Finance Test 1

Front 1

a business organized as a separate legal entity owned by stockholders

Back 1

corporation

Front 2

list 5 major forms of business organization besides corporations

Back 2

-sole proprietorship
-partnership
-limited partnerships
-limited liability companies
-profesional corporation

Front 3

3 disadvantages of corporations

Back 3

-separation of ownership and management
-double taxation
-increased reporting requirements

Front 4

what is double taxation

Back 4

income taxed at the corporate rate and then dividends taxed at personal rate

Front 5

5 advantages of corporation

Back 5

-separation of ownership and management
-limited liability
-transfer of ownership is easy
-unlimited life
-easier to raise capital

Front 6

assets used to produce goods and services - examples

Back 6

real assets - machinery, factories, offices, technical expertise, trademarks, patents, brand recognition

Front 7

claims to the income generated by real assets - examples

Back 7

financial assets (securities) - equity, debt, bank loan

Front 8

corporations sell ___ to investors, and buy ___ for operation

Back 8

finanical assets, real assets

Front 9

the top financial manager within a firm

Back 9

CFO

Front 10

oversees cash management, credit management, capital expenditures, and financial planning

Back 10

treasurer

Front 11

oversees taxes, cost accounting, financial accounting, and data processing

Back 11

controller

Front 12

why can increasing market share be bad

Back 12

reducing prices could hurt firm financially. owners of firm want managers to maximize value of thier investment

Front 13

why can minimizing costs be bad?

Back 13

coflicts with goal of value maximization. ex. sometimes costs per unit increase with overtime wages but firm can still come out ahead

Front 14

IPO

Back 14

initial public offering, "go public"

Front 15

what is general trend at IPO?

Back 15

mixture of results.
ex. biofuel energy price went down while Yingli Green Energy went up

Front 16

seasoned offering

Back 16

offer more stock

Front 17

secondary market

Back 17

company gets no $

Front 18

most corporate bonds are traded ____ on a network of banks and securities dealers

Back 18

over the counter

Front 19

a bond is more complex than stock because it includes...

Back 19

face value, coupon payment, maturity, seniority and collateral, callable, convertible

Front 20

list 4 other markets besides stocks and bonds

Back 20

- money markets
- foreign exchange
- commodities (oil/wheat)
- derivative markets (options/futures)

Front 21

an organization that raises money from investors and provides financing for individuals, companies, and other organizations

Back 21

financial intermediary

Front 22

the investor's money is pooled and invested in a portfolio of securities

Back 22

mutual fund

Front 23

investment plan set up by an employer to provide for employees retirement

Back 23

pension fund

Front 24

an intermediary that does more than just pool and invest savings, it provides additional financial services

Back 24

financial institution (banks, insurance companies)

Front 25

the minimum acceptable rate of return for capital investments

Back 25

cost of capital

Front 26

investment projects offering rates of return higher than the cost of capital...

Back 26

add value to the firm

Front 27

investment projects offering rates of return less than cost of capital...

Back 27

are not worthwhile financially

Front 28

the cost of capital is an ____. the ___ of capital for risky investments is normally ___ than the firm's borrowing rate

Back 28

opportunity cost, OC, higher

Front 29

safe, investment grade, and junk bond territory include what

Back 29

AAA -> A safe
BBB = investment grade
BB->B junk

Front 30

a balance sheet is a financial statement that shows the ___ of the firm's assets and liabilities at a _____ in time

Back 30

value, particular point

Front 31

assets order:

Back 31

-cash
-A/R
-inventory
-other current assets

-property, plant, equipment
-intangible assets

Front 32

liabilities order:

Back 32

-debt due for repayment
-accounts payable
-other current liabilities

-long term debts

Front 33

current values at which the assets liabilities or equity can actually be bought or sold

Back 33

market values

Front 34

book value differs from market value in that..

Back 34

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

Front 35

market value / book value

Back 35

> 1

Front 36

financial statement that shows the revenues, expenses, and net income of a firm over a period of time

Back 36

income statement

Front 37

EBITDA

Back 37

earnings before interest, tax, depreciation, and ammortization

Front 38

calculations of earnings

Back 38

total revenues
- COGS
= GROSS MARGIN
-s & a expenses
-dep
-other expenses
= EBIT

Front 39

calc of net income

Back 39

EBIT
- interest
= taxable income
-taxes
= net income

Front 40

earnings per share =

Back 40

net income / shares outstanding

Front 41

financial statement that shows the company's cash inflows and outflows from operations as well as from its investments and financing activities

Back 41

statement of cash flows

Front 42

diff between cash flow and net income

Back 42

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

Front 43

net working capital =

Back 43

current assets - current liabilities

Front 44

CF=

Back 44

NI + DEP - change in NWC - CAPEX + change in FIN

Front 45

impact on stock price is positive when cash flow ___ as long as there was no change in profitability of firm

Back 45

increases