Essentials Of Corporate Finance, 6/e

Front 1

capital budgeting

Back 1

the process of planning and managing a firm's long-term investments

Front 2

capital structure

Back 2

mixture of debt and equity maintained by a firm

Front 3

working capital

Back 3

firm's short-term assets and liabilities

Front 4

agency problem

Back 4

possibility of conflict of interest between the owners and management of a firm

Front 5

sole proprietorship

Back 5

a business owned by a single individual

Front 6

partnership

Back 6

a business formed by two or more individuals or entities

Front 7

corporation

Back 7

a business created as a distinct legal entity owned by one or more individuals or entities

Front 8

stakeholder

Back 8

someone other than a stockholder or creditor who potentially has a claim on the cash flows of the firm

Front 9

balance sheet

Back 9

financial statement showing a firm's accounting value on a particular date

Front 10

net working capital

Back 10

current assets less current liabilities

Front 11

GAAP

Back 11

common set of standards and procedures by which audited financial statements are prepared

Front 12

income statement

Back 12

financial statement summarizing a firm's performance over a period of time

Front 13

non cash items

Back 13

expenses charged against revenues that do not directly affect cash flow, such as depreciation

Front 14

average tax rate

Back 14

total taxes paid divided by total taxable income

Front 15

marginal tax rate

Back 15

amount of tax payed on the next dollar earned

Front 16

cash flow from assets

Back 16

total of cash flow to creditors and cash flow to stockholders,

consists of the following:
1. operating cash flow
2. capital spending
3. changes in net working capital

Front 17

free cash flow

Back 17

another name for cash flow from assets

Front 18

cash flow to creditors

Back 18

firm's interest payments to creditors less net new borrowings

Front 19

cash flow to stockholders

Back 19

dividends paid out by a firm less new equity raised

Front 20

operating cash flow

Back 20

cash generated from a firm's normal business activities

Front 21

common-size statement

Back 21

standardized financial statement presenting all items in percentage terms. balance sheet items are shown as percentage of assets and income statement items as percentage of sales

Front 22

financial ratios

Back 22

relationships determined from a firm's financial information and used for comparison purposed

Front 23

Du Pont identity

Back 23

popular expression breaking ROE into three parts:

1. operating efficiency
2. asset use efficiency
3. financial leverage

Front 24

internal growth rate

Back 24

maximum possible growth rate for a firm that relies only on internal financing

Front 25

sustainable growth rate

Back 25

maximum possible growth rate for a firm that maintains a constant debt ratio and doesn't sell new stock

Front 26

Standard Industrial Classification (SIC) code

Back 26

U.S. government code used to classify a firm by its type or business operations

Front 27

future value (fv)

Back 27

amount an investment is worth after one or more periods

Front 28

compounding

Back 28

process of accumulating interest in an investment over time to earn more interest

Front 29

interest on interest

Back 29

interest earned on the reinvestment of previous interest payments

Front 30

compound interest

Back 30

interest earned on both the initial principal and the interest reinvested from prior periods

Front 31

simple interest

Back 31

interest earned only on the original principal amount invested

Front 32

present value (pv)

Back 32

current value of future cash flows discounted at the appropriate discount rate

Front 33

discount

Back 33

calculate the present value of some future amount

Front 34

discount rate

Back 34

rate used to calculate the present value of future cash flows

Front 35

discounted cash flow (DCF) valuation

Back 35

valuation calculating the present value of a future cash flow to determine its value today