Exam 1 Flashcards
(133 cards)
1
Q
financial management
A
how much/what types of assets to acquire, maximize value
2
Q
capital markets
A
interest rates are determined
3
Q
investments
A
stocks/bonds, security analysis, market analysis
4
Q
organizational roles
A
board of directors, CEO, COO, CFO
5
Q
proprietorship
A
owned by one person
6
Q
benefits of proprietorship
A
easy/inexpensive
few government regulations
low income tax
keep all profit
complete owner control
7
Q
limitations of proprietorship
A
unlimited personal liability
business life = person’s life
hard to make capital
difficult to transfer ownership
limited life
8
Q
partnership
A
two/more people
9
Q
benefits of partnership
A
income is allocated
single taxation
few government regulations
10
Q
limitations of partnership
A
partners are responsible for other’s debts
difficult to transfer ownership
unlimited liability
limited life
11
Q
corporation
A
separate/distinct from owners
12
Q
benefits of corporation
A
owners lose only what they invested
easier access to capital
easier to transfer ownership
easier to expand
13
Q
limitations of corporation
A
double taxation
shared control
harder/expensive
more government regulation
14
Q
corporate governance
A
rules/practices to act in shareholder’s interest
-holding managers accountable
15
Q
business
A
provides good/service for monetary value in exchange for money
-needs a want/need – demand
-purpose is to satisfy want/need
16
Q
Sand Cloud Shark tank
A
corporation or LLC
difficult to transfer ownership of partnership, so in order to go on the show must be CORP or LLC
17
Q
what mattered to the sharks?
A
cash flows
profits
cash in bank
18
Q
valuation
A
asking amount/equity stake
19
Q
finance
A
raising money to acquire assets
-circulation of money/making investments
20
Q
three main methods to pay assets
A
debt
internal equity
external equity
21
Q
intrinsic value
A
estimate of stock’s true value based on risk/return
22
Q
current stock price
A
going rate in market place
-market price
23
Q
stockholder wealth maximization
A
long-term goal
short-sighted actions cause inability to compete
24
Q
stockholder actions
A
reasonable compensation packages
direct intervention by shareholders
threat of takeover
25
annual report
verbal section -- letter from chairperson, describes operating results from past year and new developments for future
-provide picture of financial position
26
balance sheet
firm's position at specific point in time
27
current assets
assets that should be converted into cash within one year
-cash
-cash equivalents
-inventory
-accounts receivable
28
long-term assets
assets expected to be used for more than one year
-plant and equipment
-"net fixed assets"
-intellectual property
29
left side of balance sheet
claims against assets
30
current liabilities
claims that must be paid off within one year
-accounts payable
-notes payable
-accrued wages
-accruals
31
long-term liabilities
bonds that mature in more than a year
32
stockholder's equity
the amount that stockholders paid to the company when they bought shares
-earning the company retained over the years
33
retained earnings
total of all earnings company earned/retained over the years
34
what represents actual money?
only cash/cash equivalents
35
working capital
current assets that "turn over"
used and replaced throughout the year
36
NOWC
makes distinction between operational purpose cash and excess cash
-distinguish between "free" liabilities and interest-bearing notes payable
37
convertible bonds
debt securities to exchange bonds for shares of common stock
38
depreciation
annual charge against income that reflects estimated dollar cost of equipment and assets depleted in production process
-report lower earnings
39
balance sheet time dimension
point in time
40
income statements
operations over a period of time
-record of revenues/expenses
41
operating income
earnings from operations before interest/taxes
42
amortization
represents decline in value of intangible assets
-non-cash charge similar to depreciation
43
EBIT
earnings before interest
44
statement of cash flows
shows how much cash a firm generates
-operating, investing, financing
45
"Every _____ is a ______ but not every _______ is a ________."
stockholder ; stakeholder ; stakeholder ; stockholder
46
triple bottom line
people, planet, profit
-society, environment, sustainable profit
47
stockholder-manager conflicts
managers may only be invested in short-term
-not acting in best interest of stockholders/company
48
free cash flows
how much cash a business generates after capital expenditures/operational needs
-amount can be withdrawn without hurting future operations
-cash belonging to shareholders
49
always want more ____ than _____
current assets ; current liabilities
50
Cash flow rules
-asset increase = use of cash (-)
-liability increase = source of cash (+)
-asset decrease = source of cash (+)
-liability decrease = use of cash (-)
51
operating cash flows
IDEAL
-want to see funding operations with operating activities
52
do retained earnings = cash dividend?
NO
-not held as cash, but investment in firm's assets
53
are investors more interest in free cash flows or NI?
FCF because shows exact amount available to all investors
54
why would a company have negative FCF?
rapidly crowing company
-due to fixed assets and working capital needed to support rapid growth
-all exceed cash flows from existing operations
-new investments will eventually be profitable
55
financial statement analysis
review/analyze the company's statements to make decisions
56
if debt _____, then equity _____
increases ; decreases
57
affect of debt on ratios
profit margin and ROA
-interest expenses lower NI
-decrease in long-term
ROE
-interest expenses lower NI
-increasing debt = less equity
-may increase ROE -- misleading
58
Du Pont Analysis
method of dissecting ROA profitability measures into profit margin/turnover
59
high ROE
preferred EXCEPT when assets are much higher than equity -- signals high debt
60
is it worth it to sacrifice sales?
yes:
-lose sales but gain cash
-helps eliminate chance of bad debt
-company can reinvest cash or pay stockholders
-reduces need to borrow
61
what happens when you reduce assets?
same amount of sales with less assets
-improves efficiency
62
commercial banks
traditional "department stores of finance" that serve a variety of savers/borrowers
63
example of commercial banks
wells fargo, citibank
64
investment banks
help corporations design attractive securities, buy the securities, and resell them to savers.
-underwrite/distribute new investment securities
-helps obtain financing
65
example of investment banks
Morgan Stanley
66
financial service corporation
offers a wide range of financial services within a single corporation
-investment banking
-brokerage
-insurance
67
example of financial service corporation
citigroup owns citibank, an investment bank, a securities brokerage organization, and an insurance company.
68
mutual funds
pool investor funds to purchase financial instruments (stocks, long-term bonds, short-term debt) and reduce risks.
69
exchange-traded funds
buy a portfolio of stocks and sell their own shares to the public
70
hedge funds
accept money from savers and use funds to buy various securities
-largely unregulated, marketed to institutions/individuals with high net worth
71
private-equity companies
private equity players buy and manage entire firms, not just stock
72
pension funds
retirement plans funded by corporations or government agencies for their workers that invest in stocks/bonds/real estate
73
economy
flows from those who supply capital to those who demand it
74
suppliers of capital
individuals/institutions with excess funds
-saving money, looking for rate of return
75
demanders of capital
need to raise funds for investment opportunities
-willing to pay rate of return
76
capital allocation process
1. direct transfers
2. indirect transfers through investment banks
3. indirect transfers through financial intermediary
77
direct transfers
business gives securities, savers give money
78
indirect transfers through investment bankers
investment banks are the middle-man to help the money move back and forth
79
indirect transfers through financial intermediary
financial intermediaries are the middle-man that help money move back and forth
-buy securities using money received from selling own securities
80
financial market
where money is exchanged
-where we are
81
money market
short-term investments, under one year
-day-trade
82
capital market
anything with a maturity of longer than one year
83
primary market
initial/first trade of stock/bond
-Initial public offerings (IPOs)
84
secondary market
every other trade besides the IPO
85
public market
traded on open exchange, anyone can buy
86
private market
any company not traded on open exchange
-owned by few investors ("closely-held")
87
Initial Public Offering (IPO)
stock is issued in open public market for the first time
-"going public"
88
purpose of IPO
-raises capital
-regulations
-gains awareness
89
advantages of public market
-access to more funds
-can issue more shares
90
disadvantages of public market
-more people have a say/less owner control
-dilution by issuing more stock
-have to report financials
91
institutional investors
large investors that have power to move markets
-large companies
-do majority of trading in financial markets
92
example of institutional investors
Berkshire Hathaway, 401Ks, Warren Buffet
93
Security Exchange Commission
(SEC)
enforce security laws, maintain functioning economy
-supports formation of capital
-requires security disclosure to all investors
-prevents insider trading
94
when was Security Exchange Commission founded
1934
-prompted by Great Depression
95
why would SEC stop a company from going public?
-false reports
-if company doesn't look feasible/won't be around a while
96
stock market exchanges
where trading takes place
-NYSE
-NASDAQ
97
Market Cap
market capitalization
market price/share x total shares outstanding
98
stock quotes
website that shows EPS/ratios regarding stocks
99
market measures
-Dow Jones
-S&P 500
-NASDAQ
100
index
give an idea of how whole market is doing
101
Dow Jones
measure of 30 stocks
-more exclusive
-bluechip stocks
-represent 1/5 of total market value
102
bluechip stocks
stocks that have been around for a while
-mature within the industry
-solid history of growth performance
103
S&P 500
measure of 500 largest market cap stocks
-"the market"
104
Who uses the financial statements of a firm and why?
-investors -- determine earnings potential
-market analysts -- analyze growth potential
-creditors -- predict if cash can cover debt
105
Which one of the following will decrease the net working capital of a firm?
Making a payment on a long-term debt
106
Which of the following is an example of a capital market instrument?
preferred stock
107
the more ______ a firm requires, the more likely it's a ______
capital; corporation
108
the prices of stock reflect what?
all publicly available information
109
Retained earnings represent:
profits that have been re-invested in the company.
110
example of window dressing
Borrowing on a long-term basis and using the proceeds to retire short-term debt would improve the current ratio
111
what is the ITO and DSO used for?
assess how effectively a firm is managing its current assets.
112
examples of stockholders
shareholders, anybody who owns outstanding shares.
113
examples of stakeholders
investors, employees, customers, and suppliers
114
examples of money market securities
-commercial papers
-money market mutual funds
-us treasury bills
115
examples of capital market securities
-debt and equity securities
-long-term corporate bonds
-common stock
-preferred stock
116
stock market
allows companies to raise equity capital by selling shares to investors
117
bond market
raise debt capital by issuing bonds
118
stock/bond markets
facilitate the transfer of funds from investors to businesses
119
debt to equity ratio
measures proportion of company's financing that comes from debt compared to equity
-higher = more risk
120
financial intermediaries
facilitate flow of cash between savers and borrowers
-loans
-mutual funds
121
advantages of investing in bonds
-regular interest payments
-relative stability
122
advantages of investing in stocks
-higher potential returns
-less interest rate risk
123
current ratio & quick ratio
assess a company's liquidity
124
dividend
pay back to investors
125
when was NASDAQ formed?
1971
126
when was NYSE formed?
1792
127
index fund
little money invested in all companies
128
stock market
not the real value of the stock, what OTHER PEOPLE think the real value is
-new stories can make a stock rise/fall
129
warren buffet says:
"buy low cost index funds"
130
derivative
price depending on one asset
-used to either reduce risks or speculate
131
money market funds
"checking accounts" that invest in low-risk securities
132
changes to financial markets
-technological advances
-globalization of banking/commerce
-increase of derivatives
all lead to increased competition and new opportunities but also new risks
133
a larger bid ask means recognizing a ______ profit
higher
