Financial Markets Case

Questions for Finance

1. What is the fundamental reason for the existence of financial markets?

1. Who are the main players in the financial markets?

1. Who might be interested in reading financial reports and what do they want to know?

1. Because of the separation of ownership and control at the time of going public, what might be the concerns of the users of the financial reports?

1. How can such concerns be mitigated? What might happen if such concerns were not reduced but escalated?

1. In order to provide reliable information to the investors, should the financial reports be prepared focusing on historical perspective or future?

1. After the reading the case, do you think you can judge a company’s relative performance based on their own financial ratios?

1. How do you define peers/competitors, given nowadays it is common that firms are active in various business segments?

1. What should be the ultimate financial goal of the managers of a public firm?

10.  Is profitability maximization the same as value maximization? What are the main

 financial statements and what is the main purpose of each?

11.        What financial information would you care about most if you were a lender of a firm?

12.        What financial information would you care about most if you were a shareholder of a

firm?

13.        Should there be any difference in the focus of interests between these two types of

investors.  Why or why not?

14.        Would you prefer to be a lender or a shareholder of a company? Why?

15.        Do firms prefer loans or equity in financing their projects? Why?

16.        Will the source of financing impact the outcome of the projects?

17.        The economy in the future may be good or bad, which will impact the outcome of the

project significantly. In the case of a “bad” scenario, who gets paid first, the lender or the

shareholder?

18.        As a shareholder of a firm, will you require the same rate of return as the lenders at the time of the investment?

19. If lenders always get paid before shareholders, regardless of the economic scenarios, why do

      shareholders (owners) still want to borrow?