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FIN 325 FINAL
| Question | Answer |
|---|---|
| Bond Sells At A Premium | When the YTM falls below the coupon rate, and sells for more than par value |
| Bond Sells At A Discount | When the YTM rises above the coupon rate, and sells for less than par value |
| Nominal Rate of Interest | This is the actual rate of interest charged by the supplier and paid by the demander of funds |
| Bond Indenture | Is a complex and legal lengthy document stating the conditions under which a bond has been issued |
| Value of A Bond | Is the NPV of interest payments and maturity value |
| If the expected return is above the required rate of return on an asset, rational investors will.. | Buy the asset, which will drive the price up and cause expected return to reach the level of required return |
| Bond | Is a long term debt instrument |
| Beta | This measures volatility relative to the market. |
| Risk | A measure of the uncertainty surrounding the return that an investment will earn or, more formally, the variability of returns associated with a given asset. |
| Diversifiable risk | The portion of an asset’s risk that is attributable to firm-specific, random causes; can be eliminated through diversification. (also called unsystematic risk) |
| Nondiversifiable risk | The relevant portion of an asset’s risk attributes to market factors that affect all firms; cannot be eliminated through diversification. (also called systematic risk) (market risk, investments are correlated) |
| Volatility | Accounts for market risk correlation, can be used for context to the portfolio. |
| Efficient Portfolio | Maximizes return for a given level of risk, or minimizes for a given level of return |
| The purpose of adding an asset with a negative or low positive beta | Reduce Profit |
| Corporation | Is a legal entity created by law |
| Stockholders | Ownership takes the form of either common or preferred stock. |
| Limited Liability | The corporation is not personally liable for the firms debts |
| Common Stock | Purest and most basic form of ownership |
| Dividends | Periodic distributions of cash |
| Board of directors | Typically responsible for approving strategic goals and plans, setting general policy, guiding corporate affairs, and approving major expenditures. |
| CEO or President | Responsible for managing day-to-day operations and carrying out the policies established by the board of directors. |
| Earnings Per Share | Represent the amount earned during the period on behalf of each outstanding share of common stock. |
| Risk | The chance that actual outcomes may differ from those expected |
| Agency Relationship | Management acts in shareholders best interest |
| Agency Problem | Arises when managers place personal goals ahead of shareholders goals |
| Initial Public Offering | Anytime a company sells securities for the first time. |
| Primary Market | Financial market in which securities are initially issued |
| Secondary Market | Financial market in which pre-owned securities are traded. |
| Marginal Tax Rate | The rate at which additional income is taxed |
| Average Tax Rate | A firms taxes divided by its taxable income |
| Double Taxation | Situation that occurs when after-tax corporate earnings are distributed as cash dividends to stockholders, who then must pay personal taxes on the dividend amount. |
| Income Statement | Provides a financial summary of the firms operating results during a specified period. |
| Balance Sheet | Summary statement of the firms financial position at a given point in time. |
| Current Assets | Short-term assets, expected to be converted into cash within 1 year or less |
| Current Liabilities | Short-term liabilities, expected to be paid within 1 year or less |
| Retained Earnings | The cumulative total of all earnings, net dividends, that have been retained and reinvested in the firm. |
| Statement of Retained Earnings | Reconciles that net income earned during a given year, and any cash dividends paid, with the change in retained earnings between the start and end of the year. |
| Statement of cash flows | Provides a summary of the firms operating, investment, and financing cash flows and reconciles them with changes in its cash and marketable securities during the period. |
| Ratio Analysis | Involves methods of calculating and interpreting financial ratios to analyze and monitor the firms performance. |
| Cross-Sectional Analysis | Involves the comparison of different firms financial ratios at the same point in time |
| Benchmarking | A type of cross-sectional analysis in which the firms ratio values are compared to those of a key competitor. |
| Current Ratio | Measures the firms ability to meet its short-term obligation (Current Assets/Current Liabilities) |
| Liquidity | A firms ability to satisfy its short-term obligations as the come due |
| Quick Ratio (Acid Test) | Similar to the current ratio except that it excludes inventory, which is generally the least liquid current asset (Current Assets-Inventory/Current Liabilities) |
| Activity Ratios | Measure how efficiently a firm operates along a variety of dimensions such as inventory management, disbursements, and collections. |
| Inventory Turnover | Measures the activity, or liquidity, of a firms inventory. (Cost of goods sold/Inventory) |
| Average Collection Period | The average amount of time needed to collect accounts receivable |
| Average Payment Period | The average amount of time needed to pay accounts payable |
| Total Asset Turnover | Indicates the efficiency with which the firm uses its assets to generate sales (Sales/Total Assets) |
| Debt Ratio | Measures the proportion of total assets financed by the firms creditors (Total Liabilities/Total Assets) |
| Time Interest Earned Ratio | Measures the firms ability to make contractual interest payments. (EBIT/Taxes) |
| Gross Profit Margin | Measures the percentage of each sales dollar remaining after the firm has paid for its goods. (Sales-COGS/Sales) |
| Operating Profit Margin | Measures the percentage of each sales dollar remaining after all costs and expenses other than interest, taxes, and preferred stock dividends are deducted. |
| Net Profit Margin | Measures the percentage of each sales dollar remaining after all costs and expenses, including interest, taxes, and preferred stock dividends, have been deducted. |
| Return on Total Assets (ROA) | Measures the overall effectiveness of management in generating profits with its available assets |
| Return on Common Equity (ROE) | Measures the return earned on the common stockholders investment in the firm |
| Market Ratios | Relate a firm's market value,as measured by its current share price, to certain accounting values |
| Price/Earnings Ratio | Measures the amount that investors are willing to pay for each dollar of a firms earnings (Market Price Per Share of Common Stock/Earnings Per Share) |
| Depreciation | A portion of the costs of fixed assets charged against annual revenues over time |
| Operating Flows | Cash flows directly related to sale and production of firms products and services |
| Investment Flows | Cash Flows Associated With The Purchase and Sales of Fixed Assets And Businesses |
| Financing Flows | Cash flows that result from debt and equity financing transactions |
| Operating Cash Flow (OCF) | Cash flow that generates from its normal operations |
| NOPAT | EBIT |
| Free Cash Flow (FCF) | The amount of cash flow available to investors (creditors and owners) after the firm has met all operating need |
| All of the following are key strengths of a corporation except | Low Organization Costs |
| The primary goal of the financial manager is | Maximize wealth |
| Corporate owners receive realizable return... | Increase in share price and cash dividends |
| Cash flow and risk are key determinants in share price. Increased cash flow results in.. other things remaining the same. | A higher share price |
| The board of directors is typically responsible for | Developing goals and plans, hiring and firing |
| Operating profits are defined as | Gross profits minus operating |
| All of the following are examples of current assets except... | Accruals |
| All of the following are example of current liabilities except... | Accounts Receivable |
Created by:
cicornel