Career Opportunities in the Nonprofit Sector - Essay Example

FINANCE Table of Contents Question 6 Answer: 6 Question 2: 6 Answer: 6 Question 3: 7 Answer: 7 Question 4: 7 Answer: 7 Question 5: 7 Answer: 8 Question 6: 8 Answer: 8 Question 7: 8 Answer: 9 Question 8: 9 Answer: 9 Question 9: 9 Answer: 10 Question 10: 10 Answer: 10 Question 11: 10 Answer: 11 Question 12: 11 Answer: 11 Question 13: 12 Answer: 12 Question 14: 12 Answer: 12 Question 15: 13 Answer: 13 Question 16: 13 Answer: 13 Question 17: 14 Answer: 14 Question 18: 14 Answer: 14 Question 19: 15 Answer: 15 Question 20: 15 Answer: 15 Question 21: 16 Answer: 16 Question 22: 16 Answer: 16 Question 23: 17 Answer: 17 Question 24: 17 Answer: 17 Question 25: 17 Answer: 17 Question 26: 18 Answer: 18 References 18 Question 1: How the goal of maximizing shareholder wealth typically is measured in the marketplace? Answer: The primary objective of any firm is to maximize the wealth generated by the firm. Shareholders are considered to be the owner of the firms. Hence maximizing the wealth generated by a firm actually maximizes the wealth of the shareholders of the firm. The expected returns that a firm is going to generate in future when valued in the present value terms represents the wealth of the shareholders of the firm. Typically, in a marketplace, the market value or price of the common stocks of the company represents the wealth of the shareholders (Moyer 6). Question 2: What is the primary role that a publically traded corporation should pursue and why? Answer: A publicly traded company can be defined as those companies which are involved in selling its various securities like stocks, bonds, etc to the public in general. The primary role of a publicly traded company should be to work for the interest of the public and disclose information about all its company affairs to the public. It is so because all the investors and public in general would have access to same, meaningful and relevant information about the company, which would facilitate them in their decision making process. Question 3: One of the responsibilities of the CFO is a fiduciary responsibility. What does that mean? Answer: Fiduciary responsibility of the CFO or Chief Financial Officer of a company means that the CFO has the responsibility of ensuring that the company is able to achieve its missions through the money generated by the firm. The CFO of a company also ensures that the vision of the company set by the executive directors is feasible and it does not result in the bankruptcy of the company (Burns 7). The fiduciary responsibility of CFO also includes that he should work for the interest of the company and its owners. Question 4: What is the role of exchanges within the financial markets or within the futures markets? Answer: Different types of exchanges operate within the financial and futures markets like, stock exchange, foreign exchange, etc. All these exchanges plays a vital role in the financial markets by regulating, assisting and controlling the business procedures involving selling, buying and dealing with securities like stocks and derivative instruments in the market. Its primary objective is to facilitate an efficient, attractive and well regulated market for the investors, companies, and intermediaries like stock brokers. Question 5: What are financial markets and what is their purpose in our economy? Answer: In a broader sense financial markets are the places where different sellers and buyers take part in the trading of various financial instruments like stocks, bonds, derivatives, currencies, etc. Financial markets are characterized by having a pricing system which is transparent in nature, having trading regulations, including various transaction costs and are driven by market forces that help in the determination of the prices of the traded assets. In our economy financial markets facilitates transactions of different assets globally, thereby affecting the demand and supply of those assets in the economy. Question 6: How do job prospects in the finance area look over the next ten years? Answer: In finance area there are basically two types of career paths available. One is in the field of managerial finance and the other is in the field of financial services industry. Job opportunities are expected to rise at a steady growth in the upcoming ten years or so. However, the competition is expected to be tough because of the increase in job applicants at a greater pace than the rise in job openings in the finance area. Question 7: What are the two key steps you need to take in order to prepare yourself for a career in finance? Answer: Finance is a more specialized area compared to others. Hence in order to prepare myself for having a prospective career in finance the first step would be to acquire adequate knowledge about the subject and keep myself up-to-date with all the recent developments in finance area. Next key step would be to develop analytical and mathematical skills which are of prime importance to develop sustainable and prospective career finance. Question 8: Go out to financeyahoo.com and pull a company of your choice’s income statement and Balance sheet on an annual basis and tell us if the company is profitable or not. Here is a sample link (for JP Morgan Chase): http://finance.yahoo.com/q/is?s=JPM+Incom Answer: If we look at the income statements of JP Morgan Chase for the past three years, it can be found that the net income figures of the company have been on the rising note. Moreover the balance sheet figures show that the liquidity position of the company is good. There has been a decline in the amount of long term liabilities of the company for the past three years. The shareholders equity amounts have been rising. All these figures suggest that JP Morgan Chase is a profitable company. Question 9: Which of the Financial Statements is most useful to a company, household and why? Answer: The financial statements of a company help to keep a record of the financial activities performed by the company. Four basic types of financial statements include: a) Income statement, b) Cash flow statement, c) Balance sheet and d) Statement for recording the changes in the shareholders equity. For a company the most useful financial statement is its income statement which shows the net profit figures that helps in attracting investors to the company. For a household the most important financial statements would be the cash flow statement which would enable people to know about the cash earned by the company. Question 10: Let’s talk about the current financial climate in Greece. Answer: Deficit spending in excess and the total debt of Greece going beyond its GDP are the two main reasons that led to Greek financial crisis of 2010. Greece defaulted in sovereign debt because of almost nil economic growth and degradation of credit rating of Greece. Greece was helped by the EU and IMF to provide them with loans that could rescue the situation. This can be a short term solution to the problem but the obligations of long term debt will still persist or may even get worse. Question 11: What are currency futures and how do they insulate a company from floating exchange rates? Answer: Currency futures can be defined as a futures contract between two parties where one type of currency is exchanged with another in some future date which is fixed at the time of purchasing the contract. The price or the exchange rate for the currencies is also fixed at the time of purchasing the contract. Hedging of the risk in volatility of future foreign exchange rates can be done through currency futures contract. It is so because the future foreign exchange rate is already fixed beforehand at the time of signing the contract and the company is no more exposed to the risk of any changes in the foreign exchange rate in future. Question 12: Tell us what stock you would pick and why. Answer: The selection criteria for choosing a stock would depend on various factors. First of all the historical stock prices of a particular company will give an idea about the performance of the stocks in the past. Next, it is important to look at the profitability of the company which would give an idea about the how the company and its stocks would perform in future. Stocks generating high returns are associated with risks involved in it. Hence the risk taking ability would also help in deciding which stock to choose. Question 13: What are the key differences between using bonds to finance capital projects and issuing stock for that purpose? Answer: Both stocks and bonds can be used to finance a project. Issuing a stock would mean the shareholders would have ownership stake on the company. Bond holders are not the owners but the lenders of the company. Moreover, borrowing money through the issue of bonds would mean company would have the liability to repay the borrowed amount to the bondholder in future along with periodical interest payments. Issue of shares does not create such liability for the company. Question 14: How do bonds provide financing to corporations for their capital projects? Answer: Bonds are issued by any corporation when there is the requirement of raising capital to finance the capital required to incur future estimated costs of the projects. While issuing bonds to finance projects the corporation has the advantage of not issuing any additional shares that would develop ownership interest. Moreover bonds provide additional tax advantage for the corporation. When significant amount of assets of the corporation are used as collateral against the issuance of bonds, it becomes attractive for the creditors to invest. Question 15: What is diversification and what is its value for investors portfolios? Answer: Diversification of any portfolio of assets means risks are reduced because of the inclusion of different types of assets in the portfolio. It creates value for the investors by providing steady return for them because the returns associated with all the assets in the portfolio would not increase or decrease at the same time. Hence, the risk of losing money from investment would be reduced greatly because of diversification. Question 16: How can you compare "tulip mania" from 17th century Holland to the dot.com debacle of the 20th century from a financial point of view? Answer: Starting from the “tulip mania” in 17th century to the dot.com debacle in 20th century are all examples of major financial crises that had an adverse effect in the world economy. Both of these events are instances of speculative bubbles that got burst which created a panic situation all around the world. The prices of stocks and other assets fell down considerably. These bubbles are created mainly because of speculations about the prices of the concerned assets in future and when large number of people sells those assets at the same time, then these bubbles burst and the prices fall down drastically. Question 17: What are an IPO and what steps are taken in order to get the IPO ready for public offering? Answer: IPO or Initial Public Offering can be defined as a process undertaken by a private company when it tries to raise capital by issuing shares to the public for the first time. The following steps are taken in order to get IPO ready for public offering: The company should have its audited financial statements for the last three years ready with them. Next it is required to choose an investment banker who would help the company in managing the IPO procedures. The company needs to ensure that it is well established, financially sound and are ready to comply with all the stringent regulatory requirements related to IPO. Question 18: What is the meaning of the term “going public?” Why would a company want to “go public?” Answer: A private company going for IPO is generally termed as “going public”. It implies a private company has decided to issue its shares to the public for the first time. The primary objective of any private company to “go public” would be to raise capital required for various business operations carried out by the company and to finance the capital projects of the company. It also serves as the indication that the private company has been successful in establishing its business in the market and is performing well. Question 19: What is the importance of Credit Ratings? Answer: Credit rating can be defined as an assessment procedure of a business entity, government organizations, countries or even an individual. Credit worthiness of the entities who are engaged in issuing debt is evaluated through credit rating. A particular credit agency provides credit rating of different entities which measures its possibility of defaulting while issuing debt. Credit rating is of prime importance for the investors or creditors who wish to lend money to any business entity and are unable to collect all relevant information about the business entity before investing in it. They use credit rating as its decision making tool for investment. Question 20: What is the purpose of capital budgeting in a business firm and how is it used? Answer: The main purpose of capital budgeting done by business firms is to help in the decision making process of accepting an investment project or not. These investment projects are normally long-term in nature. Business firms use different type of capital budgeting techniques like NPV analysis, IRR methods, etc. for investment appraisal. Capital budgeting also helps a business concern to plan for its future investments in a project in order to generate returns from it. Question 21: What is a derivative security? Why does an investor trade in derivative securities? Answer: A derivative security can be defined as a financial instrument whose price is derived from some underlying assets like stocks, commodities, currencies. Derivatives are actually a contract between parties to sell or buy any underlying asset. It is utilized by investors either to hedge from fluctuations in prices of the underlying assets, or to make profit by speculating about the prices of the assets in future or to make arbitrage profit by making use of price differences in different assets. Question 22: Explain the two ways, according to the traditional methods that companies use to evaluate their performance. Answer: Two traditional methods utilized by companies to evaluate its performance are ratio analysis and Capital Asset Pricing Model (CAPM). Ratio analysis makes use of the analysis of the various financial statements prepared by the company. The ratios include profitability ratios, solvency ratios and liquidity ratios. CAPM helps to take into account systematic risks associated with the securities of the firm. Hence the firms are able to take note of the risks associated with its various investment projects. Question 23: What is the most useful thing you have learned in class? Why was it useful to you? Answer: The most useful thing that I have learned in class is the importance of team work. Working in groups helps to generate more new ideas. It helped me to take many important decisions in my life because with more options available it is easier to make the most efficient decision related to any matter like deciding on where to invest money to generate more returns. Question 24: What is the difference between a friendly merger and a hostile takeover? Answer: Mergers of different companies are normally characterized with having friendly nature because mergers take place only when two companies mutually agree to merge together for the betterment of both the companies. Takeovers are termed as hostile when a company forcefully acquires another company. The target company in a hostile takeover process may not intend to be taken over or bought by the other company still it is taken over by the company. Question 25: What are some often unintended effects of right sizing a company? Answer: Some of the unintended impacts of right sizing are: It may result in cultural shift because of the employees of the company starting to lose its trust on the company. It may even result in increase in costs associated with restructuring of the company which is not optimized. The services that are outsourced by the company as a result of the decision of right sizing the company may falter. The company may even fail to fulfill its initiatives because of right sizing. Question 26: We often hear the term “downsizing” in corporate finance. This term has a negative connotation since we have come to associate it with layoffs, lower wages, and other seemingly negative effects. What is the definition of “right sizing” and what are its effects? Answer: Right sizing of a company can be defined as the restructuring of the value proposition of a firm. Right sizing may include various initiatives taken by a company like the decision to outsource some of its services, decision to make some of the jobs automated, etc. Right sizing of a company in an effective way can have positive impacts on the company and can result in boosting the performance of a company. References Burns, Jennifer, B. Career Opportunities in the Nonprofit Sector. NY: Infobase Publishing, 2006. Print. Moyer, R. Charles. Contemporary Financial Management. 12th Ed. Connecticut: Cengage Learning, 2012. Print. Read More