Defining Financial Terms Essay
Finance – Built upon a combination of both economic and accounting principles. Finance creates a value of wealth and aims to maintain that value of wealth in the market. Finance investigates everything that has to do with money or the value of wealth in the market. The role of finance is to help management deal with financial issues a corporation may encounter.
Efficient market – The stock prices reflect available and relevant information therefore the value of assets and securities at any instant is the same. Available information is public therefore profit-driven individuals cannot profit from public information because the price is right. The role of efficient market is to present quick information …show more content…
Bond – A type of debt or promissory note in which the authorized issuer owes the holder money. The issuer may be obligated to pay interest. The role of bonds in finance is to allow the business owners to issue them and sale them for money the company can use for financial needs.
Capital – A company’s financial assets also known as fixed assets. The capitals role in finance is that it can measure a company’s value.
Debt – Made of the credit extended by suppliers or loans from a bank. The role of debt it to help companies borrow money they can pay back.
Yield – The income received from an investment. A yield to an investment is calculated in various methods depending on what the investment is. The role of a yield is to express a percentage of cost of the investment.
Rate of return – Is the ratio of money gained or lost on an investment. The amount is express as a percentage of the original investment. The role of the rate of return is for an investor to measure how his money is doing.
Return on investment - Measures the efficiency of an investment. The formula use is as
follows: ROI = (Gain from Investment – Cost of Investment) Cost of Investment
Cash flow – The movement of cash in-and-out of the business. The cash flow is measure during a specific period of time. The role of the cash flow reports is to calculate a