Chapter 1: Goals & Functions Of Financial Management

Front 1

Financial Capital

Back 1

Common Stock, Preferred Stock, Bonds, & Retained Earnings.

Appears on the Balance Sheet under Long-Term Liabilities and Equity

Front 2

Real Capital

Back 2

Long-term productive assets

(Plant, Property & Equipment)

Front 3

Capital Structure Theory

Back 3

A theory that addresses the relative importance of debt and equity in the overall financing of the firm.

Front 4

Inflation

Back 4

prices increasing with the passage of time.

Front 5

Disinflation

Back 5

A leveling off or slowdown of price increases.

Front 6

Credit Default Swap (CDS)

Back 6

Securities that were created by financial institutions as insurance against borrowers defaulting on their loans.

Front 7

Sole Proprietorship

Back 7

Single- Person Ownership with full Liability.

Advantages: simplicity of decision making & low operating costs.

Front 8

Partnership

Back 8

Two or More partners are involved with unlimited liability.

Advantage: Single taxation

Front 9

Articles of Partnership

Back 9

An agreement between the partners that specifies the interest of each, the methods of distributing profits, and the means for withdrawing from a partnership.

Front 10

Limited Liability Partnership

Back 10

Limits Liability for most of the Partners. Usually unlimited liability for one partners and limited liability up to the initial investment for the rest.

Front 11

Corporation

Back 11

A form of ownership in which a separate legal entity is created. Limited Liability.

Double Taxation: Profits & Dividends

Front 12

Articles of Incorporation

Back 12

A document that establishes a corporation and specifies the rights and limitations of the business entity.

Front 13

Sub-chapter S Corporation

Back 13

A special type of Corporation where profit is taxed as direct income to the stockholders (single taxation) and limited liability.

Front 14

Agency Theory

Back 14

Theory that examines that relationship between the owners and the managers.

Front 15

Institutional Investors

Back 15

Large investors such as pension funds or mutual funds.

Front 16

Shareholder Wealth Maximization

Back 16

Profit Maximization for the shareholders. Primary goal of the firm and should influence all decisions.

Front 17

Insider Trading

Back 17

Occurs when someone has information that is not available to the public and uses it to profit by trading in a company's common stock.

Front 18

Financial Markets

Back 18

The place of interaction for people, corps, and institutions that either need money or have money to lend or invest.

Front 19

Public Financial Markets

Back 19

Markets in which national, state, and local gov'ts raise money for highways, education, welfare, etc.

Front 20

Corporate Financial Markets

Back 20

Markets in which corporations raise funds.

Front 21

Money Markets

Back 21

Competitive markets for securities with maturities of one year or less. Treasury Bills, Commercial Paper, etc.

Front 22

Capital Markets

Back 22

Competitive markets for securities with maturities of more than one year. Common Stock, Bonds, & Preferred Stock.

Front 23

Primary Markets

Back 23

The market for the raising of new funds as opposed to trading of securities already in existence.

Front 24

Secondary Markets

Back 24

The market for securities that have already been issued. It is a market in which investors trade back and forth with each other.

Front 25

Restructuring

Back 25

See page 434