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45 Cards in this Set

  • Front
  • Back
a business organized as a separate legal entity owned by stockholders
list 5 major forms of business organization besides corporations
-sole proprietorship
-limited partnerships
-limited liability companies
-profesional corporation
3 disadvantages of corporations
-separation of ownership and management
-double taxation
-increased reporting requirements
what is double taxation
income taxed at the corporate rate and then dividends taxed at personal rate
5 advantages of corporation
-separation of ownership and management
-limited liability
-transfer of ownership is easy
-unlimited life
-easier to raise capital
assets used to produce goods and services - examples
real assets - machinery, factories, offices, technical expertise, trademarks, patents, brand recognition
claims to the income generated by real assets - examples
financial assets (securities) - equity, debt, bank loan
corporations sell ___ to investors, and buy ___ for operation
finanical assets, real assets
the top financial manager within a firm
oversees cash management, credit management, capital expenditures, and financial planning
oversees taxes, cost accounting, financial accounting, and data processing
why can increasing market share be bad
reducing prices could hurt firm financially. owners of firm want managers to maximize value of thier investment
why can minimizing costs be bad?
coflicts with goal of value maximization. ex. sometimes costs per unit increase with overtime wages but firm can still come out ahead
initial public offering, "go public"
what is general trend at IPO?
mixture of results.
ex. biofuel energy price went down while Yingli Green Energy went up
seasoned offering
offer more stock
secondary market
company gets no $
most corporate bonds are traded ____ on a network of banks and securities dealers
over the counter
a bond is more complex than stock because it includes...
face value, coupon payment, maturity, seniority and collateral, callable, convertible
list 4 other markets besides stocks and bonds
- money markets
- foreign exchange
- commodities (oil/wheat)
- derivative markets (options/futures)
an organization that raises money from investors and provides financing for individuals, companies, and other organizations
financial intermediary
the investor's money is pooled and invested in a portfolio of securities
mutual fund
investment plan set up by an employer to provide for employees retirement
pension fund
an intermediary that does more than just pool and invest savings, it provides additional financial services
financial institution (banks, insurance companies)
the minimum acceptable rate of return for capital investments
cost of capital
investment projects offering rates of return higher than the cost of capital...
add value to the firm
investment projects offering rates of return less than cost of capital...
are not worthwhile financially
the cost of capital is an ____. the ___ of capital for risky investments is normally ___ than the firm's borrowing rate
opportunity cost, OC, higher
safe, investment grade, and junk bond territory include what
AAA -> A safe
BBB = investment grade
BB->B junk
a balance sheet is a financial statement that shows the ___ of the firm's assets and liabilities at a _____ in time
value, particular point
assets order:
-other current assets

-property, plant, equipment
-intangible assets
liabilities order:
-debt due for repayment
-accounts payable
-other current liabilities

-long term debts
current values at which the assets liabilities or equity can actually be bought or sold
market values
book value differs from market value in that..
its backward looking rather than forward

close to market value in highly liquid assets or short maturity liability

market values are usually higher than book values in equity and assets
market value / book value
> 1
financial statement that shows the revenues, expenses, and net income of a firm over a period of time
income statement
earnings before interest, tax, depreciation, and ammortization
calculations of earnings
total revenues
-s & a expenses
-other expenses
calc of net income
- interest
= taxable income
= net income
earnings per share =
net income / shares outstanding
financial statement that shows the company's cash inflows and outflows from operations as well as from its investments and financing activities
statement of cash flows
diff between cash flow and net income
income statement ignores cash expenditures on new capital, and subtracts depreciation. uses accrual accounting (records income at time of sale rather than exchange of money), and does not consider changes in net working capital
net working capital =
current assets - current liabilities
NI + DEP - change in NWC - CAPEX + change in FIN
impact on stock price is positive when cash flow ___ as long as there was no change in profitability of firm