Manigerial Word Scramble

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Question	Answer
Limited liability is faced by the owners of:	corporations.
The primary goal of a publicly�owned firm interested in serving its stockholders should be to:	maximize share price.
Which one of the following actions is the best example of an agency problem?	Paying management bonuses based on the number of store locations opened during the year.
The Board of Directors of Giant Towers, Inc. have decided to base the salary of its CEO entirely on the market share of the firm. Accordingly,	the manager may not act to maximize the current value of the firm's stock, resulting in agency costs for the firm's shareholders.
GM has decided to issue new stock to fund a new project. When the stock is issued it will be sold on the:	primary market.
High Towers, Inc., has $52,000 total obligation to its creditors . cells blank. If there is no value, you must If If the assets have a market value of $69,000, the shareholders' equity has a market value of $ ______.	17,000
Green Grass, Inc., has sales of $498,000, costs of $267,000, depreciation expense of $35,000, interest expense of $18,000, and a tax rate of 32 percent. If the firm paid out $58,000 in cash dividends, the addition to retained earnings is $ _____ .	63,040
High Towers, Inc., has sales of $631,000, costs of $322,000, depreciation expense of $29,000, and interest expense of $13,000. If the tax rate is 33 percent, the operating cash flow, or OCF, is $ ______ .	220,890
For a tax-paying firm, an increase in _____ will cause the cash flow from assets to increase.	depreciation
Select all that will happen when depreciation expense increases.	Increase the cash flow from assets Decrease in taxes Decrease net income
Total Greens, Inc. has a profit margin of 9.5 percent, total asset turnover of 1.2, and ROE of 24.9 percent. The firm's debt−equity ratio is ______ times. (Round your answer to 2 decimal places. (e.g., 32.16))	1.18
Select all the ratios that may indicate a trouble in the firm's short-term solvency.	Quick ratio of 0.7 when the industry benchmark is 1.2 Current ratio of 1.2 when the industry benchmark is 1.6
A common-size income statement is created by dividing all the income statement items by ______; while a common-size balanace sheet is generated by dividing all the balance sheet items by ______.	Sales; Total assets
The DuPont identity of return of equity (ROE) indicates that the ROE is a product of these following three aspects of financial management; ____, _____, and ______.	profitability; asset management; financial leverag
Basic Areas Of Finance	Corporate finance = Business Finance Investments Financial institutions International finance
Investments	Work with financial assets such as stocks and bonds Value of financial assets, risk versus return, and asset allocation
Companies that specialize in financial matters	Banks – commercial and investment, credit unions, savings and loans Insurance companies Brokerage firms
Basic Areas Of Finance	corporate Finance Financial institutions Investments
What long-term investments or projects should the business take on?	Capital budgeting
How should we pay for our assets? Should we use debt or equity?	Capital structure
How do we manage the day-to-day finances of the firm?	Working capital management
Three major forms in the United States	Sole proprietorship Partnership General Limited Corporation S-Corp Limited liability company
What are some Advantages of Sole Proprietorship	Easiest to start Least regulated Single owner keeps all of the profits Taxed once as personal income
What are some disadvantages of a sole proprietorship	Limited to life of owner Equity capital limited to owner’s personal wealth Unlimited liability Difficult to sell ownership interest
Partnership	Business owned by two or more persons
What are some Advantages of have a Partnership	Two or more owners More capital available Relatively easy to start Income taxed once as personal income
What are some disadvantages of have a Partnership	Unlimited liability General partnership Limited partnership Partnership dissolves when one partner dies or wishes to sell Difficult to transfer ownership
Corporation	A legal “person” distinct from owners and a resident of a state
What are some advantages of having a Corporation	Limited liability Unlimited life Separation of ownership and management Transfer of ownership is easy Easier to raise capital
What are some disadvantages of having a corporation	Separation of ownership and management (agency problem) Double taxation (income taxed at the corporate rate and then dividends taxed at personal rate, while dividends paid are not tax deductible
What should be the goal of a corporation?	Maximize the current value per share of the company’s existing stock Maximize the market value of the existing owners’ equity
Sarbanes-Oxley Act	An acted in 2002. Sarbox is intended to strengthen protection against corporate accounting fraud and financial malpractice.
Principal hires an agent to represent its interests Stockholders (principals) hire managers (agents) to run the company	Agency relationship
The conflict of interest between the principal and the agent is called. (Management goals and agency costs)	Agency problem
What can help Managers Act in the Shareholders’ Interests?	Managerial compensation Incentives can be used to align management and stockholder interests Incentives need to be carefully structured to insure that they achieve their goal
what is example of Corporate control	Threat of a takeover may result in better management
Cash Flows Between the Firm and the Financial Markets steps	1.Firm issues securities to raise cash. 2.Firm invests in assets. 3.Firm's operations generate cash flow 4.cash is paid to government other stack-holder may revive cash 5.Reinvested cash flows are plowed back into firm. 6.Cash ispaid out to inv I D
The mechanism by which unhappy stockholders can act to replace existing management	Proxy fight
The term__________ ________ refers to the original sale of securities by governments and corporations.	Primary markets
The term _________ _________ are those in which these securities are bought and sold after the original sale.	Secondary markets
In what market transaction does the corporation is the seller, and the transaction raises money for the corporation.	Primary markets
what is it called when selling involves selling securities to the general public.	Public offering
What is it where as a private placement is a negotiated sale involving a specific buyer.	Private offering
What are to some market in the secondary markets	1. auction markets 2. dealer markets 3. NasDaQ 4. NYSE
A snapshot of the firm’s assets and liabilities at a given point in time	The Balance Sheet
Left-hand side (or upper portion) In order of decreasing liquidity	Assets
Balance Sheet Identity	Assets = Liabilities + Stockholders’ Equity
Current Assets minus Current Liabilities Usually positive for a healthy firm	Net working capital
without significant loss of value Valuable in avoiding financial distress	Liquidity
Is positive when current assets exceeds current liabilities.	New working capital
Shareholders’ equity = Assets - Liabilities	Debt versus Equity
The use of debt in a firm's capital structure is called	Financial Leverage.
the balance sheet value of the assets, liabilities, and equity.	Book value
true value; the price at which the assets, liabilities, or equity can actually be bought or sold.	Market value
Market value and book value are often very different. Why?	Market value is what its actual cost on the market Book value is just what is worth on the books
Which is more important to the decision-making process Book value or market value.	the Market value
statement measures performance over a specified period of time (period, quarter, year).	income
GAAP Matching Principle	Recognize revenue when it is fully earned Match expenses required to generate revenue to the period of recognition
Noncash Items	Expenses charged against revenue that do not affect cash flow Depreciation = most important
What does GAAP stand for	Generally Accepted Accounting Principles
Time and Costs	Fixed or variable costs Not obvious on income statement
Earnings Management	Smoothing earnings GAAP leaves “wiggle room” Global standardization of accounting GAAP versus IFRS
traded companies must file regular reports with the Securities and Exchange Commission	Publicly
These reports are usually filed electronically and can be searched at the SEC public site called	EDGAR
% tax paid on the next dollar earned	Marginal
– total tax bill / taxable income	Average
The difference between the number of dollars that came in and the number that went out	Cash Flow
The total of cash flow to creditors and cash flow to stockholders, consisting of the following: operating cash flow, capital spending, and change in net working capital.	Cash Flow from Assets (CFFA)
Cash generated from a firm's normal business activities.	Operating cash flow (OCF)
All accounts = percent of total assets (%TA)	Common-Size Balance Sheets
All line items = percent of sales or revenue (%SLS)	Common-Size Income Statements
Standardized statements are useful for:	Comparing financial information year-to-year Comparing companies of different sizes, particularly within the same industry
Relationship determined from a firm's financial information used for comparison purposes.	Financial Ratios
Short-term solvency, or liquid measures ratios are found on balance sheet	Current ratio Quick ratio acid test
Long-term solvency measures	Cash ratio Total debt ratio Times interest earned Cash coverage
The measure of short-term liquidity. the unit of measurement is eith dollars or times.	Current ratio
Inventory test of how many times inventory is turn over	Quick ratio or acid test
Cash divided by current liabilities is	Cash Ratio
takes into account all debts of all maturities to all creditors.	Total debt Ratio- equity Multiplier
This ratio measures how well a company has its interest obligations covered	Times interest Earned
the basic measure of the firm's ability to generate cash form operations.	Cash coverage ratio
measure days in inventory and times	Inventory turnover and days sales in inventory
how fast we can sell products Ratios	Receivables turnover and days sales in receivables
measurement in sales and total assets is	Total asset turnover
measurement of the companies net income	Profit margin
Is a measure of profit per dollar of assets.	Return on Assets
is a measure of how the stockholders fared during the year	Return on equity
measurement dividing net income and shares outstanding is	Earnings per share
measures how much investors are willing to pay per dollar of current earnings	Price-earning ratio
Price per share divided by sales per share usually used for new companies	price sales ratio
compares the market value of the firm's investments to their cost	Market to book ratio
an estimate of the market value of the company's operating assets	Enterprise value
relates all the value of the operating assests to a measure of the operating cash flow generated by those assets	EBITDA RATIO
s an expression that shows a company's return on equity (ROE) can be represented as a product of three other ratios: the profit margin, the total asset turnover and the equity multiplier.	the DuPont Identity
Internal and Sustainable Growth Payout and Retention Ratios	Dividend payout ratio Retention ratio
Cash dividends / Net income	Dividend payout ratio
Addition to Retained Earnings) / Net income	Retention ratio
How much the firm can grow assets using retained earnings as the only source of financing.	The Internal Growth Rate
How much the firm can grow by using internally generated funds and issuing debt to maintain a constant debt ratio.	The Sustainable Growth Rate
Determinants of Growth	Profit margin – operating efficiency Total asset turnover – asset use efficiency Financial leverage – choice of optimal debt ratio Dividend policy – choice of how much to pay to shareholders versus reinvesting in the firm
Problems with Financial Analysis	Conglomerates No readily available comparables Global competitors Different accounting procedures Different fiscal year ends Differences in capital structure Seasonal variations and one-time events

Created by: john.ovalles1