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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

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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

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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

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Equity markets

We are stocks are bought and sold

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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

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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

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Primary market

When a company puts out its own stock so that money can be invested back into the company

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Secondary market

When the money of a sale goes to the initial buyer

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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

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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

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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

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Limited partners

Who participate only in certain aspects of the business

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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

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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

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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

Cash flow to owners

Completes the overview of financing and showing any additional contributions by the owners and the return of capital to the owners