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69 Cards in this Set
- Front
- Back
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1. Corporate Finance 2. Investments 3. Financial Institutions 4. International Finance |
The four basic areas of finance |
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Work with financial assets such as stocks and bonds; value financial assets, risk vs return, and asset allocation |
Investments |
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Companies that specialize in financial matters such as banks-commercial and investment, credit unions, savings and loans, insurance companies, and brokerage firms |
Financial Institutions |
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concerned with the addition of a multinational element to the finance activities |
International Finance |
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financial activities that support the operations of a corporation or business |
Corporate/Business Finance |
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budgets, marketing research, marketing financial products |
Marketing and Finance |
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dual accounting and finance function, preparation of financial statements |
Accounting and Finance |
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strategic thinking, job performance, and profitability |
Management and Finance |
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budgeting, retirement planning, college planning, day-to-day cash flow issues |
Personal Finance |
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the process of planning and managing a firm's long-term investments |
Capital Budgeting |
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the mixture of debt and equity maintained by a firm |
Capital Structure |
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a firm's short term assets such as inventory and short term liabilities such as money owed to suppliers |
Working Capital |
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1. Sole Proprietorship 2. Partnership 3. Corporation |
Forms of Business Organization |
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-One owner -limited by the owner (life of the business) -unlimited liability to shareholders -transfer of ownership is not easy |
Sole Proprietorship |
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-two or more partners -limited by the partners (life of the business) -Unlimited (limited) to general(limited) partner liability to shareholders -transfer-not easy |
Partnership |
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-a lot of owners -unlimited life of the business -limited liability to shareholders -easy/stocks are traded on the market |
Corporation |
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1. Maximize the current value per share of the company's existing stock 2. Maximize the market value if the existing owners' equity |
Goals of Financial Mgmt |
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driven by corporate scandals:Enron, Tyco, WorldCom, and Adelphia and was intended to strengthen protection against accounting fraud and financial malpractice |
Sarbanes-Oxley Act (2002) |
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-principal hires an agent to represent its interests -stockholders (principals) hire managers (agents) to run the company |
Agency Relationship |
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conflict of interest b/w principal and agent |
Agency Problem |
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-Incentives can be used to align mgmt and stockholder interests and incentives need too be carefully structured to insure that they achieve their goal |
Managerial Compensation
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threat of a takeover may result in better mgmt |
Corporate control |
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a snapshot of the firm's assets and liabilities at a given time period ("as of") |
Balance Sheet |
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-on the left side -in order of decreasing liquidity |
Assets |
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-right side -in ascending order of when due to be paid |
Liabilities and O/E |
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Assets=Liabilities + Owner's Equity |
Balance Sheet Identity |
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current assets-current liabilities usually positive for a healthy firm |
Net Working Capital |
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refers to the speed and ease with which an asset can be converted to cash |
Liquidity |
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shareholder's equity=Assets - Liabilities |
Debt vs Equity |
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the balance sheet value of the assets, liabilities, and equity |
Book Value |
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true value; the price at which the assets, liabilities, or equity can actually be bought or sold |
Market Value |
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measures performance over a specified period of time (period, quarter, year) |
Income Statement |
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NI/Total shares of outstanding |
Earnings Per Share |
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Total Dividends/Total shares of outstanding |
Dividends per share |
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recognize revenue when it is fully earned match expenses required to generate revenue to the period of recognition |
GAAP Matching Principle |
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-expenses charged against revenue that do not affect cash flow -Depreciation-most important |
Noncash Items |
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% tax paid on the next dollar earned |
Marginal Tax Rate |
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total tax bill/taxable income |
Average Tax Rate |
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Operating cash flow-net capital spending-changes in net working capital |
Cash flow from assets |
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cash flow to creditors(CF/CR) + cash flow to stockholders CF/SH |
Cash flow from assets |
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scale all accounts with total assets (%TA) |
Common-Size Balance Sheets |
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scale all items with sales or revenue (%SLS) |
Common-Size Income Statement |
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Current Ratio Quick Ratio Cash Ratio |
Liquidity or Short-term solvency ratios |
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Leverage ratio: total debt ratio, debt/equity ratio. and equity multiplier Interest coverage ratio: time interest earned ratio and cash coverage ratio |
Financial leverage ratios or long-term solvency ratios |
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Inventory turnover ratio Receivable turnover ratio Total asset turnover ratio |
Asset mgmt or turnover ratios |
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Profit margin Return on Asset Return on Equity |
Profitability Ratios |
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PE Ratio= PPS/EPS Market-to-book value ratio=PPS/book value per share |
Market value ratios |
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(Current Assets / Current Liabilities)
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Current Ratio |
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(Current assets - inventories) / (current liabilities)
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Quick Ratio |
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(Cash) / (Current Liabilities) |
Cash Ratio
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(Total Assets - Total Equity) / (Total Assets)
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Debt Ratio
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total debt/total equity |
Debt-equity ratio |
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total assets/total equity |
Equity multiplier |
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EBIT/Interest |
times interest earned ratio |
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EBIT+ Depreciation/Interest |
Cash coverage ratio |
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CGS/Inventory |
Inventory Turnover ratio |
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Sales/Accts Rec |
Receivable Turnover ratio |
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Sales/Total Assets |
Total Asset turnover ratio |
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NI/Sales |
Profit Margin |
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NI/Total Assets |
Return on Assets |
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NI/Total Equity |
Return on Equity |
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Price per share/earnings per share |
PE ratio |
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Price per share/book value per share |
Market-to-book ratio |
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earlier money on a time line; money you have to invest in today to get a specific amount in the future |
Present value |
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later money on a time line; the amount an investment is worth after one or more periods at the same given interest rates |
Future value |
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discount rate exchange rate b/w earlier money and later money |
Interest Rate (r) |
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number of periods over which PV of compounded into FV |
Compound periods (t) |
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PV(1+r)^t |
FV Formula |
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FV/(1+r)^t OR FV(1+r)^-t |
PV Formulas |
