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48 Cards in this Set
- Front
- Back
Finance
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Teh science and art of managing money
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Financial Services
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The area of finance concerned with the design and delivery of advice and financial products to individuals, businessesm and governments
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Financial Manager
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Actively manages the financial affairs of all types of businesses, wheather private or public, large or small, profit or not for profit.
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Sole Proprietorship
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A businesss owned by one person and operated for his or her own profit
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Unlimited Liability
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The condition of a sole prorietorship (or general partnership), giving creditors the right to make claims against the owner's personal assets to recoverdebt owed by the business
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Partnership
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A business owned by two or more people and operated for profit.
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articles of partnership
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The written contract used to formally establish a business
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Corporation
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An entity created by law
Corporations have the legal powers of an individual in that it can sue and be sued, make and be party to contracts, and acquire property in its own name. |
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Stockholders
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The owners of a corporation, whose ownership, or equity, takes the form of either common or preferred stock.
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Limited Liability
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A legal provision that limits stockholder's liability for a corportion's debt to the amount they initially invested in the firm by purchaseing stock.
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Common Stock
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The purest and most basic form of corporate ownership.
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Dividends
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Periodic distributions of cash to the stockholders of the firm
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Boad of directors
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Group elected be the firm's stockholders and typically responsible for approving strategic goals and plans, setting general policy, guiding corporate affairs, and approving major expenditures.
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President or Chief executive officer (CEO)
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Corporate official responsible for managing the firm;s dat-to-day operations and carrying out the policies established by the board of directors.
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Earnings per share (EPS)
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The amount earned during the period on behalf of each outstanding share of common stock
calculated by dividing the period's total earnings available for the firm's common stockholder by the number of shares of common stock outstanding. |
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Risk
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The chance that actual outcome may differ from those expected
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Risk Averse
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Requiring compensation to bear risk
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Stakeholders
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Groups such as employees, customers, suppliers, creditors, owners, and others who may have a direct economic link to the firm
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Business Ethics
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Standards of conduct or moral judgment that apply to persons engaged to commerce
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Treasurer
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The firm's chief financial manager, who manages the firm's cash, oversees its pension plans, and manages key riskes
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Controller
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The firm's chief accountant, who is responsible for the firm's accounting activities, such as corporate accounting, tax management, financial accounting, and cost accounting.
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Foreign exchange manager
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The manager responsible for managing and monitor the firm's exposure to loss from currency fluctiations
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Marginal cost-benefit analysis
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Economic principle that states that fianancial decisions should be made and action taken only when the added benefits exceed the added costs.
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Accrual Basis
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Inpreperastion of financial statements, recognizes revenue at the time of sale and recognizes expenses when they are incurred.
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Cash Basis
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Recognizes revenues and expenses only with respect to actual inflows and outflows of cash
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Corporate Governance
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The rules, processes, and laws by which companies are operated, controled, and regulated
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Individual Investors
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Investors who own relatively small quantities of shares so as to meet personal investment goals
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Institutional investors
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Investment prfessionals, such as bank, insurance companies, mutal funds, and pension fundsm that are paid to manage and hold large quantites of securities on behalf of others
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Sarbanes-Oxley Act of 2002 (SOX
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An act aimed at eliminating corporate disclosure and conflict of interest problems.
established an oversight board to monitor the accounting industry tightened audit regulations and controls toughened penalties against executives who commit corporate fraud strengthened accounting disclosure requirements and ethical guidelines for corporate officers |
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Principle agent relationship
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An arrangement in which an agent act on behalf of a principle.
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Agancy Problems
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Problems that arise when managers place personal goals ahead of the goals of shareholders
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Agency Costs
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Costs arising from agency problems that are borne be shareholders and represent a loss of shareholder wealth
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Incentive plans
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Management compensation plan that tie management compensations to share price (Helps negate agency problems)
Sotck Options Performance Plans |
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Stock Options
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options extended be the firm that allow managment to benefit from increases in stock prices over time.
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Performance Plans
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Planse that tie managmen compensations to measures wush as EPS or growth in EPS. Perdormance shares and / or cash bonuses are used as compensation under these plans.
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Performance Shares
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Shares of stock given to managemnt for meeting stated performance goals
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Cash Bonuses
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Cash paid to managment for achieving certian performance goals.
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Important business questions that are answered using finance
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What investments should the firm take on? • Where will we get the financing to pay for the investment? • How will we manage the everyday financial activities of the firm? |
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Investment Descions are associated to what side of the accouting equation
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Current Assets
Fixed Assets |
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Fianacing Descions are associated to what side of the accouting equation
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Short term - Current Liabilites
Long term - Long term debt & Stockholders Equity |
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The primary economic principal used by financial managers
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marginal cost-benefit analysis
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While accounting is primarily concerned with the presentation of financial data, the financial manager is primarily concerned with
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analyzing and interpreting this information for decision-making purposes.
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One major difference in perspective and emphasis between finance and accounting is that accountants generally use
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accrual method to calculate profits while in finance, the focus is on cash flows.
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What is the goal of a corporation?
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Maximize Shareholder Value
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Shareholder Value is the present (discounted) worth of:
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Current and Future “Cash Flow”,
Cash Flow is cash generated by operations, less required capital investment and debt service. |
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Securities and Exchange Act of 1933 and 1934
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Regulation of financial markets
Disclosure of accounting statements Guidelines for calculating and reporting accounting information Restrictions on certain activities by corporate insiders |
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Dodd Frank
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Increased transparency
Increased Consumer Protection Prohibits certain types of investments by banks |
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What is a market?
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Firms are structured to operate in markets
A market is a venue where goods and services are exchanged. A financial market is a place where individuals and organizations wanting to borrow funds are brought together with those having a surplus of funds. |