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77 Cards in this Set
- Front
- Back
How can the firm pay out residual cash flows? |
To the owners as dividends or to reinvest it. |
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What are the three decisions a financial manager makes? |
Capital Budgeting Decision (which assets to buy) Financing Decision (how to finance or pay for assets) Working Capital Decisions (How should day to day financial matters by managed) |
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The ____ prepares financial statements, oversees accounting, taxes, etc. |
Controller |
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The _______ looks after the collection and distribution of cash. |
Treasurer |
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The _______ is responsible for in depth risk assessments. |
Internal Auditor |
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The ______ provides an independent audit. |
External Auditor |
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The _______ approves the external auditors fees. |
Audit Committee |
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_______ are not the same as cash flows. |
Accounting profits. |
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Profit maximization ignores the _____ |
risk associated with cash flows |
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Goal of Financial Management? |
To maximize the value of the stock. To maximize the value of the owner's equity (in private corp) |
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Direct Financial markets - the minimum transaction is > _____ and done through investment banks. |
1 million |
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______ is a basic investment banking service to assist firms in the sale of debt or equity. |
Underwriting |
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Primary Market - the market selling new security issues when? |
The first time |
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Liquidity - when an asset can be easily converted into cash without ________________ |
loss of value |
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Dealers buy and sell - |
from their own inventory and have risk |
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Money markets (wholesale global markets) are highly marketable and deal with ________ maturities. |
short term |
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Capital markets deal with ___________ debt |
long term |
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Futures and Options markets are often called |
derivative securities |
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short term IOU's are also called |
commercial papers |
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Interest rate determined in the absence of inflation - |
real rate of interest |
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Stakeholder Perspectives |
stockholder manager creditor |
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Manger gets feedback on investing, financing, and working capital decisions by identifying ______. |
trends |
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Creditors monitor ___________ and ___________. |
debt and short term obligactions |
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Use only ______________ financial statements. |
audited |
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Each asset and liability item on balance sheet is standardized by dividing by ____ |
total assets |
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Each income statement item standardized by dividing it by dollar amount of ______ |
net sales |
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Liquidity rations : higher number = ___________ |
more liability |
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Inventory subtracted from total current assets determines _________ |
most liquid assets |
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Efficiency ratios measure how efficiently firm's management uses ___________________ |
assets to generate sales |
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Too high or too low of an inventory turnover can be a ____________________ |
warning sign |
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Days sales in inventory measures the number of days firm takes to ________________ |
turn over inventory |
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The smaller the number of the days sales ratio, the more ___________ |
efficient |
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The Days Sales Outstanding measures the number of days the firm takes to ______ |
convert receivables into cash |
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Leverage ratios reflect the ability of firm and owners to use equity to _____ |
generate borrowed funds |
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Financial leverage refers to the use of debt in the firm's ___________ |
capital structure |
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Net profit margin measures amount of ______ |
net income after taxes |
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P/E ratio reflects investor's expectations of ____________ |
future earnings |
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In DuPont, the set of related ratios link __________ and ____________________ |
balance sheet and income statements |
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Weak operations efficiency calls for a closer look at the firm's _______________ |
income statement items |
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Asset turnover or leverage problems shift focus to ________________ |
balance statement |
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ROE (return on equity) is based on after-tax earnings - not ______ |
cash flows |
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ROE does not consider __________ |
risk |
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What three ways do financial managers use to create a benchmark for comparison? |
time trend industry average peer groups |
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Ratio analysis depends on accounting data based on ____________ |
historical costs |
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Time trend analysis could be distorted by financial statements affected by ______ |
inflation |
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Any price balancing overall supply and demand for a security is ________________ |
market equilibrium price |
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A security's true value is a price reflecting investors' estimates of value of expected ____________ |
future cash flows |
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Operational efficiency focuses on bringing buyers and sellers together at lowest ___________ |
possible cost |
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Semi-strong market efficiency implies that only __________ information available to all investors is reflected in the market price |
public |
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Corporate bonds are ____________ that represent claims against a firm's assets. |
long term IOU's |
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Debt instruments where the interest income paid to investors is fixed for the life of the contract are ________________ securities. |
fixed income |
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Vanilla bonds have _________________ fixed for the life of the bond and have a maturity period |
coupon payments |
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Convertible bonds are bonds that can be converted into _____________ at a predetermined ratio. |
shares of common stock |
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If a bond's coupon rate is equal to market rate, bond will sell at a price equal to its face value - these are called _____ bonds |
par |
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If the coupon rate is less than the market rate, they are called _____________ bonds. |
discount |
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For a given change in interest rates, prices of long term bonds will change _________ than prices of short term bonds. |
more |
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Long term bonds have greater ___________. |
price volatility |
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For a change in _____________, low coupon bonds change more than high coupon bonds. |
interest rates |
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Marketability refers to investor's ability to sell a security quickly at a low transaction cost, and at its fair _____________. |
market value |
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Call provision gives the firm issuing bonds the option to purchase the bond from an investor at a predetermined rate or _______________. |
call price |
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Two most prominent credit rating agencies are ___________ |
Standard and Poors & Moody's |
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Highest rate bonds with the lowest default risk are rated ____________ |
AAA |
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Term structure is the relationship between __________ and term to maturity. |
yield |
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Ascending or normal yield curves are upward sloping curves that occur when economy is __________ |
growing |
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What three economic factors shape the yield curve? |
real rate of interest expected rate of return interest rate risk |
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The longer the __________ of a security, the greater its interest rate risk.
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maturity |
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Common stock represents ____ in a corporation. |
ownership claim |
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Owners of common stock are not guaranteed any _____________ |
dividend payments |
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Even though preferred stock is equity, owners have no ________________ |
voting privileges |
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Brokers cannot guarantee an order will be _____________ |
executed promptly (Dealers can because they have an inventory of securities) |
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In contrast to coupon payments on bonds, size and timing of dividend cash flows are ________ |
less certain |
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From an investor's perspective, secondary markets provide ________ at a fair price for shares of securities they own. |
marketability |
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Active secondary market enables firms to sell their new debt or equity issues at lower ____________ |
funding costs |
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Each secondary market differs according to amount of ____ information available to investors. |
price |
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In _______ stock prices change constantly as new information becomes available. |
efficient markets |
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Growth stocks are those of companies whose earnings are growing at ______________ rate. |
an above average |
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Constant dividend growth is an appropriate assumption for ______________ with history of stable growth. |
mature companies |