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