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72 Cards in this Set
- Front
- Back
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open book management
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Allowing employees to view financial information helps them better understand how their work helps the organization
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Financing activities
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Provide necessary funds to start a business and expand it once it begins operating
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Investing Activities
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Provide valuable assets required to run a business
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Operating activities
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focus on selling goods and services, but they also consider expenses as important elements of sound financial management.
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Accountant classifications
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Public, MGMT, government, and not-for-profit
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public accountant
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provides accounting services to individuals or a business for a fee
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CPA
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certified public accountant, have to pass tests to become so
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Forensic accountants
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Audit in order to determine whether a crime such as insider trading or keeping money in a not-for-profit occurs
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Management accountant
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Works for a company that is not an accounting company. are effective because they can provide up to the minute financial information
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Certified Management accountant
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management accountant who has experience and passed a test to deem them so
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Generally accepted accounting principles
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Morally correct standards by which accountants must follow, regulated by the Financial Accounting Standards Board
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Accounting cycle
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the process by which accountants convert data by individual transactions into financial statements
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Accounting equation
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Assets= liability + Owners' equity
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Asset
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Anything owned or leased by a business. Can be tangible or intangible
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Liability
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Anything a business owes to creditors
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Owner's equity
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The owner's initial investment in the business plus profits that have not already been paid out in cash
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Double entry bookkeeping
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For every entry in the book, an offsetting entry must be made so that the accounting equasion holds true.
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Balance Sheet
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Shows the financials of a business at that exact moment in time, sort of a photograph of what is happening.
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Income Statement
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Shows the financials of a business over a period of time. Bottom line is net income after taxes
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Statement of owners' or shareholders' equity
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Uses components such from balance sheet and income statement such as net income to determine change in equity from one year to another
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Statement of cash flows
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statement showing the sources and uses of cash during a period of time
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Accrual Accounting
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Accounting technique that records revenue expenses exactly when they occur, not just when cash changes hands.
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Ratio Analysis
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Most commonly used tool for measuring firms liquidity, profitability, and reliance on debt financing.
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Liquidity ratios
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Current Ratio: C A/C L
Quick Ratio: (C A)-I/C L |
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Activity Ratios
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Measure the effectiveness of mgmts use of firms resources
Inventory T.O.: Cost of goods/Avg I Recievabes T.O.: Credit Sales/Avg Accts Receivable Total Asset T.O.: Sales/Avg. Total Assets |
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Profitability Ratios
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Measures the organizations overal financial perormance by evaluating its ability to generate revenues in excess of operatiing costs and other expenses
Gross profit margin: Gross profit/sales Net profit margin: Net income/sales Return on equity: Net income/avg equity |
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Leverage Ratios
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Measure the extent to which a firm relies on debt financing
Debt Ratio: Total liabilities/total assets Long-term debt to equity: Long-term debt/Owners equity |
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budget
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Organization' plans for how it will raise and spend money over a given period
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Savers
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People with an excess amount of funds who save more than they spend
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Users
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people like the gov who spend more than they earn
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Securities
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represent obligations on the part of the issuers - business and governments - to provide purchasers with expected or stated returns on the funds invested or loaned.
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Money Market instruments
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are short term debt securities issued by governments, financial institutions, and corporations that mature in a year
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Government bonds
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bonds sold by the US Department of Treasury, since they have the backing of the nation they are least risky
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Municipal Bonds
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Are issued by the state or local governments
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revenue bond
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Municipal bond whose proceeds are used to pay for a project that will generate revenue
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general obligation bond
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municipal bond whose proceeds are used to pay for a project that will not generate revenue
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secured bond
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backed by a pledge of company assets
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unsecured bond or debenture
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only backed by the financial reputation of a company
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Mortgage pass-through securities
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Very low risk bonds that pay monthly income consisting of both interest and principal
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Quality ratings for bonds
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Bonds are rated on a scale of AAA to C with AAA being lowest risk
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Investment-grade bonds
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BBB and above
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Speculative or Junk bonds
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BB and below. Higher interest but also higher risk
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Common Stock
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Basic form of corporate ownership, mostly owned by true owners of a corporation, holders can vote on major company decisions
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Convertible Securities
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A feature on preferred bond or a stock that allows the holder to at anytime trade their preferred stock or bond for common stock
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Financial Markets
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Market in which securities are bought and sold
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Primary Market
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financial market in which new security issues are first sold
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Initial public offering
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When a company offers stock to the public the first time around
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Secondary market
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financial market in which already issued securities are traded between investors
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Stock markets
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market in which common stocks are traded
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Market order
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Instructs buyer to sell high and buy low
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financial institution
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intermediary between savers and borrowers, collecting funds from savers an then lending the funds to individuals, businesses, and governments.
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Mutual funds
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Financial intermediaries that raise money from investors by selling shares
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The Fed
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Four basic responsibilities: regulating commercial banks, performing banking-related activities for the US Department of Treasury, providing services for banks, and settling monetary policy.
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Federal Open Markets Committee
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Sets most policies concerning monetary policy and interest rates
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Reserve requirements
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change in the percentage of deposits held as reserves
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Discount rate
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Change in the rate the Fed charges banks for loans
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Open market operations
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Buying and selling government securities to increase of decrease bank reserves
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Term auction facility loans
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Fed auctions 28-day loans to banks
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Insider trading
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using material nonpublic information to make investing profits
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Finance
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planning, obtaining, and managing the companys funds to accomplish its objectives as effectively and efficiently as possible
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Financial manager
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executive who develops and implements the firms financial plan and determines the most appropriate sources and uses of funds
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risk-return trade-off
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process of maximizing the wealth of a firm's shareholders by striking the optimal balance between risk and return
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financial plan
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document that specifies the funds needed by a firm for a period of time, the timing of inflows and outflows, and the most appropriate sources and uses of funds
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strategic plans
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financial plans with longer time periods
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asset intensity
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when some companies need more inventory to produce the same amount of sales as others
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capital structure
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mix a firms debt and equity capital
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leverage
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increasing the rate of return on funds invested by borrowing funds
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trade credit
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a short term funding option extended by suppliers when a firm recieves goods or services, agreeing to pay for them at a later date
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venture capitalist
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firm that raises money from wealthy individuals and institutional investors and invests the funds in promising businesses
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tender offer
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offer made by a firm to the target firm's shareholders
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leveraged buyouts
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transaction in which public shareholders are bought out and the firm reverts to private status
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divestiture
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sale of assets by a firm
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