Fin 351 - Chapter 1

Front 1

finance

Back 1

the art and science of managing money

Front 2

financial services

Back 2

the area of finance concerned with the design and delivery of advice and financial products to individuals, business, and government

Front 3

managerial finance

Back 3

concerns the duties of the financial manager in the business firm

Front 4

financial manager

Back 4

actively manages the financial affairs of any type of business, whether financial or nonfinancial, private or public, large or small, profit-seeking or not-for-profit

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sole proprietorship

Back 5

a business owned by one person an operated for his or her own profit

Front 6

unlimited liability

Back 6

the condition of a sole proprietorship (or general partnership) allowing the owner's total wealth to be taken to satisfy creditors

Front 7

partnership

Back 7

a business owned by two or more people and operated for profit

Front 8

articles of partnership

Back 8

the written contract used to formally establish a business partnership

Front 9

corporation

Back 9

an artificial being created by law (often called a "legal entity")

Front 10

stockholders

Back 10

the owners of a corporation whose ownership, or equity, is evidenced by either common stock or preferred stock

Front 11

common stock

Back 11

the purest an most basic form of corporate ownership

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dividends

Back 12

periodic distributions of earnings to the stockholders of a firm

Front 13

board of directors

Back 13

group elected by the firm's stockholders and typically responsible for developing strategic goals and plans, setting general policy, guiding corporate affairs, approving major expenditures, and hiring/firing, compensating, and monitoring key officers and executives

Front 14

CEO

Back 14

corporate official responsible for managing the firm's day-to-day operations an carrying out the policies established by the board of directors

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limited partnership

Back 15

a partnership in which one or more partners have limited liability as long as at least one partner (the general partner) has unlimited liability

Front 16

S corporation

Back 16

a tax-reporting entity that allows certain corporations with 100 or fewer stockholders to choose to be taxed as a partnership

Front 17

limited liability corporation

Back 17

permitted in most states, the LLC gives its owners, like those of S corps, limited liability an taxation as a partnership

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limited liability partnership

Back 18

a partnership permitted in many states. all LLP partners have limited liability

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treasurer

Back 19

the firm's chief financial manager, who is responsible for the firm's financial planning an fun raising, making capital expenditure decisions, and managing cash, credit, the pension fund, an foreign exchange

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controller

Back 20

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

Back 21

the manager responsible for monitoring an managing the firm's exposure to loss from the currency fluctuations

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marginal cost-benefit analysis

Back 22

economic principle that states that financial decisions should be made and actions taken only when the added benefits exceed added costs

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accrual basis

Back 23

in preparation of financial statements, recognizes revenue at the time of sale an recognizes expenses when they are incurred

Front 24

cash basis

Back 24

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

Front 25

earnings per share

Back 25

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 stockholders by the number of shares of common stock outstanding

Front 26

risk

Back 26

the chance that actual outcomes may differ from those expected

Front 27

risk-averse

Back 27

seeking to avoid risk

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stakeholders

Back 28

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

Front 29

corporate governance

Back 29

the system used to direct and control a corporation. defines the rights and responsibilities of key corporate participants, decision-making procedures, and the way in which the firm will set, achieve, and monitor its objectives

Front 30

individual investors

Back 30

investors who buy relatively small quantities of shares so as to meet personal investment goals

Front 31

institutional investors

Back 31

investments professionals, such as insurance companies, mutual funds, an pension funds, that are paid to manage other people's money and that trade large quantities of securities

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sarbanes-oxley act of 2002

Back 32

an act aimed at eliminating corporate disclosure and conflict of interest problems. contains provisions about corporate financial disclosures and the relationship among corporations, analysts, auditors, attorneys, directors, officers, and shareholders

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ethics

Back 33

standards of conduct or moral judgment

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agency problem

Back 34

the likelihood that managers may place personal goals ahead of corporate goals

Front 35

agency costs

Back 35

the costs borne by stock-holders to maintain a governance structure that minimizes agency problems and contributes to the maximization of owner wealth

Front 36

incentive plans

Back 36

management compensation plans that tend to tie management compensation to share price; the most popular incentive plan involves the grant of stock options

Front 37

stock options

Back 37

an incentive allowing managers to purchase stock at the market price set at the time of the grant

Front 38

performance plans

Back 38

plans that tie management compensation to measures such as EPS, growth in EPS, and other ratios of return. performance shares and/or cash bonuses are used as compensation under these plans

Front 39

performance shares

Back 39

shares of stock given to management for meeting stated performance goals

Front 40

cash bonuses

Back 40

cash paid to management for achieving certain performance goals

Front 41

financial institutions

Back 41

an intermediary that channels the savings of individuals, businesses, and governments into loans or investments

Front 42

financial markets

Back 42

forums in which supplies of funds and demanders of funds can transact business directly

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private placement

Back 43

the sale of a new security issue, typically bonds or preferred stock, directly to an investor or group of investors

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public offering

Back 44

the nonexclusive sale of either bonds or stocks to the general public

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primary market

Back 45

financial market in which securities are initially issued; the only market in which the issuer is directly involved in the transaction

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secondary market

Back 46

financial market in which preowned securities (those that are not new issues) are traded

Front 47

money market

Back 47

a financial relationship create between suppliers and demanders of short-term funds

Front 48

marketable securities

Back 48

short-term debt instruments, such as T-bills, commercial paper, and negotiable certificates of deposit issued by government, business, and financial institutions, respectively

Front 49

federal funds

Back 49

loan transactions between commercial banks in which the federal reserve banks become involved

Front 50

eurocurrency market

Back 50

international equivalent of domestic money market

Front 51

london interbank offered rate (LIBOR)

Back 51

the base rate that is used to price all eurocurrency loans

Front 52

capital market

Back 52

a market that enables suppliers and demanders of long-term funds to make transactions

Front 53

bond

Back 53

long-term debt instrument used by business and government to raise large sums of money, generally from a diverse group lenders

Front 54

preferred stock

Back 54

a special form of ownership having a fixed periodic dividend that must be paid prior to payment of any dividends to common shareholders

Front 55

securities exchanges

Back 55

organizations that provide the marketplace in which firms can raise funds through the sale of new securities and purchasers can resell securities

Front 56

organized securities exchanges

Back 56

tangible organizations that act as secondary markets where outstanding securities are resold

Front 57

over-the-counter exchange

Back 57

an intangible market for the purchase and sale of securities not listed by the organized exchanges

Front 58

eurobond market

Back 58

the market in which corporations and governments typically issue bonds denominated in dollars and sell them to investors located outside the US

Front 59

foreign bond

Back 59

bond that is issued by a foreign corporation or government and is denominated in the investor's home market

Front 60

international equity market

Back 60

a market that allows corporations to sell shares to investors in a number of different countries simultaneously

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efficient market

Back 61

a market that allocates funds to their most productive uses as a result of competition among wealth-maximizing investors that determines and publicizes prices that are believed to be close to their true value

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ordinary income

Back 62

income earned through the sale of a firm's goods or services

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average tax rate

Back 63

a firm's taxes divided by its taxable income

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marginal tax rate

Back 64

the rate at which additional income is taxed

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double taxation

Back 65

occurs when the already once-taxed earnings of a corporation are distributed as cash dividends to stockholders, who must pay taxes of up to a maximum rate of 15 percent on them

Front 66

intercorporate dividends

Back 66

dividends received by one corporation on common and preferred stock held in other corporations

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capital gain

Back 67

the amount by which the sale price of an asset exceeds the asset's initial purchase price