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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
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