Flashcards in Chap1 Deck (85):
1
Finance
Helps people and businesses make decisions about when to buy when to sell and about what to buy and went to sell
2
Financial management
Is the art of science of managing wealth
Create or preserves that can make value of the assets of an individual small business or corporation
3
Cycle of money
The movement of money from lender to borrower and back again
4
What are the two things that remain constant
One the cycle of money 2 The economic objective of improving each participant's wealth
5
What are the four main areas that finance is partitioned into
•Corporate finance •investments
•financial institutions in markets
•international finance
6
Corporate finance
The set of financial activities that support the operations of corporations or businesses its use of money and those decisions that affect the wealth of the owners
7
Investments
Are generally like to re-centering on the buying and selling of assets both real and financial
8
Real assets
The physical assets such as property buildings and commodities including corn oil and
9
Financial assets
Intangible assets such as stocks And bonds
10
Financial institutions in markets
Are the organize financial in term media Aries and the forum that promote the cycle of money
11
What are the four ways one can classify The financial market
•By type of asset traded
•by the maturity of the asset
•by the owner of the asset
•by the method of sale
12
Equity markets
We are stocks are bought and sold
13
Debt markets
Where bonds are bought and sold
14
Derivative markets
Where future contracts on commodities are bought and sold or where options on equity future or currencies are bought and sold option markets
15
Foreign exchange markets
Where currencies are bought and sold
16
Maturity means what
The length of time the borrower has to pay back the borrowed funds
17
Money markets
These assets are short term loans sometimes as short as a day or two
18
Capital markets
Acids that have maturities over a year
Long term loans may include bonds are stock
19
Primary market
When a company puts out its own stock so that money can be invested back into the company
20
Secondary market
When the money of a sale goes to the initial buyer
21
Dealer markets
When a buyer buys things at a set price and then sells them thanks such a stocks and bonds or like a car dealership selling cars
22
What are the three main categories that financial management is divided into
•!Capital budgeting
•capital structure
•working capital management
23
Capital budgeting
The process of planning a valuating comparing and selecting a long-term operation project
Each company Picks it's business based on its ability to generate a profit
example make you sell shoes coke sells beverages
24
Capital structure
The means by which a company finances it's business activities. for public companies usually a mix of bonds and stocks that and equity sold to investors an owners
This answers the question where do we raise the money to conduct our business activities
25
Working capital management
The process of managing the day-to-day operating needs of a company through its current assets and current liabilities we also referred to this as short term financing activities of the company
26
What is a finance manager
Anyone who engages in any or all three of the financial management activities
capital budgeting
capital structure
working capital management
27
What is The objective of a financial manager
•Maximize profits
•Keep all the company's customers happy
•foster good relationships with local community
•maintain a safe and enjoyable work place
•Attract and retain good employees
28
Profit maximization
scaling down inventory will avoid cost which will in turn increase profit but it will also we potentially have the risk of losing sales of the products are not available in the future
29
A manager's responsibility is what
To make money for the owners
30
What is the primary objective of a publicly traded firm
Is to maximize the current stock price of the firm
31
What do stock prices reflect in a company
It reflects the company's future cash flow
32
How can one increase the future cash flow
One to maintain a safe and enjoyable workplace to attract and retain good employees
Good employees understand the business Are reliable and add value to products or services of the company
Also working closely with customers ensure that the products or services are meeting their needs
Establishing good working relationships with suppliers so that the company receives quality material in a timely manner
All these things play a role in increasing the firms Future cash flow and current stock prices
33
The goal of finance manager is to
Maximize the current market value of the equity of the company
34
What is the equity value of the company
It's value to the owner
35
What are the three legal categories that business organizations are categorized in
Proprietorships, partnerships and corporations
36
Soul proprietorship
Is a business owned entirely by an individual
37
Pros and cons about a soul proprietor
Pros the owner makes all the decisions no need to consult anyone daughter keeps all the profits
Disadvantages the owner pays all the bills even if it means personal assets and property is to cover their business
There is no difference between personal and company property
Entity is limited to the lifespan of the owner
Ability to raise capital is limited to the owners ability to do it this limits the supply of capital and growth development for the business
38
Partnership
Joint by two or more individuals that spells out the percentage of ownership and level of participation
39
General partners
Who operate a daily business
40
Limited partners
Who participate only in certain aspects of the business
41
Silent partners
The ones who participate only as investors
42
Pros of a partnership
It involves more individuals in the business the business distribute all the profits only two it said individuals
Large number of owners usually increase the amount of capital available over that available soul proprietorship
Additional partners may also bring more talent and skill
The main disadvantage is that the personal aspect of the General partners are coming gold with the business assets and could potential he be required to settle business debts
43
Disadvantages of partnerships
Difficult transferring ownership from one partner to a new partner survival of business when one partner dies
44
What are the three things that both sole proprietorship and partnership have in common
Limited liability of the owners
Limited life of the business
Potentially difficult and transferring the ownership of the business
45
Corporations
A legal entity separate from its owners
I can enter into contracts and conceal it can be sued and it pays taxes. They have a set of bylaws in the state and whichever states the corporation becomes a resident of it will pay taxes like any other citizen
46
What do the articles of incorporation include
The name of the business
Business intent of the corporation contented life
The number of shares the corporation can issue
47
What is the key advantage of a corporate organization
Shareholders and owners have a limited liability
48
Limited liability
Personal assets are separate from those of the company
The owners can only lose what they paid for their shares and thus are limited in their exposure to the debt on the firm
49
Disadvantages of a corporation
Government taxes company profits prior to distribution to the owners and the owners or text again on the receive distributions this is called double taxation
50
Hybrid corporations
Limited liability corporation's LLCs are a hybrid of partnership and corporations
51
Professional corporation PC
Joins together licensed professionals such as doctors lawyers accountants engineers architects the main advantage of a PC is that the owner and I said partners and the PC or not personally believe liable for the of their partners
52
S corporation
A corporation with fewer than 100 shareholders
The income of the corporation passes directly to the owners avoiding taxes at the corporate level
53
Who are the principles
The owners of the business
54
Who are the
The managers that maximize the current stock price
55
Principle agent problem
Where the agent needs to make more profit for the owner but that reduces his own payment but needs the owner to make money for promotion
56
Agency cost
When you overpay for something that wasn't actually done but you do not know if it was or wasn't
57
Stock option
The right to buy the company stock at a present price sometime in the future
This is also known as a incentive alignment mechanism
58
Agency very
The process on fixing the principal agent problem which is the problem between managers and owners trying to find ways to have the managers have an interest in making more money for the owners
59
Corporate governance
The area of the company where it decides how it will support management activities that benefit employees and suppliers customers and the surrounding community, also to encourage management to act in A ethical manner
60
What three things does the Sarbanes Oakley act (SOX) require
That the CEO and the CFO a test to fairness of the financial report
That the company maintain an effective internal control structure around financial reporting
But the company and auditors assess the effectiveness of the controls over most recent fiscal year
61
What are the four financial statements to measure a report performance of a firm
The balance sheet
The income statement
The statement of retained earnings
The statement of cash flow
62
The balance sheet
Is the first financial statement we consider it represents the assets owned by the company and all the claims against these assets
63
Assets
Are the things of economic value that a company owns physical or accounts receivable
64
Liabilities
Are the amounts of money that a company owes two others such as payroll taxes on money borrowed Lakeland
65
Assets
Can be physical like buildings financials which accounts receivable intellectual such as parents and trademarks or include cash itself
66
Liability
Is the amount of money a company owes to others, such as payroll taxes and money borrowed like loans
67
Equity
The third section of the balance sheet and it is what the owners receive after companies have satisfy their liabilities
68
Accounting identity
The identity is a relationship that is always satisfied for all the variables in the equation and as noted by the symbol = three line not two
69
Double entry bookkeeping
It is what ensures the balance sheet is balanced
70
From the finance perspective what are the five principles sections of information on the balance sheet
Cash account
Working capital accounts
Long term capital assets accounts
long-term debt accounts
ownership accounts
71
Cash accounts
Much like an individual checking account because it tells you how much money you currently have
72
Working capital accounts
I would current assets and current liabilities of the company both of these accounts together
73
Owners equity or stockholders equity
Is the remaining residual value of the company to the owners once the company has satisfied all liability
74
Income statement
Measures the company's financial performance over a specific period of time
75
Net income
Is the accounting profit from the operations of the company during the period
76
Cash flow
Is the increase or decrease in cash for that.
77
What are the three fundamental issues that separate net income and cash flow
Accrual-based accounting
Non-cash expense items
Interest expense
78
Generally excepted accounting principle GAAP
Are the set of accounting standards procedures and principles that companies follow when assembling the financial statements
79
Accrual-based accounting
When a company recognizes and records revenue at the time of sale whether or not it has received the revenue in cash
80
Operating cash flow
Earnings before interest and taxes + depreciation - taxes
81
Statement of retained earnings
Change in retained earnings = net income - distributed earnings
82
Casual identity
States that the cash flow from assets equal to the cash flow to creditors and owners
Cash flow from assets
83
What does cash flow from assets show
The success or failure of have a company uses the assets to generate cash inflow
84
Cash flow to creditors
Shows have a firm uses that to finance operations and it's repayment of the debt
85