BUS 082 Lecture Notes - Lecture 2: Current Liability, Capital Structure, Working Capital

• School: College of The Sequoias
• Department: Business (BUS)
• Course: BUS 082
• Professor: Cordero

Document Summary

What (real) assets to buy (mainly long-term assets) Capital budgeting decision (the financial analysis decision) It is the most important decision: incorrect decisions are costly to reverse. How to determine the value of a long-term asset. Evaluate size, time and risk of cash flows. Select assets that create most shareholder wealth. Use of debt is called gearing or leverage. Essentially a combination of current assets and current liabilities. Definition of net working capital is current assets - current liabilities. Success or failure relies on the individual owner. Lasts as long as the owner is alive or sells. Equity component limited to sole trader"s wealth- tend to be undercapitalised. Similar to sole trader except several individuals. If one wants to leave, partnership ends. Limited liability for shareholders (only amount of money you can lose is what you invested/paid for the share price) Problems with size of firm and control.