1. What is the capital market? How is the primary market different from the secondary market?

In your opinion, are these markets efficient? Why?

A capital market refers to a market used for long-term tradable assets (Titman, Keown, & Martin, 2011). In capital markets investors can place portions of wealth into long-term investments of other entities. To make these investments an investor transfers assets into securities such as stocks (Titman et al., 2011). The capital market is derived of a primary market and secondary market (Titman et al., 2011). A primary market is used for new securities that companies sell to finance their business (Titman et al., 2011). The secondary market differs by trading in only previously traded securities. Therefore the companies do not actually receive the money from these trades, as this market is simply the trading of company stock between other entities. The capital market is fairly efficient in terms that it separates the new securities of a company from previously issued securities. This gives investors an ability to invest in a company at the start and trade this ownership at a later date in a liquid manner. References Titman, S., Keown, A. J., & Martin, J. D. (2011). Financial management: Principles and applications (11th ed.). Upper Saddle River, NJ: Pearson/Prentice Hall.

2. What are three primary roles of the U.S. Securities and Exchange Commission (SEC)? How does the Sarbanes-Oxley Act of 2002 augment the SECs role in managing financial governance? Do you think businesses became more ethical after Sarbanes-Oxley was passed? Provide examples to support your answer. The three primary roles of the U.S. Securities and Exchange Commission (SEC) is to protect investors, ensure fair, organized, and efficient markets, and facilitate capital formation (U.S. Securities and Exchange Commission, 2013). The Sarbanes-Oxley Act of 2002 (SOX) helps the SEC by providing more governance of the financial records companys keep and places more responsibility on the person over the corporation (Titman, Keown, Martin, 2011). SOX not only helps with placing responsibility on the person, it also helps to place specific regulations for accounting, bookkeeping, and even employment of advisors or contract employees (107th Congress, 2002). Ethics are not something that a law can create. SOX can only help enforce a set of rules that facilitate ethical behavior in very specific circumstance. The auditing performed in accordance with SOX has put more emphasis on accurate reporting even from the bottom managers up. From experience in performing regular financial reports and drills ensuring that all capital and expense budgets reflect accurately and the new standards with issuing, receiving, and closing out of purchase orders it is obvious that things have changed in business. References 107 Congress (2002). Sarbanes-Oxley Act of 2002. Retrieved from http://www.sec.gov/about/laws/soa2002.pdf.
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Titman, S., Keown, A. J., & Martin, J. D. (2011). Financial management: Principles and applications (11th ed.). Upper Saddle River, NJ: Pearson/Prentice Hall. U.S. Securities and Exchange Commission (2013). About the SEC. Retrieved from http://www.sec.gov/about/whatwedo.shtml. 3. What ratios measure a corporations liquidity? What are some problems associated with using such ratios? How would the DuPont analysis overcome these problems? One ratio to measure a corporations liquidity is the Current Ratio. Current Ratio is found by dividing the Current Assets by the Current Liabilities (Titman, Keown, & Martin, 2011). A higher ratio indicates a corporations assets are more liquid. This of course is only as useful as the corporations ability to turnover accounts receivable and maintains cash flow appropriately. The Acid-Test Ratio is helpful when a corporations inventory is not easily sold quickly (Titman et al., 2011). The Acid-Test Ration excludes a corporations inventory from the Current Assets then divides those by the Current Liabilities. By removing the inventory this ratio gives a more accurate value for quick liquidity. It will be lower than that of the Current Ratio, but a more realistic possibility in the short run. The problem with both Current and Acid-Test Ratios is they do not take into account any uncollectible accounts or outmoded inventory. To help with this downfall of these two ratios one can find the Average Collection Period (Accounts Receivable / Daily Credit Sales) (Titman et al., 2011). These and many other ratios are tools to be used in conjunction with one another to get a stronger and more accurate feel for the corporations liquidity. This helps make better decisions about investing and can help the corporation find areas of weakness that need attention. The DuPont method takes these ratios a step further by delving deeper into the equity equation (Titman et al., 2011). DuPont find the Return on Equity by multiplying three different aspects of the corporations financial status into a percentage. Using the Net Profit Margin, Total Asset Turnover, and Financial Leverage the DuPont analysis brings what the other ratios are lacking into one equation. References Titman, S., Keown, A. J., & Martin, J. D. (2011). Financial management: Principles and applications (11th ed.). Upper Saddle River, NJ: Pearson/Prentice Hall.