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23 Cards in this Set
- Front
- Back
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Capital Budgeting
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The process of planning and managing a firm's long term interests.
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Capital Structure
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The mixture of debt and equity maintained by a firm.
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Working Capital Management
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A firm's short term assets and liabilities
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Sole Proprietorship
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A business owner by a single individual.
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Partnership
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A business formed by two or more individuals.
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General Partnership
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A partnership is which all partners have equal liability for the businesses losses.
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Limited Partnership
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One or more general partners will run the business and have unlimited liability while some limited partners will not actively participate in the business and carry no liability (except their investment).
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Primary Disadvantages of Sole Proprietorship's and Partnerships
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1. Unlimited liability for business debts on the part of the owners, 2. Limited Life of the business, and 3. Difficulty of transferring ownership. Altogether these limitations make it difficult for business to raise cash for investments.
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Corporation
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A business created as a distinct legal entity composed of one or more individuals or entities.
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Articles of Confederation
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Required to create a corporation and must contain name, intended life, its business purpose, and the number of shares it can issue.
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Reason for the success of corporations
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Ownership can be easily transferred, corporations can borrow money in their own name, the owners have no liability for what the corporation does.
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Limited Liability Company (LLC)
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Hybrids between partnerships and corporations, they conferred limited liability but avoid double taxation.
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The goal of financial management
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is to maximize the current value per share of the existing stock.
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Corporate Finance
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The study of the relationship between decisions and the value of the stock in the business.
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More general goal of financial management
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is to maximize the market value of existing owners' equity.
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Sarbanes-Oxley
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Act passed in 2002 designed to protect investors from corporate abuse.
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Agency Problem
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The possibility of conflict of interest between the stockholders and management of a firm.
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Agency Cost
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Refers to the costs of conflict of interest between stockholders and management.
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Stakeholder
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Someone other than a stockholder or creditor who potentially has a claim on cash flows of the firm.
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Primary Markets
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The original selling place of securities by the government and corporations.
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Secondary Markets
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Those markets in which securities are bought and sold after their original sale.
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Auction Markets
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The seller usually does not own the stock and the sale takes place at an exchange or auction. Example NYSE
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Dealer Markets
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The dealer owns the stock and the sale can take place anywhere (mostly electronically) Example NASDAQ
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