Key Terms by Chapter, Alphabetized (Chapters 1 - 3) Flashcards Preview

Finance 201 > Key Terms by Chapter, Alphabetized (Chapters 1 - 3) > Flashcards

Flashcards in Key Terms by Chapter, Alphabetized (Chapters 1 - 3) Deck (178):
1

Chapter 1

Definition

2

401K

A tax-sheltered retirement plan offered by some employers.

3

Accounting

The business function responsible for creating the historical financial statements.

4

Asset Manager

A professional who makes a living managing a portfolio of assets.

5

Asset Pricing

The process of valuing assets

6

Business Finance

Another word for corporate finance.

7

Capital Budgeting Analysis

The process of deciding what assets to buy.

8

Cash Management

Managing the day-to-day finance operations of a firm.

9

Certified Financial Planner

A professional who has passed the CFP examination.

10

Chief Financial Officer (CFO)

The highest ranking corporate finance officer in a firm.

11

Commercial Bank

A bank that focuses mostly on mid to large sized companies.

12

Company/Industry Analysts

Professionals who produce reports on specific firms and industries.

13

Consumer Bank

A bank that focuses mostly on individuals, families, and small business.

14

Consumer Insurance

Life and property insurance.

15

Corporate Finance

The finance function within a business. One of the three main areas of finance.

16

Corporate Insurance

Insurance sold to businesses.

17

Cost of Capital

How much it costs the firm (in percentage terms) to finance its operations through debt and/or equity.

18

CPA

A Certified Public Accountant.

19

Credit Analyst

A bank position which involves deciding who qualifies for a loan and who does not.

20

Current Market Value

What someone would pay right now for an asset.

21

Debt

Money lent by a creditor to provide financing for the borrower.

22

Discounted Cash Flow

The process of using time value of money skills and forecasting to value assets.

23

Dollar-Cost-Averaging

Automatically investing a fixed percentage or amount every certain period, such as a month.

24

Equity

Ownership in an asset such as a company.

25

Estates

Legal structures used in estate planning.

26

Fair Return

An acceptable return for a passive investor.

27

Fields

Specific areas within finance such as insurance, personal finance, financial planning, asset management, etc.

28

Finance (verb)

To pay for something.

29

Financial Derivatives

Financial assets that derive their value based on an underlying asset. Examples are options, futures, and forwards.

30

Financial Management

Another word for corporate finance.

31

Financial Policy Implementation

Incorporating new finance ideas within a firm.

32

Free Cash Flows

Cash that is left over after business operations and taxes are paid.

33

Hedge Funds

Lightly regulated investment funds that have fewer restrictions than mutual funds pertaining to investment choices.

34

Index Fund

A mutual fund that tracks an already established index such as the S&P 500.

35

Initial Public Offering (IPO)

An organization's business function responsible for interacting with the organization's employees (staff, faculty, managers, etc.)

36

Institutions

One of the three main areas of finance which deals with banks, insurance companies, pension funds, and the like.

37

Insurance Company

A firm that offers life, health, auto, etc. insurance services.

38

Invest

To exchange something in hope of a return.

39

Investment Banking

Professional banking services not regulated by federal banking regulations.

40

Investments

One of the three main areas of finance. As its name implies, it involves choosing which assets to invest in.

41

Longing

Buying an asset.

42

Managerial Finance

Another word for corporate finance.

43

Marketing

The business function responsible of generating sales.

44

Mergers and Acquisitions (M&As)

The market for firms that buy and sell each other.

45

Money Manager

Old term for an Asset Manager

46

Mutual Funds

Portfolios of assets professionally managed for others to invest in.

47

New Issues

The market for firms issuing equity or debt for the first time.

48

No-Load Mutual Fund

A mutual fund that does not charge a fee to get into it or to leave it.

49

Operations

The business function responsible for the production of the good or service being sold.

50

OPM

Other people's money.

51

Organizational behavior/Human Relations

The business function responsible for the people-stuff in the organization.

52

Passive Investing Strategy

Investing without active management.

53

Pension Company

A firm that provides retirement investment plans.

54

Private Placements

Company financing without having to file the necessary public regulatory documents.

55

Property/Casualty Auto Insurance

Insurance required if you own a car.

56

Real Estate Investment Trust

Portfolios that own real estate assets such as buildings and mortgages.

57

Reinsurance

Insurance sold to insurance companies.

58

Risk Management

The area in finance that deals with insurance.

59

Roth IRA

A tax-sheltered retirement plan individuals can use to avoid taxes on portfolio returns.

60

Seasoned Equity Offering (SEO)

Any public equity offering after the IPO.

61

Shorting

Selling an asset.

62

Specialties

Another word for fields.

63

Strategic Management

The business function of managing the strategies and tactics of business operations.

64

Supply Chain Management

A subset of operations responsible for managing the value chain.

65

Tax Strategies

Minimizing the taxes a business pays.

66

Tax-Sheltered Plan

An investment plan that either defers or eliminates income tax.

67

Teller

An entry level bank position.

68

Trusts

Legal structures used in estate planning.

69

Value Chain

The chain of suppliers and customers the business relies on.

70

Vault.com

A website with valuable career information.

71

Venture Capital

High risk, usually early stage professional financing.

72

Wills

Legal documents used in estate planning.

73

Chapter 2

Definition

74

Accounts Payable

A current liability that represents any money the firm owes suppliers and other firms. Typically the firm does not pay interest on accounts payable.

75

Accounts Receivable

A type of current asset which represents any money owed to the firm for services rendered.

76

Accrual Accounting

Accounting system based on recording accounts based on historical prices and the matching principle.

77

Accruals

Non-cash accounting accounts representing money either owed or due, typically in the short term.

78

Accrued Wages

Wages that the company owes to employees, but has not paid yet.

79

Additional PIC

A type of equity on the balance sheet which equals the proceeds from a stock offering minus the common stock (par) portion.

80

Balance Sheet

One of the three main financial statements. It is a snapshot of the firm's assets, liabilities, and equity at any point in time.

81

Balance Sheet Equation

Assets = Liabilities + Equity

82

Book Value

The accounting value recorded on the balance sheet.

83

Cash

Most liquid current asset on the balance sheet.

84

Cash Flow from Financing

One of the three parts of the cash flow statement.

85

Cash Flow From Investing

One of the three parts of the cash flow statement.

86

Cash Flow from Operations

One of the three parts of the cash flow statement.

87

Common Stock

A type of equity on the balance sheet which represents equity sold to common share holders at par value.

88

Contra-Asset Account

An account on the asset side of the balance sheet that reduces the value of the asset, such as accumulated depreciation.

89

Cost of Good Sold (COGS)

The cost of raw materials for operations, typically the second line of the income statement.

90

Cost of Services

Similar to cost of goods sold, but applies to service companies.

91

Current Assets

Assets that are expected to be liquidated within a year.

92

Current Liabilities

Liabilities on the balance sheet with a short life span (typically less than one year).

93

Depreciation

A non-cash expense used to approximate the decrease in value of an asset.

94

Earnings

Another word for net income.

95

Earnings Management

Using accrual accounting to make earnings look better or worse than they should.

96

EBIT

Stands for "Earnings Before Interest and Taxes". EBIT is found on the income statement.

97

FASB

Federal Accounting Standards Board.

98

FIFO

First in, first out inventory system.

99

Financial Statement Analysis

The process of examining the three financial statements using financial skills.

100

Fixed Assets

Assets on the balance sheet with a lifespan greater than a year.

101

GAAP

Generally accepted accounting principles.

102

Gross Profit

Typically the third line of the income statement which equals Sales - COGS

103

Historical Cost Principle

Accrual accounting principle to recorded assets, liabilities, and equity at historical levels.

104

Income Statement

One of the three main financial statements. It covers a period of time and starts with sales, takes out expenses, and ends with net income.

105

Interest Expense

Amount owed to creditors that appears on the income statement between EBIT and earnings before taxes.

106

Inventories

A current asset that is typically viewed as the least-liquid current asset. Includes raw materials, work-in-process, and finished goods.

107

Investing Activities

What type of projects a firm decides to take.

108

LIFO

"Last in, first out" inventory system.

109

Liquidity

The ability to convert an asset to cash quickly without losing significant value.

110

Marketable Securities

Very liquid current asset on the balance sheet such as money markets, t-bills, etc.

111

Matching Principle

Accrual accounting principle to match revenues and expenses in the same period.

112

Net Income

Typically last line of the income statement, also known as earnings.

113

Non-Cash Expense

Any expense that is not an actual cash flow, but is recorded in the financial statements. An example is depreciation.

114

Notes Payable

A current liability that represents money borrowed for the short term, typically under 5 years.

115

Operating Accounts

Financial statement accounts which generate operating expenses.

116

Operating Expenses

The expenses on an income statement that fit between gross profit and EBIT

117

Percentage of Completion Method

A type of revenue recognition system where the firm books sales as they complete certain milestones of the service rendered.

118

PP&E

Property, plant, and equipment, a part of fixed assets on the balance sheet.

119

Retained earnings

Money plowed back into the company from prior earnings (net income).

120

Retained Earnings Forecasting

Predicting the amount of retained earnings that will carry from the income statement to the balance sheet in the future.

121

Revenue Recognition

Accrual accounting permits firms to time the recognition of sales based on certain rules.

122

Revenues, Sales

The top line of the income statement. The total amount of money a business brings in (before subtracting out any costs).

123

Sell-Lease Back

A technique used to reduce the amount of assets and especially debt on a firm's books.

124

Source of Cash

A decrease of an asset (including cash) or the increase in a liability.

125

Statement of Cash Flows

One of the three main financial statements. It includes cash flow from operations, investing, and financing.

126

Tax Expense

Typically second to the last line of the income statement right before net income, represents income taxes paid by the firm.

127

Use of Cash

An increase of an asset (including cash) or the decrease of a liability.

128

Chapter 3

Definition

129

Accounting Profit

Typically net income. A profit that does not account for opportunity costs.

130

Acid Test Ratio

Another word for Quick Ratio.

131

Agency Costs

The costs that result from the principle-agent problem.

132

AR Turnover

Credit Sales/AR, a liquidity ratio.

133

Average Collection Period

AR/Daily Credit Sales, a liquidity ratio.

134

CAPEX

Capital Expenditures, how much the firm spends on fixed assets.

135

Capital Structure

The portion of a firm's assets that are financed by either liabilities (debt), or by equity. The mix of debt and equity is referred to as the capital structure.

136

Costly Capital

All interest-bearing debt plus all equity.

137

Cross-sectional Analysis

One of the three ways to use ratios by comparing the firm to other firms' ratios or industry averages.

138

Current Ratio

CA/CL, a liquidity ratio.

139

Debt Ratio

D/A, a financing ratio.

140

Debt-to-Equity Ratio

D/E, a financing ratio.

141

DuPont Formula

A mathematical break-down that breaks ROE into multiple components: profitability, efficiency, and leverage typically.

142

Earnings

Another word for Net Income.

143

Economic Profit

Accounting profit minus opportunity costs.

144

Efficiency Ratios

One of the four classifications of ratios designed to see how well the firm is using its assets and investments.

145

Equity Multiplier

A/E, the third part of the DuPont Formula.

146

EVA

Economic value added, a measure of economic profit.

147

Financial Leverage

The portion of a firm's asset that are financed by debt. The more debt a company holds, the great its financial leverage.

148

Financing Ratios

One of the four classifications of ratios designed to measure how the firm finances its operations.

149

Fixed Asset Turnover

Sales/Fixed Assets, an efficiency ratio.

150

Free Cash Flow to Equity

Cash left over after operations, taxes, and debt/interest payments available to shareholders.

151

Free Cash Flow to the Firm

Cash left over after operations and taxes available to creditors and shareholders.

152

Goal of the Firm

Traditionally to maximize shareholder wealth.

153

Gross Margin

Gross Profit/Sales, a profitability ratio.

154

High-Growth Firms

Firms expected to experience high growth. These types of firms typically have a market-to-book equity ratio greater than 1.

155

Industry Analysis

A type of cross-sectional analysis.

156

Inventory Turnover

COGS/Inventory, a liquidity ratio.

157

JIT Inventory

A system of inventory where the needed inventory shows up just in time.

158

LBO

Leveraged buyout. This is when a firm is purchased with a ton of debt.

159

Liquid Asset

An asset that can be converted into cash quickly without the loss of significant value.

160

Liquidity Ratios

One of the four classifications of ratios designed to measure the ability of a firm to pay its near-term obligations.

161

Net Margin

NI/Sales, a profitability ratio.

162

NWC

Net Working Capital. Calculated by subtracting Current Liabilities from Current Assets (CA- CL).

163

OIROI

Operating Income Return on Investment. Operating income/Total Assets, an efficiency ratio.

164

Operating Margin

EBIT/Sales, a profitability ratio.

165

Opportunity Costs

Non-cash costs found from asking, "What could the firm have done with the money instead?".

166

Optimal Debt Ratio

The amount of debt that minimizes the firm's cost of capital.

167

Principle-Agent Problem

When the agent (worker or manager) doesn't act in the best interest of the principle (owner).

168

Profitability Ratios

One of the four classifications of ratios designed to measure the profitability of the firm.

169

Quick Ratio

(CA-Inventory)/CL, a liquidity ratio.

170

Ratio Analysis

Process of using financial analysis to determine the health of a firm.

171

ROA

Return on Assets = NI/A, a profitability ratio.

172

ROE

Return on Equity = NI/E, a profitability ratio.

173

Seasonal Firms

Firms whose performance varies according to the season.

174

Time Series Analysis

Same as trend analysis.

175

Times Interest Earned (TIE)

EBIT/Interest Expense, a financing ratio.

176

Total Asset Turnover

Sales/Total Assets, an efficiency ratio. Sometimes written as "TAT."

177

Trend Analysis

One of the three ways to use ratios by comparing a firm's ratios across time.

178

WACC

Weighted average cost of capital. The average cost of financing a firm in percentage terms.