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47 Cards in this Set

  • Front
  • Back
working capital
A firm's short-term assets and liabilities.
uses of cash
A firm's activities in which cash is spent. Also called applications of cash.
sustainable growth rate
The maximum growth rate a firm can achieve without external equity financing while maintaining a constant debt-equity ratio.
statement of cash flows
A firm's financial statement that summarizes its sources and uses of cash over a specified period.
Standard Industrial Classification (SIC) code
A U.S. government code used to classify a firm by its type of business operations.
Someone other than a stockholder or creditor who potentially has a claim on the cash flows of the firm.
sources of cash
A firm's activities that generate cash.
sole proprietorship
A business owned by a single individual.
simple interest
Interest earned only on the original principal amount invested.
retention ratio
The addition to retained earnings divided by net income. Also called the plowback ratio.
present value (PV)
The current value of future cash flows discounted at the appropriate discount rate.
planning horizon
The long-range time period on which the financial planning process focuses-- usually the next two to five years.
percentage of sales approach
A financial planning method in which accounts are varied depending on a firm's predicted sales level.
A business formed by two or more individuals or entities.
operating cash flow
Cash generated from a firm's normal business activities.
noncash items
Expenses charged against revenues that do not directly affect cash flow-- such as depreciation.
net working capital
Current assets less current liabilities.
marginal tax rate
Amount of tax payable on the next dollar earned.
internal growth rate
The maximum growth rate a firm can achieve without external financing of any kind.
interest on interest
Interest earned on the reinvestment of previous interest payments.
income statement
Financial statement summarizing a firm's performance over a period of time.
Generally Accepted Accounting Principles (GAAP)
The common set of standards and procedures by which audited financial statements are prepared.
future value (FV)
The amount an investment is worth after one or more periods.
free cash flow
Another name for cash flow from assets.
financial ratios
Relationships determined from a firm's financial information and used for comparison purposes.
Du Pont identity
Popular expression breaking ROE into three parts: operating efficiency-- asset use efficiency-- and financial leverage.
dividend payout ratio
The amount of cash paid out to shareholders divided by net income.
discounted cash flow (DCF) valuation
Calculating the present value of a future cash flow to determine its value today.
Calculate the present value of some future amount.
discount rate
The rate used to calculate the present value of future cash flows.
A business created as a distinct legal entity composed of one or more individuals or entities.
The process of accumulating interest on an investment over time to earn more interest.
compound interest
Interest earned on both the initial principal and the interest reinvested from prior periods.
common-size statement
A standardized financial statement presenting all items in percentage terms. Balance sheet items are shown as a percentage of assets and income statement items as a percentage of sales.
common–base year statement
A standardized financial statement presenting all items relative to a certain base-year amount.
cash flow to stockholders
Dividends paid out by a firm less net new equity raised.
cash flow to creditors
A firm's interest payments to creditors less net new borrowings.
cash flow from assets
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.
capital structure
The mixture of debt and equity maintained by a firm.
capital intensity ratio
A firm's total assets divided by its sales-- or the amount of assets needed to generate $1 in sales.
capital budgeting
The process of planning and managing a firm's long-term investments.
balance sheet
Financial statement showing a firm's accounting value on a particular date.
average tax rate
Total taxes paid divided by total taxable income.
The process by which smaller investment proposals of each of a firm's operational units are added up and treated as one big project.
agency problem
The possibility of conflict of interest between the stockholders and management of a firm.
agency cost
If management does not take the investment, then the stockholders may lose a valuable opportunity. This is one example of an agency cost.
More generally, the term agency costs refers to the costs of the conflict of interest between stockholders and management. These costs can be indirect or direct. An indirect agency cost is a lost opportunity, such as the one we have just described. Direct agency costs come in two forms. The first type is a corporate expenditure that benefits management but costs the stockholders. Perhaps the purchase of a luxurious and unneeded corporate jet would fall under this heading. The second type of direct agency cost is an expense that arises from the need to monitor management actions. Paying outside auditors to assess the accuracy of financial statement information could be one example.
proxy fight
A proxy is the authority to vote someone else’s stock. A proxy fight develops when a group solicits proxies in order to replace the existing board, and thereby replace existing management.