Defining Financial Terms and Role in Finance Essay

1175 Words Dec 22nd, 2010 5 Pages

Defining Financial Terms and Role in Finance
University of Phoenix
FIN 370/ Finance for Business
November 10, 2010

Defining Financial Terms and Role in Finance The following paragraphs contain financial terms and their role in finance. The terms are finance, efficient market, primary market, secondary market, risk, security, stock, bond, capital, debt, yield, rate of return, return on investment, and cash flow. The fourteen terms all have an important relationship in the world of business. The first term is finance. Finance is managing money or supplying funds to provide a resource. A bank or loan company is a source of finance because they both provide cash. Cash is
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Capital is the amount of money an owner has invested in his or her business. The role of capital in finance is simple. A sole proprietor has a single investment. A partnership has multiple investments and a corporation’s amount of investment is shared by the stockholders. The capital has different amounts of investment in all three forms of businesses.
In accounting, a debt is a liability to be paid back in terms to the source of finance. It can be long or short term. A debt’s role in finance is that is an expense to a company that has interest payable. Rate of returned based on market price is called yield. For example, if an investor has bought shares of $10 par and company declares dividend of 10% in cash and still the market is at par. IT means that yield earned on share is equal to dividend declared. Now if market price is different from par, say it is $20, now dividend declared is same but dividend yield is 5%.
Any profit or loss that has been made for a specified period on investment is called the profit or loss in $ on your investment and when it is converted into percentage it is called rate of return. If a person invests $10,000 in January and in December it increases to $12,000, then the terms of investment for the year is $2,000. The rate of return is 20% per annum because (2000/10000)*100=20%.
Return on investment is the

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