Chapter 1 Flashcards
(37 cards)
What is the difference between liquidity and profitability?
Liquidity refers to having cash or the ability to raise cash quickly, while profitability indicates the ability to generate income.
What is cash management?
Cash management involves monitoring and optimizing cash inflows and outflows within a business.
What are the four forms of business in the U.S. economy?
- Sole proprietorship
- Partnership
- Corporation
- Limited Liability Company
What is the Initial Public Offering (IPO)?
The process whereby a private corporation issues new common stock to the general public.
What are the three career paths in finance?
- Financial Management
- Financial Markets and Institutions
- Investments
What is the primary focus of financial management?
To manage finances for a business and make decisions that add value.
What is the basic financial goal of a business firm?
To maximize the wealth of the firm’s owners by adding value.
What factors affect a firm’s value?
- Size of expected future cash flows
- Timing of future cash flows
- Riskiness of future cash flows
True or False: The financial manager’s role includes measuring the firm’s performance.
True
What is the agency problem?
The possibility of conflict between the interests of a firm’s managers and those of the firm’s owners.
Fill in the blank: The _______ is a person who authorizes an agent to act on their behalf.
[Principal]
What are agency costs?
Costs incurred to monitor agents to reduce the conflict of interest between agents and principals.
What is a stakeholder?
A party having an interest in a firm, such as owners, workers, management, creditors, suppliers, customers, and the community.
What is the role of the Chief Financial Officer (CFO)?
To direct and coordinate the financial activities of the firm.
What distinguishes a C-Corporation from an S-Corporation?
C-Corporations are taxed separately from their owners, while S-Corporations allow income to pass through to owners without being taxed at the corporate level.
True or False: Limited Liability Companies combine the tax advantages of partnerships with the limited liability of corporations.
True
What is ESG investing?
Investing that considers Environmental, Social, and Governance factors.
What are the legal considerations financial managers must address?
- Environmental statutes
- Workplace safety standards
- Civil rights laws
- Intellectual property laws
Fill in the blank: The _____ problem arises when the interests of a firm’s managers conflict with those of the firm’s owners.
[Agency]
What is a Limited Partnership?
A partnership that includes at least one partner whose liability is limited to the amount invested.
What does the term ‘cash flow’ refer to?
Cash moving through a business, including both inflows and outflows.
What are the implications of timing on cash flow valuation?
The sooner cash is received, the more valuable the firm; delays decrease value.
What is the effect of risk on company valuation?
Less certainty about cash inflows lowers the company’s value, while certainty increases it.
What is the primary financial goal of a business firm?
To maximize the wealth of the firm’s owners.
