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19 Cards in this Set
- Front
- Back
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What is Finance? |
“the system that includes the circulation of money, the granting of credit, the making of investments, and the provision of banking facilities.” |
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What are the three areas of finance? |
1) Financial Management 2) Capital Markets 3) Investments |
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What is Financial Management? |
also called corporate finance, focuses on decisions relating to how much and what types of assets to acquire, how to raise the capital needed to purchase assets, and how to run the firm so as to maximize its value. |
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What are Capital Markets? |
markets where interest rates, along with stock and bond prices, are determined. |
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What are Investments? |
(1) Security analysis deals with finding the proper values of individual securities (2) Portfolio theorydeals with the best way to structure portfolios, or “baskets,” of stocks and bonds. (3) Market analysis deals with the issue of whether stock and bond markets at any given time are “too high,” “too low,” or “about right.” |
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Sarbanes-Oxley Act |
A law passed by Congress that requires the CEO and CFO to certify that their firm’s financial statements are accurate. |
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Proprietorship |
An unincorporated business owned by one individual. |
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Partnership |
An unincorporated business owned by two or more persons. |
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Corporations |
A legal entity created by a state, separate and distinct from its owners and managers, having unlimited life, easy transferability of ownership, and limited liability. |
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S Corporations |
A special designation that allows small businesses that meet qualifications to be taxed as if they were a proprietorship or a partnership rather than a corporation. |
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Limited Liability Company (LLC) |
A popular type of organization that is a hybrid between a partnership and a corporation. |
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Limited Liability Partnership (LLP) |
Similar to an LLC but used for professional firms in the fields of accounting, law, and architecture. It provides personal asset protection from business debts and liabilities but is taxed as a partnership. |
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Intrinsic Value |
An estimate of a stock’s “true” value based on accurate risk and return data. Can be estimated, but not measured precisely. |
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Market Price |
The stock value based on perceived but possibly incorrect information as seen by the marginal investor. |
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Marginal Investor |
An investor whose views determine the actual stock price. |
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Equilibrium |
The situation in which the actual market price equals the intrinsic value, so investors are indifferent between buying and selling a stock. |
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Corporate Raiders |
Individuals who target corporations for takeover because they are undervalued. |
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Hostile Takeover |
The acquisition of a company over the opposition of its management. |
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Shareholder Wealth Maximization |
The primary financial goal for managers of publicly owned companies implies that decisions should be made to maximize the long-run value of the firm’s common stock. |
