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FI 363 Exam 1
| Term | Definition |
|---|---|
| advantages of a sole proprietorship | easy to start; light regulatory and paperwork burden; single taxation at the personal tax rate |
| disadvantages of sole proprietorship | unlimited liability; limited access to capital |
| advantages of general partnerships | relatively easy to start; single taxation |
| disadvantages of general partnerships | partners jointly share unlimited liability; difficult to raise large amounts of capital |
| advantages of corporations | limited liability for owners; can raise large amounts of capital; easy to transfer ownership |
| disadvantages of corporations | double taxation (corporate level and personal level) |
| goals of the firm | maximization of shareholder wealth (stock price) |
| when one party (the principal) hires another party (the agent) to work for them, relationship between stockholders and management | agency relationship |
| managers may act in their own self-interest instead of the shareholder's interest | agency problem |
| growth rate a firm can sustain if it uses only internal financing - that is, retained earnings - to finance future growth | internal growth rate |
| growth rate a firm can sustain if it finances growth using both debt and internal financing such that the debt ratio remains constant | sustainable growth rate |
| process of moving money through time to account for interest received or paid; relationship between time, money, and interest rates | time value of money |
| perpetual annuity or payment that does not end | perpetuity |
| the nominal rate or annual percentage rate (APR) ignores the effect of compounding. for loans, this is the quoted rate | effective annual rate (EAR) |
| current ratio lower than industry | weakness |
| quick ratio lower than industry | weakness |
| liquidity includes | current ration and quick ratio |
| asset management includes | inventory turnover ratio, receivable ratio, fixed asset turnover ratio, total asset turnover ratio |
| inventory turnover ratio lower than industry | weakness |
| receivable turnover lower than industry | weakness |
| fixed asset turnover ratio lower than industry | weakness |
| total asset turnover ration lower than industry | weakness |
| debt management includes | debt ratio, debt-to-equity ratio, equity multiplier, times interest earned |
| debt ratio lower than industry | strength |
| debt-to-equity ratio lower than industry | strength |
| equity multiplier lower than industry | strength |
| times interest earned lower than industry | weakness |
| profitability includes | profit margin, ROA, ROE, dividend payout ratio |
| profit margin lower than industry | weakness |
| ROA lower than industry | weakness |
| ROE lower than industry | weakness |
| dividend payout ratio lower than industry | not a good or bad thing; depends on investor preference |
| market value includes | market-to-book ratio, PE ratio |
| market-to-book ratio lower than industry | not good or bad; technically a weakness bc investors do not value companies as highly; selling at lower value than industry |
| PE ratio lower than industry | not good or bad; technically a weakness bc investors do not value companies as highly; selling at lower value than industry |
| DuPont Analysis | ROA and ROE |
Created by:
pace_sauce
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