Chapter 1 Introduction To Managerial Finance

Front 1

Accrual Basis

Back 1

Inpreperastion of financial statements, recognizes revenue at the time of sale and recognizes expenses when they are incurred.

Front 2

Agancy Problems

Back 2

Problems that arise when managers place personal goals ahead of the goals of shareholders

Front 3

Agency Costs

Back 3

Costs arising from agency problems that are borne be shareholders and represent a loss of shareholder wealth

Front 4

articles of partnership

Back 4

The written contract used to formally establish a business

Front 5

Boad of directors

Back 5

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.

Front 6

Business Ethics

Back 6

Standards of conduct or moral judgment that apply to persons engaged to commerce

Front 7

Cash Basis

Back 7

Recognizes revenues and expenses only with respect to actual inflows and outflows of cash

Front 8

Cash Bonuses

Back 8

Cash paid to managment for achieving certian performance goals.

Front 9

Common Stock

Back 9

The purest and most basic form of corporate ownership.

Front 10

Controller

Back 10

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.

Front 11

Corporate Governance

Back 11

The rules, processes, and laws by which companies are operated, controled, and regulated

Front 12

Corporation

Back 12

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.

Front 13

Dividends

Back 13

Periodic distributions of cash to the stockholders of the firm

Front 14

Dodd Frank

Back 14

Increased transparencyIncreased Consumer ProtectionProhibits certain types of investments by banks

Front 15

Earnings per share (EPS)

Back 15

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.

Front 16

Fianacing Descions are associated to what side of the accouting equation

Back 16

Short term - Current LiabilitesLong term - Long term debt & Stockholders Equity

Front 17

Finance

Back 17

Teh science and art of managing money

Front 18

Financial Manager

Back 18

Actively manages the financial affairs of all types of businesses, wheather private or public, large or small, profit or not for profit.

Front 19

Financial Services

Back 19

The area of finance concerned with the design and delivery of advice and financial products to individuals, businessesm and governments

Front 20

Foreign exchange manager

Back 20

The manager responsible for managing and monitor the firm's exposure to loss from currency fluctiations

Front 21

Important business questions that are answered using finance

Back 21

•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?

Front 22

Incentive plans

Back 22

Management compensation plan that tie management compensations to share price (Helps negate agency problems)Sotck OptionsPerformance Plans

Front 23

Individual Investors

Back 23

Investors who own relatively small quantities of shares so as to meet personal investment goals

Front 24

Institutional investors

Back 24

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

Front 25

Investment Descions are associated to what side of the accouting equation

Back 25

Current AssetsFixed Assets

Front 26

Limited Liability

Back 26

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.

Front 27

Marginal cost-benefit analysis

Back 27

Economic principle that states that fianancial decisions should be made and action taken only when the added benefits exceed the added costs.

Front 28

One major difference in perspective and emphasis between finance and accounting is that accountants generally use

Back 28

accrual method to calculate profits while in finance, the focus is on cash flows.

Front 29

Partnership

Back 29

A business owned by two or more people and operated for profit.

Front 30

Performance Plans

Back 30

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.

Front 31

Performance Shares

Back 31

Shares of stock given to managemnt for meeting stated performance goals

Front 32

President or Chief executive officer (CEO)

Back 32

Corporate official responsible for managing the firm;s dat-to-day operations and carrying out the policies established by the board of directors.

Front 33

Principle agent relationship

Back 33

An arrangement in which an agent act on behalf of a principle.

Front 34

Risk

Back 34

The chance that actual outcome may differ from those expected

Front 35

Risk Averse

Back 35

Requiring compensation to bear risk

Front 36

Sarbanes-Oxley Act of 2002 (SOX

Back 36

An act aimed at eliminating corporate disclosure and conflict of interest problems. established an oversight board to monitor the accounting industrytightened audit regulations and controlstoughened penalties against executives who commit corporate fraudstrengthened accounting disclosure requirements and ethical guidelines for corporate officers

Front 37

Securities and Exchange Act of 1933 and 1934

Back 37

Regulation of financial marketsDisclosure of accounting statementsGuidelines for calculating and reporting accounting informationRestrictions on certain activities by corporate insiders

Front 38

Shareholder Value is the present (discounted) worth of:

Back 38

Current and Future “Cash Flow”,Cash Flow is cash generated by operations, less required capital investment and debt service.

Front 39

Sole Proprietorship

Back 39

A businesss owned by one person and operated for his or her own profit

Front 40

Stakeholders

Back 40

Groups such as employees, customers, suppliers, creditors, owners, and others who may have a direct economic link to the firm

Front 41

Stock Options

Back 41

options extended be the firm that allow managment to benefit from increases in stock prices over time.

Front 42

Stockholders

Back 42

The owners of a corporation, whose ownership, or equity, takes the form of either common or preferred stock.

Front 43

The primary economic principal used by financial managers

Back 43

marginal cost-benefit analysis

Front 44

Treasurer

Back 44

The firm's chief financial manager, who manages the firm's cash, oversees its pension plans, and manages key riskes

Front 45

Unlimited Liability

Back 45

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

Front 46

What is a market?

Back 46

Firms are structured to operate in marketsA 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.

Front 47

What is the goal of a corporation?

Back 47

Maximize Shareholder Value

Front 48

While accounting is primarily concerned with the presentation of financial data, the financial manager is primarily concerned with

Back 48

analyzing and interpreting this information for decision-making purposes.