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50 Cards in this Set

  • Front
  • Back
A business owned by a single individual:
Sole proprietorship
Area of financial management concerned w/ the capital structure of the firm and the amount of long-term debt and equity used by the firm:
Capital structure (long-term financing)
What kind of partnership has 2 different kinds of partners?
Limited partnership
The ____ of large corporations are generally not involved in the day-to-day operations of the firm. ____ make decisions on their behalf.
Stockholders, managers
A partnership in which all partners share and have unlimited liability for the firm’s debts:
General partnership
A legal entity created by the state, separate and distinct from its owners, w/ rights and privileges of an actual person:
Area of financial management concerned w/ short-term assets and liabilities:
Working capital management (short-term financing)
Conflicts of interest between stockholders and management:
Agency problem
Partners in a limited partnership who run the business and have unlimited liability:
General partners
What are the 4 basic areas of finance?
1) Corporate finance
2) Investments
3) Financial institutions
4) International finance
Process of planning and managing a firm's long-term investments:
Capital budgeting
A business formed by two or more co-workers:
Partners in a limited partnership who are silent on operations and have limited liability:
Limited partners
What are the 3 types of financial management decisions?
1) Capital budgeting
2) Capital structure
3) Working capital management
Area of finance that works with financial assets such as stocks and bonds:
Current assets - current liabilities = _______
Net working capital (NWC)
Area of financial management:

"What long-term investments should the business take on?"
Capital budgeting
Companies that specialize in financial matters:
Financial institutions
Who is the top financial manager within a firm?
Chief Financial Officer (CFO)
What organization is easiest to start, and the least regulated?
Sole proprietorship
Employed to manage money for investors:
Portfolio manager
Who oversees taxes, cost accounting, financial accounting, and data processing in a firm?
Area of finance that takes place outside U.S. borders:
International finance
What are 3 disadvantages of a corporation?
1) Separation of ownership and management (agency costs)
2) Double taxation
3) Highly regulated
Employed to advise customers on investments:
Stockbroker or financial advisor
What organization is taxed once as personal income?
Sole proprietorship
Area of finance that studies the value of financial assets, risk versus return, and asset allocation:
Employed to research individual investments:
Security analyst
Who oversees cash management, credit management, capital expenditures, and financial planning in a firm?
What are 2 disadvantages of a sole proprietorship?
1) Unlimited liability
2) Difficult to sell ownership interest
What are the 3 things that the manager (agent) of a firm wants?
1) low risk
2) bigger firm
3) perks
Market in which securities are bought and sold after their initial sale:
Secondary market (issuer is not involved)
Key questions in this area of financial management include:

How much inventory should we carry?

When should we pay suppliers?
Working capital management
What organization has limited liability and an unlimited life?
What are the 2 types of secondary markes?
1) dealer markets
2) auction markets
What 2 things does the stockholder (principal) want?
1) high stock prices
2) greater risk (more diversified)
Disadvantages of this organization include:

-Difficult to transfer ownership
-Difficult to raise large sums of capital
Market that involves the original sale of securities:
Primary market (issuer involved)
Key questions in this area of financial management include:

How should we pay for our assets?

Should we use debt or equity?
Capital Structure
This person does NOT want the firm to be diversified:
Manager (agent)
Advantages of this organization include separation of ownership and management and the easy transfer of ownership:

Focused on stock price maximization
Key questions in this area of financial management include:

How do we manage the day-to-day finances of the firm?

Who should we sell to on credit and under what terms?
Working capital management
Advantages of this organization include increased efficiency and no limit on size:


Focused on profit maximization
What is the goal of financial management?
Maximize the current value of the company's stock

Sole proprietorships and partnerships both have _____ liability.
Unlimited (disadvantage for both)
What are the 4 mechanisms for minimizing agency costs?
1) compensation structure
2) board of directors
3) institutional investors/large shareholders
4) threat of takeover