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12 Cards in this Set
- Front
- Back
Two main values of money |
Exchange value, storage value |
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Time value of money |
Idea that money available at the present time is worth more than the same amount in the future due to its potential earning potential |
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2 things you can do with money to keep it from sitting empty |
Rent it out Sell it |
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2 important factors to consider when deciding how to make money on our money |
Need for liquidity, Tolerance for risk |
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3 reasons a business may need money from Finely |
Start new ventures Fund Growth Manage Cash Flows |
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2 ways to get access to someone else's money that's in storage |
Rent it (debt financing) Give them part of the business 4 money (equity financing) |
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Leverage |
the use of debt financing |
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Borrowing money to acquire assets works if... |
The asset appreciates (increase) in value the income from the asset covers the interest and debt repayment obligation (DPR) |
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Leverage is risky when... |
interest and debt repayment obligation is greater than the income earned by the asset The asset depreciates faster than the debt is repaid |
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basic measure of Return on Investment (ROI) |
measures how well an investment is doing. ROI= (Net Profit/Total Investment) x 100 |
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Risk/Return Trade-off |
Investors expect a higher ROI for riskier investments |
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2 purposes of ratio analysis |
to see if a company is healthy to see how well a company is performing |