Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
82 Cards in this Set
- Front
- Back
|
financial management
|
manage the finances of a firm. Analyze, forecast, and plan a firm's finances; assess risk; evaluate and select investments; decide where and when to find money sources, and how much money to raise; and determine how much money to return to investors in the business.
|
|
|
financial markets and institutions.
|
handle the flow of money in financial markets and institutions, and focus on the impact of interest rates on the flow of that money.
|
|
|
investments
|
locate, select, and manage money producing assets for individuals and groups.
|
|
|
chief financial officer
|
directs and controls the financial activities of a firm...supervises the treasurer and controller.
|
|
|
treasurer
|
generally is responsible for cash management, credit management, and financial planning activities.
|
|
|
controller
|
responsible for cost accounting, financial accounting, and information system activities.
|
|
|
agent
|
a person who has the implied or actual authority to act on behalf of another.
|
|
|
principals
|
the owners who the agents represent.
|
|
|
agency costs
|
the outlays of time and money.
|
|
|
stakeholders
|
people who have a stake in the business...nonmanager workers, creditors, suppliers, customers, and members of the community where the business is located.
|
|
|
securities
|
documents that represent the right to recieve funds in the future
|
|
|
bearer
|
person or persons that hold the securities.
|
|
|
3 types of financial intermediaries
|
investment bankers, brokers, and dealers.
|
|
|
investment banking firms
|
exist to help businesses and state and local governments sell their securities to the public.
|
|
|
underwriting
|
the process by which an investment banker purchases all the new securities from the issuing company and then resells them to the public.
|
|
|
best efforts basis
|
the investment banker will try their best to sell the securities at the desired price, but there are no guarantees.
|
|
|
brokers
|
agents who work on behalf of the investors.
|
|
|
dealers
|
make their living buying securities and reselling them to others.
|
|
|
primary market
|
when a security is created and traded for the first time in the financial market place.
|
|
|
the secondary market
|
where previously issued securities "used securities" are traded among investors.
|
|
|
money market
|
short-term securities are traded here and networks of dealers operate in this market. (treasury bills, negotiable certificates of deposit, commercial paper, and short-term debt instruments)
|
|
|
capital market
|
long-term securities are traded here. Federal, state, and local governments, as well as large corporations raise long term funds in the capital market. (bonds and stocks)
|
|
|
security exchanges
|
organizations that facilitate trading of stocks and bonds among investors
|
|
|
The Over the Counter Market (OTC)
|
has no fixed location (it is everywhere) (NASDAQ)
|
|
|
market efficiency
|
refers to the ease, speed, and cost of trading securities.
|
|
|
treasury bills
|
money market securities issued to finance the federal budget deficit and to refinance the billions of dollars of previously issued government securities that come due each week.
|
|
|
negotiable CD's
|
large denomination CD's($100,000 to $1 million or more) with maturities of two weeks to a year
|
|
|
commercial paper
|
a type of short-term promissory note--similar to IOU's. Issued by large corporations with strong credit ratings. Commercial paper is unsecured.
|
|
|
banker's acceptance
|
a short-term debt instrument where the bank accepts the responsibility to pay. Often used when firms are doing business internationally.
|
|
|
bonds
|
essentially IOU's that promise to pay their owner's a certain amount of money on some specified date in the future and in most cases interest payments at regular intervals until maturity.
|
|
|
face value
|
the amount that a bond promises to pay its owner at some date in the future. (face value, par value, or principal)
|
|
|
maturity date
|
the date at which the issuer is obligated to pay the bondholder the bond's face value.
|
|
|
coupon interest
|
interest payments made to the bond owner during the life of the bond.
|
|
|
zero coupon bonds
|
bonds that don't pay any interest at all.
|
|
|
municipal bonds
|
bonds issued by state and local governments.
|
|
|
liquidity risk premium
|
extra compensation that lenders demand to compensate for the lack of liquidity.
|
|
|
default risk premium
|
extra compensation that lenders demand for assuming the risk of default (not being paid on time)
|
|
|
risk premiums
|
compensates lenders for taking risks (default risk, illiquidity risk, and maturity risk)
|
|
|
inflation premium
|
compensates lenders for the anticipation of inflation.
|
|
|
maturity risk premium
|
the up and down adjustments that lenders make to their current interest rates to compensate for the uncertainty about future changes in rates.
|
|
|
nominal rate of interest
|
the total of the real rate of interest, the inflation premium, and the risk premiums
|
|
|
intermediation
|
when funds flow from a surplus economic unit to a financial institution to a deficit economic unit.
|
|
|
required reserve ratio
|
the exact percentage of deposits a bank must hold in reserve.
|
|
|
primary reserves
|
non interest earning assets held in bank vaults.
|
|
|
interest rate spread
|
the rate charged to borrowers minus the rate paid to depositors.
|
|
|
savings and loan associations
|
in business to take in deposits and lend money, primarily in the form of mortgage loans.
|
|
|
credit unions
|
member owned financial institutions. They pay interest on shares bought by and collect interest on loans made to the members. The members are individuals rather than business or government units.
|
|
|
finance companies
|
nonbank firms that make short term and medium term loans to consumers and businesses. 3 types: consumer, commercial, and sales.
|
|
|
insurance companies
|
firms that assume risks for their customers, for a fee. 2 main types: life insurance companies and property and casualty insurance companies
|
|
|
10-k reports
|
contain audited financial statements submitted annually to the SEC for distribution to the public
|
|
|
10-Q reports
|
contain unaudited financial statements, submitted quarterly, and also for pulic distribution.
|
|
|
capital
|
sum of the liabilities and equity.
|
|
|
balance sheet
|
shows firms assets, liabilities, and equity at a given point in time.
|
|
|
current assets
|
cash and near cash assets
|
|
|
current liabilities
|
liabilities that are due the earliest.
|
|
|
profitability ratios
|
measure how much company revenue is eaten up by expenses, how much a company earns relative to sales generated, and the amount earned relative to the value of the firm's assets and equity
|
|
|
liquidity ratios
|
indicate how quickly and easily a company can obtain cash for its needs.
|
|
|
debt ratios
|
measures how much a company owes to others.
|
|
|
asset activity ratios
|
measures how efficiently a company uses its assets.
|
|
|
market value ratios
|
measure how the market value of a company's stock compares with its accounting values.
|
|
|
gross profit margin
|
measures how much profit remains out of each sales dollar after the cost of goods sold is subtracted.
Gross Profit/sales the higher the ratio, the better the cost controls compared with the sales revenue. |
|
|
operating profit margin
|
measures how much profit remains out of each sales dollar after all the operating expenses are subtracted.
EBIT/sales revenue |
|
|
net profit margin
|
measure how much profit out of each sales dollar is left after all expenses are subtracted.
Net income/sales revenue |
|
|
return on assets ratio
|
indicates how much income each dollar of assets produces on average.
net income/total assets |
|
|
return on equity ratio
|
measures the average return on the firm's capital contributions from its owners. (how many dollars of income produced for each dollar invested by common stockholders.)
Net income/common stockholder's equity. |
|
|
current ratio
|
compares all the current assets of a firm with all the current liabilities.
current assets/current liabilities |
|
|
quick ratio
|
similar to the current ratio but is a more rigorous measure of liquidity because it excludes inventory from current assets.
(current assets-inventory)/current liabilities |
|
|
debt to total assets
|
measures the percentage of the firm's assets that is financed with debt.
total debt/total assets |
|
|
times interest earned ratio
|
often used to assess a company's ability to service the interest on its debt with operating income from the current period.
EBIT/Interest expense |
|
|
average collection period
|
measures on average how many days the company's credit customers take to pay their accounts.
accounts recievable/(average daily credit sales/365) |
|
|
inventory turnover
|
tells how efficiently the firm turns inventory into sales.
sales/inventory |
|
|
total asset turnover
|
measures how efficiently a firm utilizes its assets.
sales/total assets |
|
|
price to earnings ratio
|
the higher the P/E ratio, the higher are investor's growth expectations.
Market price per share/earnings per share |
|
|
going concern value
|
the value of the firm's future earnings minus the liquidation value.
the higher the M/B ratio when it is greater than 1, the greater the going concern value. |
|
|
economic value added (EVA)
|
a measure of the amount of profit remaining after accounting for the return expected by the firm's investors.
|
|
|
Du Pont equation
|
net profit margin x total asset turnover = return on assets
|
|
|
modified Du Pont equation
|
net profit margin x total asset turnover x equity multiplier = return on equity
|
|
|
Pro forma financial statments
|
show what the firm will look like if the sales forecasts are indeed realized and management's plans carried out.
|
|
|
cash budget
|
shows the projected flow of cash in and out of the firm for specified time periods.
|
|
|
risk aversion
|
the tendency to avoid additional risk
|
|
|
financial risk
|
additional volatility of a firm's net income caused by the fixed interest expense.
|
|
|
financial leverage
|
where a given change in operating income causes net income to change by a larger percentage.
|
