Chapter 1

Front 1

finance

Back 1

The knowledge, science, techniques, and art of managing money

Front 2

financial markets

Back 2

Provide a forum where savers of funds and users of funds can transact business

Front 3

Financial Institutions

Back 3

Intermediaries that allow for efficient transfer of the savings of individuals, governments, and business for financial securities

Front 4

Financial services

Back 4

The part of finance concerned with design and delivery of advice and financial products to individuals, business, and government

Front 5

Corporate finance

Back 5

Concerns the duties of the financial manager in the business firm

Front 6

Financial manager

Back 6

Actively manages the financial affairs of any type of business, whether financial or non financial, private or public, large or small, profit-seeking, non-profit-seeking

Front 7

Publicly traded company

Back 7

A company whose common shares are listed and trade on a recognized stock exchange

Front 8

Sole Proprietorship

Back 8

A business owned by one person and operated for his or her own benefit

Front 9

Unlimited Liability

Back 9

The condition of a sole proprietorship (or general partnership) allowing the owners total wealth to be taken to repay creditors

Front 10

Partnership

Back 10

A business owned by two or more people and operated for profit

Front 11

Partnership agreement

Back 11

The written contract used to formally establish a business partnership

Front 12

Limited partnership

Back 12

A partnership with one or more general partners with unlimited liability and one or more limited partners with limited liability

Front 13

Corporation

Back 13

A business entity created by law

Front 14

Shareholders

Back 14

The owners of a corporation whose ownership or equity is evidenced by common shares

Front 15

Common Shares

Back 15

The purest and most basic form of corporate ownership

Front 16

Dividends

Back 16

Periodic distributions of earnings to the shareholders of a firm

Front 17

Board of Directors

Back 17

Group elected by the firms shareholders and having ultimate authority to guide corporate affairs and set corporate strategy

Front 18

President or Chief Executive Officer (CEO)

Back 18

Corporate official responsible for managing the firms day to day operations and carrying out the policies established by the board of directors

Front 19

Income Trust

Back 19

Created through the conversion of a regular corporation to a trust structure where the business becomes a different type of legal entity, the benefit is a significant reduction in taxes

Front 20

S&P/TSX Composite Index

Back 20

The measure of how the Canadian Stock market has done over a stated period of time, which may be a day, a week, a month, or a year, or number of years

Front 21

Treasurer

Back 21

The officer responsible for the firms financial activities such as financial planning and fund raising, making capital expenditure decisions, and managing cash, credit, the pension fund, and foreign exchange

Front 22

Controller

Back 22

The officer responsible for the firms accounting activities, such as corporate accounting, tax management, financial accounting, and cost accounting

Front 23

Foreign Exchange Manager

Back 23

The manager responsible for monitoring and managing the firms exposure to loss from currency fluctuations

Front 24

Marginal Analysis

Back 24

Economic principle that states that financial decisions should be made and actions taken only when the added benefits exceed the added costs

Front 25

Accrual Basis

Back 25

Recognizes sales revenue at the time of sale and the expenses incurred to generate the sales

Front 26

Cash Basis

Back 26

Recognizes revenues and expenses only with respect to actual inflows and outflows of cash

Front 27

Capital Structure

Back 27

The mix of short and long term financing and the mix of debt and equity financing used in a company

Front 28

Earnings Per Share (EPS)

Back 28

The amount earned during the accounting period on each outstanding common share, calculated by dividing the periods total earnings available for the firms common shareholders by the number of common shares outstanding

Front 29

Risk

Back 29

The chance that actual outcomes may differ from those expected

Front 30

Economic Value Added(EVA)

Back 30

EVA, a way to measure the value of a company is the difference between a companys net operating profit after tax and the total cost of invested capital

Front 31

Stakeholders

Back 31

Groups such as employees, customers, suppliers, creditors, owners, communities, and others who have a direct economic link to the firm

Front 32

Ethics

Back 32

Standards of conduct or moral judgement

Front 33

Agency Problem

Back 33

The likelihood that managers may place personal goals ahead of corporate goals

Front 34

Corporate goverance

Back 34

The set of actions and procedures common shareholders use to ensure they receive reasonable return on their investments in the company

Front 35

Agency Costs

Back 35

The reduction in shareholders wealth due to agency problem

Front 36

Incentive Plans

Back 36

Management compensation plans that tend to tie management compensation to share price,most popular incentive plan involves the grant of stock options

Front 37

Stock Options

Back 37

An incentive allowing managers to purchase common shares at the market price set at the time of the grant

Front 38

Performance Plans

Back 38

Plans that compensate managers on the basis of proven performance measured by EPS growth in EPS and other ratios of return. Performance shares and or cash bonuses are used as compensation under these plans

Front 39

Performance Shares

Back 39

Common Shares granted to management for meeting stated performance goals

Front 40

Cash bonuses

Back 40

Cash paid to management for achieving certain performance goals

Front 41

Hostile Takeover

Back 41

The acquisition of the firm(the target) by another firm or group (the acquirer) that is not supported by management

Front 42

Financial forcasting

Back 42

The process used to estimate the company's requirement for financing for a future time period

Front 43

Money Market

Back 43

The market where debt securities that will mature within one year are traded

Front 44

Capital Market

Back 44

The market that trades long-term securities and common and preferred equity securities

Front 45

Primary Market

Back 45

The market where financial securities are initially issued and where the issuer receives the proceeds from the sale of the financial security

Front 46

Secondary Market

Back 46

The market that allows the owner of the previously created financial security to sell this security or to buy more of this or other securities, or allows a buyer to express an interest in acquiring a financial security

Front 47

Stock Exchange

Back 47

An actual, physical secondary market that allows investors to buy and sell preferred or common shares

Front 48

Risk-return tradeoff

Back 48

The return expected depends on the amount of risk taken

Front 49

Risk-averse

Back 49

The attitude toward risk in which a higher return would be expected if risk increased

Front 50

Required rate of return

Back 50

The minimum return required given the risk of an investment;the great the risk of loss, the great the required return

Front 51

Interest

Back 51

The return paid on debt financing

Front 52

Interest Rate

Back 52

The cost of money. The greater the risk of the debt security, the higher the interest rate

Front 53

Cost of Capital

Back 53

The overall cost to a company of a mix of debt and common equity financing

Front 54

Capital budgeting

Back 54

The process of analyzing the investment in assets with an expected life greater than one year