Company Terms and Definitions

1. CEO- Operating head of the company. COO- Deeply involved with operational aspects like marketing and manufacturing. CFO- In charge of budgeting and reporting. Board of Directors- Answers directly to the owners, hires and fires executives.

2. Sole proprietorship- B: easy to set up; low taxes (personal rate); low regulation; D: Personal liability; low access to capital; limited lifespan; Partnership- B: easy to set up; low tax (personal rate); low regulation; D: Personal liability; low access to capital; limited lifespan; C-Corp- B: Access to equity capital; limited liability; unlimited lifespan; D: Double taxation; complex setup and maintenance; high regulation.

3. LLP/LLC- LLPs often used for white collar organizations like law and accounting firms while LLCs are more generic. The major disadvantage of this structure, it does not have access to equity capital like a corporation. S-Corp- A specially designated form of corporation that is treated as a proprietorship. An S-Corp can sell stock and get funding through the equity market, a maximum of 100 shareholders.

4. Market Value- The price at which an asset would trade in a competitive auction setting. MP- The price of the stock in the market at any given time. IV- the actual value of a company or an asset based on an underlying perception of its true value including all aspects of business. IP- Fair price of the company in terms of assets, going concern value.

5. Misalign- The owners of a company must make sure those goals Align with the success of the company: Compensation must be arranged so its success is tied to the manager’s success. Managers must know that shareholders have ability to fire them if they don’t perform and be aware of the threat of a company take over that puts them out of a job.

6. Shareholders were individuals who did not have a strong voice in the company. Boards of directors were largely left to their own devices, and so were managers. Stakeholders play a role in the company beyond the stockholders. 1)Employees tie their future to the employer and develop a relationship. 2)Customers want to find a vendor that will be in business long enough to fulfill their warranty. 3)Community, tax dollars pay for roads and bridges that let companies do business.

7. Employees can be caught in difficult situations when it comes to ethics. If a company orders an employee to do something unethical, he may have to make the choice between ethics and job. Government has acted to protect employees who come clean about unethical behavior, the Whistleblowing.

1. Investment Bank- Helps companies raise capital. Commercial - Provides savings and loan, and other retail and institutional services to customers. Credit Union- Provides only savings and loans to a specific group of people. Pension Fund- Provides retirement annuities to employees of a given company. Life Insurance Company- Collects premiums from savers and provides death benefits. Mutual/ Hedge/ Exchange Traded Fund- Accepts funds from savers and invests in public financial markets. Private Equity/ Venture Capital- Accepts funds from savers and places private investments with counterparties.

2. Mutual Fund- Fund pen to all investors and markets to retail investors. It excludes exotic instruments like derivatives, or use risky strategies like short selling. Hedge Fund- Only open to certain accredited investors, who have wealth or income above a certain level, can use all sorts of investments and strategies that mutual funds can’t.

3. Active Fund- A mutual or hedge fund hires a portfolio manager and analysts to find securities that they believe will perform better than the broader market. Passive- A fund holds a group of securities designed to match the benchmark, earning the same return.

4. Exchange- An institution that provides a forum for buyers and sellers of financial instruments to meet and carry out their transactions. Eg. Physical Based Exchange. Over-The-Counter Market- A network of investors who match buy and sell orders with each other. The institution is facilitated by dealers who find and pair buyers and sellers for a fee in the form of a slightly higher asking price and a slightly lower offer price. Eg. NASDAQ.

5. Primary markets are markets in which corporations raise new capital. Secondary m are markets in which existing, outstanding securities are traded among investors.

6. EMH Hypothesis states all stocks are valued at exactly the right price. All changes that occur in the price of any stock are the result of new information that is constantly flowing through the market. The new information prompts investors to precisely and immediately rebalance the price of asset to match the new, carefully considered intrinsic value. Why not true? 1) Investors are incapable of making returns beyond that of the overall market. 2) All fees charged by active managers go to waste. 3) We are much better off investing passively, holding an investment that mimics the performance of the entire market.

1. B/S- The B/S sheet is based on the fact Assets= Liabilities+ Ss’ equity. Current a- Any assets that are fungible or can be liquidated within one year. Long lived a- Hard assets and intangibles. Current l- Accounts due within a year. Non-current l- Bank loans and other debt. NW Capital= Current assets- current liabilities. Net Debt= Short-term debt+ long-term debt-Cash. Retained e- Plug for gains and losses of value.

2. I/S-Gross M= Sales-COGS. EBITDA= Sales- Operating Costs+ Depreciation+ Amortization. Operating Expenses=wages, depreciation, supplies, rent. Non-operating items. Dividends.