judgements?

Lesson 7: Financial Strategies

What is extrapolation?