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FIN 300 midterm 1
| Question | Answer |
|---|---|
| stakeholder theory | a theory that hold that social responsibility is paying attention to the interest of every affected stakeholder in every aspect of a firm's operation |
| working capital | a business strategy designed to ensure that a company operates efficiently by monitoring and using its current assets and liabilities to their most effective use |
| goals of a firm | maximizing profit, meeting shareholder expectations, increasing market share, maximizing growth, satisfying behavior |
| information asymmetry | when one party in a business transaction has info that is unavail to the other parties in the transactions |
| how funds flow through the system | directly and indirectly |
| role of investment banking firms | to help companies sell new debt or equity |
| goal of financial management | to maximize the current value of the existing stock; maximize the value of the existing shareholder equity |
| corporations | businesses that are owned by many investors who buy shares of stock |
| agency issues | the relationship between stockholders and managers |
| primary markets | markets where short-term debt instruments are traded |
| secondary markets | a financial market where the owners of outstanding securities can sell them to other investors |
| money markets | markets where short-term debt instruments are traded |
| capital markets | markets where equity and debt instruments with maturities of greater than one year are traded |
| derivative securities | futures and options |
| where do derivative securities get their value from | underlying assets |
| how do corps access capital in the financial markets | through cash flows and IPOs |
| nomial interest rates | the rate of interest that is unadjusted for inflation |
| real interest rates | the interest rate that would exist in the absence of inflation |
| what comprises an annual report | financial tables, a summary of the firm's performance over the years, a corporate relations piece, and audited financial statements |
| balance sheet | reports the firm's financial position(assets, liabilities, and equity) at a particular point in time |
| total assets formula | total liabilities + total stockholders wquity |
| total stockholders equity | total assets - total liabilities |
| net working capital | a measure of a firm's ability to meet its short-term obligations as they come due |
| net working capital formula | total current assets - total current liabilities |
| retained earnings | earnings that have been reinvested in the business over time rather than being paid out as cash dividends |
| treasury stock | represents stock that the firm has repurchased from investors |
| market value | the price that an item can be sold |
| book value | the net value of an asset or liability recorded on the financial statements; normally reflects historical cost |
| income statement | summarizes the revenues, expenses and profitability of the firm over some period of time |
| net income formula | revenues - expenses |
| statement of cash flows | a financial statement that shows a firm's cash receipts, cash payments, and investments for a period of time |
| cash flow to investors | the type of cash flow that a firm generates for its investors in a given period, excluding cash inflows from the sale of securities to investors |
| average tax rate | total taxes paid divided by taxable income |
| marginal tax rate | the tax rate paid on the next dollar of income earned |
| stockholders' perspective | for people who are primarily concerned with the value of their stock and with how much cash they can expect to receive from dividends and capital appreciation over time |
| managers' perspective | for people interested in profitability, how much cash is avail for stockholders, capital appreciation, ROI, and the like |
| creditors' perspective | for people who want to know whether and when they will receive the interest payments they are entitled to and when they will be repaid the money they loaned to the firm |
| financial ratios | a number from a financial statement that has been scaled by dividing by another financial number |
| ROE | a relevant measure of financial performance for a stockholder might be net income scaled by the firm's stockholders' equity |
| current ratio | the primary liquidity ratio |
| quick ratio | accounts for the fact that inventory is often less liquid |
| inventory turnover | measure the efficiency in which a company is using its assets |
| accounts receivable turnover | measures the speed at which a firm converts its receivables into cash |
| total debt ratio | tells us the amount of debt for each dollar of total assets |
| debt to equity ratio | tells us the amount of debt of each dollar of equity |
| gross profit margin | measures the percentage of net sales remaining after the cost of goods sold is paid |
| net profit margin | the percentage of sales remaining after all of the firm's expenses have been paid |
| ROA | a measure of the investment in the firm by both stockholders and creditors |
| EPS | closely watched by analysts for trends and growth; you want an upward trending number |
| PE | tells us how much an investor is willing to pay for a dollar of current earnings |
| Dupont formula | tells us operating efficiency, asset use efficiency, and financial leverage |
| trend analysis | uses history as its standard by evaluating a single firm's performance over time |
| future value | the value of an investment after it earns interest for one or more periods |
| compounding | makes a sum of money grow at a faster rate than simple interest |
| continuous compounding | used to show how much a balance can earn when interest is constantly accruing |
| present value | the current value of a future cash flow discounting at the appropriate discount rate |
| future value with multiple cash flows | determines the market price of a bond, to decide whether to purchase a new machine, or to determine that value of a company |
| annuities | a series of equally spaced and level cash flows extending over a finite number of periods |
| amortization | a loan for which each loan payment contains repayment of some principal and a payment of interest that is based on the remaining principal to be repaid |
| SOX | law to help protect investors from fraudulent financial reporting by corps |
Created by:
sydneyxellis