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124 Cards in this Set
- Front
- Back
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financial managment
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Decisions relating to how much/types of assets to acquire, how to raise capital needed to buy assets and how to run firm to maximize money
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Capital markets
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marketys where interest rates, stock and bonds are found
ex: fed reserve, SEC, savers... |
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Investments
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1. security analysis
2. portfolio theory 3. market analysis Behavioral finance: |
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Security analysis
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find value of individual securities. (stock and bonds)
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Portfolio theory
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structure 'baskets' of stocks/bonds. (limit rises)
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Market analysis
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stock/bond markets too high/low
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Behavioral finance
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investor psychology used to see if stock was based on high or low.
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Forms of business organizations
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proprietorship
partnership corporations limited liability |
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Proprietorship
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an unincorporated business owned by one individual
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Partnership
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An unicorporated business owned by 2 or more persons
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corporations
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legal entity created by a state, seperate and distince from its owners and managers, having unlimited life, easy transferabilty of ownership and limited liability
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Limited Liability companies
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Hybrid b/t a partnership and a corporation
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S corporation
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a special designation that allows small business that meet qualifications to be locked as if they were a proprietorship or partnership rather than a corporation
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LLP (Limited LIability Partnership)
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used for profitable firms in the fields of accounting, law, and architecture. It has limited liability like corporation but is taxed like partnerships
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Main goal of a corporation
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Maximize owners value
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Shareholder wealth Maximization
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main goal for managers of publicly owned companies implies that decisions should be made to mac the long run value of the firms common stock
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intrinsic value
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an estimate of a stocks true value based on accurate risk and return data. Can be estimated not measured precisely
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Market price
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Stock value based on perceived but possibly incorrect information as seen by marginal investor
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Marginal investor
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an investor whose views determine the actual stock price
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equilibrium
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the situation when actual market price=intrinsic value so investors don't know to buy or sell stock
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Corporate rider
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an individual who targets a corporation for take over because its underlaying
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Hostile takeover
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the acqusition of a company over the opposition of its mar???(margin?)
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Primary market transaction
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new securities are involved and corporation receives sale proceeds
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(global) economy development
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highly correlated with level and efficency of financial markets and instiutions
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Spot markets
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the markets in which assets are bought or sold for "on-the-spot" delivery
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Future markets
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the market in which participants agree today to buy or sell an asset at some future date
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Money markets
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the financial markets in which funds are borrowed or loaned for short periods (less than 1 year)
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Capital markets
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the financial markets for stocks and for intermediate or long term debt (1 year or longer)
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Primary markets
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markets in which corp raise capital by issuing new securities
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Secondary markets
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markets in which securities and other financial assets are tracked among investors after they have been issued by corporations
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private markets
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markets in which transactions are worked out directly between 2 parties
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public markets
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markets in which standardized contracts are traded on organized exchanges
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Derivative
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any financial asset whose value is derived from the value of some other "underlying" asset
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INvestment bank
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an organization that underwrites and distributes new investments securities, and helps business obtain financing
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commercial bank
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the traditional department store of finance serving a variety of savers and borrowers
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Financial services corporation
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a firm that offers a wide range of financial services, including investment banking, brokerage operations, insurance and commercial banking
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civil unions
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cooperative associations whose members are supposed to have a common bond
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pension funds
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retirement plans funded by coroporations organizations or government agencies for their workers and administrative primarily by trust department of company banks or insurance
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life insurance co.
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takes savings inform of annual premium
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mutual funds
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organizations that pool investor funds to purchase financial insturments and thus reduce risks through diversifacation
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money market funds
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mutual funds that invest in short-term low risk securities and allow investors to write checks against their accounts
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exchange traded funds ( ETF)
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traded in public market
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Hedge funds
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accept money from savers and use funds to buy securities
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Private equity companies
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private equity players buy and then manage entire firm
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Physical location exchanges
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formal org having tangible physical locations that conduct acution markets in designated securites
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Over the counter market
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a large collection of brokers and dealers, connected electronically by telephones and computers that provides for trading in unlisted securities
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Dealer Markets
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includes all facilties that are neede to conduct security transactions not conducted on teh physical location exchange
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Closely held corporation
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a corporation that is owned by a few individuals who are typically associated with the firms managment
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Publicly owned corporations
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a corporation that is owned by a relatively large number of individuals who are not actively involved in the firms management
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Going Public
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the act of selling stock to the public at large by a closely held corporation or its principal stockholder
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INitial Public Offering (IPO) market
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the market for stocks of companies that are in teh process of going public
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Over Subscribed
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demand for shares at the offering price > number of shares issued
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Dutch Auction
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the actual transaction price is set at the highest price, that causes all of the offered shares to be sold
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market price
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current price of a stock
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intrinsic value
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price would sell at if all investors held info
(expected future cash flow and risks) |
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Efficient market
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a market in which prices are close to intrinsic valuse and stocks seem to be in equilibrium
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current assets
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working capital;
assets turning liquid within a year |
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Annual Report
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a report issued annually by a corporation to its stockholders. It contains basic financial statements as well as management ananlysis of the firms past operations and future prospects
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Balance Sheet
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a statement of a firms financial position at a specific point in time
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Stockholders Equity
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represents amount that stockholders paid the companies when shares were purchased and the amount of earings the company has returned since its organization
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Retained Earnings
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Cumulative total of all earnings kept by the company during its life
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working capital
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current assets; used then replaced throughout the year
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net working capital
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Current assets-current Liabilities
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income statement
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a report summarizing a firms revenues, expenses, and profits during a reporting period. generally a quarter or a year
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operating income
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earnings from operators before interest and taxes (ex EBIT)
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Depreciation
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the charge to reflect the cost of assets used up in teh productino process. Not a cash outlay
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Amortization
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a non cash change similar to depreciation except that it is used to write off the costs of intangible assets
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EBITDA
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earnings before interest, taxes, depreciation and amortization
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statement of cash flows
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a reports that shows how things that affect the balance sheet and income statement affect the firms cash flow
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Statement of stockholder's equity
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a staetment that shows by how much a firm;s equity changed during the year and why this change occured
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Free Cash Flow
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the amount of cash that could be withdrawn from a firm without harming its ability to operate and to produce future cash flows
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Net operatinf Profit After Taxes (NOPAT)
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the profit a company would generate if it had no debt and held only operating assets
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Market Value Added
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the excess of the market valuse of equity over its book value
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Economic Value Added
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Excess of NOPAT over capital costs
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Progressive Tax
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a tax system where teh tax rate is higher on higher incomes. THe personal income tax in the US which range from 0% on the lowest to 35% on the highest incomes, is progressive
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Marginal tax rates
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the tax rate applicable to the last unit of a persons income
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average tax rate
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taxes paid divided by taxable income
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capital gain or loss
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the profit (loss) from the sale of a capital asset for more (less) than its purchase price
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Alternative minimum Tax (AMT)
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Created by congress to make it more difficult for wealthy individuals to avoid paying taxes through the use of various reductions
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tax loss carry-back or carry forward
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ordinary corporate operating losses can be carried backwards for 2 years and carried forward for 20 years to offset taxable income in a given year
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Liquidity Ratios
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give us an idea of the firms ability to pay off debts that are maturing withing a year
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Asset management ratios
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gives an idea of how efficeintly the firm is using its assets
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Profitability ratios
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idea of how profiable the firms operating and utilizing its assets
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Market value ratio
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bring in the stock price and gives idea of what investors think about the firm and its future property
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Liquid assets
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an asset that can be converted to cash quickly without having to reduce the assets price very much
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Liquidity Ratios
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ratios that show the relationship of a firm's cash and other current assets to its current liabilities
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Current Ratio
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the ratio calculated by dividing CA by CL Indicates the extent to which CL are covered by those assets expected to be converted to cash in near future
ex: cash, marketable securities, A/r, inventories |
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Quick Ratio
or Acid test |
measure the firms ability to pay off short term obligations without relaying on the sale of inventories
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Asset management ratios
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a set of ratios that measure how effectively a firm is managing its assets
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days sales outstanding ratio (DSO)
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indicates average length of time the firm must wait after making a sale before it receives cash
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Times-interest earned ratio
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a measure of the firms ability to meet its annual interest payment
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profitability ratio
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a group of ratios that show the combo effects of liquidity, assets management and debt an operating results
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Operating margin
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meaures operating income , or EBIT, per dollar of sales
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Return on common equity (ROE)
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measures rate of return on common stockholders investment
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Market value ratio
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ratio that relates the firms stock price to its searnings and book value per share
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price/earnings ratio
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the ratio of the price per share to earnings per share; show sthe $1 amount investors will pay for $1 of current earnings
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Dupont equation
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a formula that shows that the rate of return on equity can be found as the product of profit margin, total assets turnover, and the equity multiplier. It shows the relationships among assets management, debt management, and profitability ratio.
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Benchmarking
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The process of comparing a particular company
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Trend Analysis
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an analysis of a firms financial ratios overtime; used to estimate the likelihood of improvement or deterioration in its financial condition
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window dressing technique
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techniques employed by firm to make their financial stamements look better than they really are
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Time line
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An important tool used in time value analysis; it is a graphical representation used to show the timing of cash flows
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Future Value
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The amount to which a cash flow or series of cash flows will grow over a given period of time when compounded at a given interest rate
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Present Value
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the value today of a future cash flow or series of cash flows
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Compounding
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the arithmetic process of determining the final value of a cash flow or series of cash flows when compound interest is applied
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compound interest
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occurs when interest is earned on prior periods' interest
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simple interest
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occurs when interest is not earned on interest
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Annuity
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A series of equal payments at fixed intervals for a specified number of periods
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Ordinary (deferred) Annuity
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An annuity whose payments occur at the end of each period
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Annuity due
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an annuity whose payments occur at the beginning of each period
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FVAn
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The future value of an annuity over N periods
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PVAn
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the present value of an annuity of N periods
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Perpetuity
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A stream of equal payments at fixed intervals expected to continue forever
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Uneven (nonconstant) cash flows
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A series of cash flows where the amount varies from one period to the next
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Payment (PMT)
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the term designates equal cash flows coming at regular intervals
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Cash Flow (CFt)
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This term designates a cash flow that's not part of an annuity
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Annual Compounding
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The arithmetic process of determining the final value of a cash flow or series of cash flows when interest is added once a year
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Semiannual compounding
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the arithmetic process of determining the final value of a cash flow or series of cash flows when interest is added twice a year
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Nominal (quoted, or stated) interest Rate, Inom
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the contracted (or quoted or stated) interest rate
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Annual percentage rate (APR)
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TThe periodic rate times the number of periods per year
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Effective (equivalent) annual Rate (EFF% or EAR)
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The annual rate of interest actually being earned, as opposed to the quoted rate. Also called the "Equivalent annual rate"
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Amortized Loan
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A loan that is repaid in equal payments over its life
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Amoritzation Schedule
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A table showing precisely how a loan will be repaid. It gives the required payment on each payment date and a breakdown of the payment, showing how much is interest and how much is repayment of principal
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If market price is > intrinsic...
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sell!
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if market price is < intrinsic...
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buy!
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