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FIN3000 > Module 1 > Flashcards

Module 1 Flashcards

(54 cards)

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1
Q

Financial Managers

A

act on behalf of the firm’s owners by making operating and investment decisions whose benefits exceed their costs

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2
Q

Goal of Financial Managers

A

managers should aim to maximize the value of the firm and thereby maximize the wealth of its owners

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3
Q

Finance

A

science and art of how individuals and firms raise, allocate, and invest money

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4
Q

Profit maximization does not lead to the highest possible share price

A
  1. Timing
  2. Profits and cash flows are not identical
  3. Risk
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5
Q

Key Determinants of Share Price

A

Risk and return

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6
Q

Business Ethics

A

the standards of conduct or moral judgment that apply to persons engaged in commerce

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7
Q

Sarbanes-Oxley Act of 2002

A

requires firms to disclose whether they have a code of ethics in place, and firms must report any waivers of those codes for senior management

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8
Q

Investment Decisions

A

how a company will spend its financial resources on long-term projects that ultimately determine whether the firm successfully creates value for its owners

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9
Q

Capital Budgeting

A

identifies investment opportunities for which benefits exceed costs

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10
Q

Financing Decisions

A

determine how companies raise the money needed for investment opportunities

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11
Q

Capital

A

money raised by firms to finance their activities

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12
Q

Working Capital Decisions

A

the management of a firm’s short-term resources

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13
Q

Principles That Guide Financial Manager’s Decisions

A
  1. time value of money
  2. tradeoff between return and risk
  3. cash is king
  4. competitive financial market
  5. shareholder’s interest
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14
Q

Principal–Agent Problem

A

the owners of a firm and its managers are not the same people

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15
Q

Marginal Cost–Benefit Analysis

A

managers should base financial decisions on the marginal benefits and costs associated

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16
Q

Sole Proprietorship

A

a for-profit business owned by one person

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17
Q

Unlimited Liability

A

liabilities are the entrepreneur’s responsibility and creditors can make claims against the entrepreneur’s personal assets if the business fails to pay its debts

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18
Q

Partnership

A

two or more owners doing business together for profit

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19
Q

Corporation

A

business entity owned by individuals, but the corporation itself is a legal entity distinct from its owners

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20
Q

Stockholders

A

ownership, or equity, takes the form of common or preferred stock

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21
Q

Limited Liability

A

are not personally liable for the firm’s debts

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22
Q

Stock

Study These Flashcards
A

security that represents an ownership interest in a corporation

23
Q

Dividends

Study These Flashcards
A

periodic distributions of cash

24
Q

Limited Liability

< 100 owners

Study These Flashcards
A

limited partnership (LP), S corporation (S corp), limited liability company (LLC), and limited liability partnership (LLP)

25
Agency Costs
costs that shareholders bear because managers pursue their own interests
26
Corporate Governance
the rules, processes, and laws by which companies are operated, controlled, and regulated
27
Stock Options
allow managers to buy shares of the company’s stock at a fixed price
28
Restricted Stock
shares of stock that do not fully transfer from the company to the employee until certain conditions are met
29
Individual Investors
own relatively few shares and as a result do not typically have sufficient means to influence a firm’s corporate governance
30
Institutional Investors
investment professionals paid to manage and hold large quantities of securities on behalf of individuals, businesses, and governments
31
Activist Investors
wealthy individuals or institutional investors controlling a large pool of capital, specialize in influencing management
32
Financial Institutions
serve as intermediaries by channeling the savings of individuals, businesses, and governments into loans or investments
33
Net Suppliers and Demanders
Suppliers: individuals Demanders: firms, governments
34
Commercial Banks
financial institutions that provide savers with a secure place to deposit or save funds for future use
35
Investment Banks
1. assist companies in raising capital 2. advise firms on major transactions such as mergers or financial restructurings 3. engage in trading and market-making activities
36
Shadow Banking System
group of financial institutions that engage in lending activities but that do not accept deposits and are not subject to the same regulations
37
Financial Markets
suppliers and demanders of funds can transact business directly
38
Money Market
short-term debt instruments, marketable securities
39
Capital Market
long-term securities: bonds and stocks
40
Private Placement
the sale of a new security directly to an investor or group of investors
41
Public Offering
the sale of either bonds or stocks to the general public
42
Primary Market
sells stocks or bonds to investors and receives cash in return
43
Secondary Market
securities trading between investors
44
Money Market
market where investors trade highly liquid securities with maturities of 1 year or less
45
Capital Market
enables suppliers and demanders of long-term funds to make transactions
46
Bonds
long-term debt instruments used by business and government to raise large sums of money
47
Common Stock
units of ownership, or equity, in a corporation
48
Preferred Stock
promise to pay stockholders a fixed periodic dividend, must also pay dividends to preferred before they pay to common
49
Market Maker
securities dealer who offers to buy or sell securities at stated bid/ask prices
50
Broker Market
execute the trade at the midpoint of the bid/ask spread
51
Dealer Market
execute the buy/sell market orders using their own inventory of securities
52
Securities Exchanges
organizations that provide a physical marketplace where traders can buy and sell securities
53
Market Price
determined by the interaction of buyers and sellers
54
Market Capitalization
total market value of the firm’s outstanding stock

FIN3000 (2 decks)

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