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72 Cards in this Set
- Front
- Back
Finance |
The art and science of managing money |
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Financial services |
The part of finance concerned with design and delivery of advice and financial products to individuals, business and government |
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Managerial finance |
Involves tasks such as budgeting, financial forecasting, cash management, funds procurement |
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Commercial banks |
Accepts deposits and provides security and convenience to their customers. Main services: cash keeping, credit and debit cards, loans to people/businesses |
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Investment banks |
It's a financial intermediary that performs a variety of services: - underwriting (raising capital) - sale of securities (brokerage services) - proprietary trading - facilitating mergers - research and consulting |
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Savings banks |
A financial institution which holds savings, deposit accounts. Makes residential real estate loans to individuals |
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Central banks |
A financial institution that manages a state's currency, money supply, and interest rates |
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Credit union |
Deals primarily in transfer of funds between consumers (not for public, requires membership) |
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Mutual fund |
A financial institution which pools funds of savers and makes them available to business and government demanders. Creates a diversified and professionally managed portfolio of securities to achieve a specified investment objective |
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Pension fund |
A financial institution which pools funds from which pensions are paid. Accumulated from contributions from employers, employees, or both |
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Insurance company |
A financial institution which provides coverage, in the form of compensation resulting from loss, damages, injury, treatment or hardship in exchange for premium payments |
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Venture Capital Funds |
Investment funds that manage money from investors seeking private equity stakes in startup and small- and medium-size enterprises with strong growth potential |
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Primary market |
A financial market where securities are issued for the first time |
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Secondary market |
A financial market where securities are traded in between the market participants |
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Money market |
A financial market in which securities include commercial paper sold by corporations to finance their daily operations orcertificates of deposit with maturities of less than 12 months sold by banks |
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Capital market |
A financial market in which securities include common stock, preferred stock and corporate and government bonds |
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Financial Market |
A place where buyers and sellers meet and they exchange financial securities/instruments |
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Financial Markets are classified by: |
- Nature of claims (equity vs. debt) - Issuer involvement (primary vs. secondary) - Maturity (money vs. capital) - Complexity (simple or derivative) - Time of Delivery (spot vs. forward) |
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Bond |
Long-term debt instrument used by business and government toraise large sums of money, generally from a diverse group of lenders |
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Preferred stocks |
A special form of ownership having a fixed periodic dividendthat must be paid prior to payment of ant dividends to common stockholders |
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Common stocks |
the purest ad most basicform of corporate ownership |
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Preferred vs. Common stocks |
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Sole proprietorship (+/–) |
A business is owned by one person and operated for his benefit + easy to form, complete control, easy tax preparation - unlimited personal liability, hard to raise money, heavy burden |
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Partnership (+/–) |
A business is owned by 2 or more people + easy/inexpensive to form, complementary skills, shared financial commitment - shared profits, disagreements, joint/individual liability |
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Corporation (+/–) |
A separate legal entity + limited liability, ability to generate capital, attractive to potential employees - time and money costs, double taxing, additional paperwork |
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Purposes of 4 key financial statements listed in a row |
Income statement - to show the profitability of a company for a given period of time Statement of the retained earnings - to show how much of the profits isretained within the business Balance sheet - to show what the firm owns and how theseassets are financed in the form of liabilities and ownership interest Cash flow statement - to show company's sources of cash and uses of cash, over a specified time period |
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Current assets |
Short-tern assets, expectedto be converted into cash within 1 year or less |
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Current liabilities |
Short-term liabilities,expected to be paid within 1year or less |
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Accounts receivable |
Money owed bycustomers (individuals or corporations) to another entity in exchange for goodsor services that have been delivered or used, but not yet paid for (BS, current asset) |
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Inventories |
Inventory is the raw materials, work-in-process goods and completely finished goods thatare considered to be the portion of a business's assets that are ready or willbe ready for sale (BS, current asset) |
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Pre-paid expenses |
A prepaid expense is a type of asset that ariseson a balance sheet as a result of business making paymentsfor goods and services to be received in the near future (BS, current assets) |
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Accounts payable |
It's an accounting entry that represents an entity'sobligation to pay off a short-term debt to its creditors. (BS, current liabilities) |
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Notes payable |
It's a financial securities that generally has alonger term than a bill, but a shorter term than a bond and it is not paid yet (BS, current liabilities) |
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Accumulated depreciation |
It's the cumulative depreciation of an asset up to a single point in its life.Regardless of the method used to calculate it, the depreciation of an assetduring a single period is added to the previous period's accumulateddepreciation to get the current accumulated depreciation (BS, non current assets) |
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Book value |
Book value is the value at which an asset is carried on a balance sheet. To calculate, take the cost of an asset minus the accumulated depreciation. Also known as Plant & Equipment - Depreciation/amortization (BS, non current assets) |
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Stockholders equity |
Stockholders' equity is the portion of the balance sheet that represents the capital received frominvestors in exchange for stock (paid-in capital), donated capital and retained earnings. Stockholders' equity represents the equity stake currently heldon the books by a firm's equity investors (BS) |
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Paid-in-capital in excess of par |
The amount of proceeds inexcess of the par value received from the original sale of common stock (BS, Stockholder's Equity) |
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Retained earnings |
The cumulative total of allearnings, net of dividends that have been retained and reinvested in the firmsince its inception (BS, non current Stockholder's Equity) |
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Income tax payable |
This account is comprised of taxes thatmust be paid to the government within one year. Income tax payable iscalculated according to the prevailing tax law in the company's homecountry (BS, total liabilities) |
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Plant property and equipment |
It's acompany asset that is vital to business operations butcannot be easily liquidated. The value of property, plant and equipment istypically depreciated over the estimated life of the asset, because even thelongest-term assets become obsolete or useless after a period of time (BS, non current assets) |
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Gross profit |
It's the profit a company makes afterdeducting the costs associated with making and selling its products, or thecosts associated with providing its services (IS) |
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Operating profit (EBIT) |
Operating profit is the profit earned from afirm's normal core business operations. This value does not include any profitearned from the firm's investments (such as earnings from firms in which the company haspartial interest) and the effects of interest and taxes (IS) |
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Pre-tax profit |
Pretax earnings are a company's earnings after all operating expenses, includinginterest and depreciation, have been deducted from total sales or revenues, butbefore income taxes have been subtracted (IS) |
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After-tax profit |
All the companies’ earningsafter taxes deducted, but before dividends (IS) |
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Accrued expenses |
It's expense which has been incurred but not yet paid (current liability) |
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Cash |
(BS, current assets) |
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Sellingand Administrative Expenses |
It's the sum of all direct and indirect selling expenses and all general and administrative expenses of a company (IS) |
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Operating expenses |
Are the costs associated with a company's main operating activities (IS) |
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Marketable securities |
Short- term debtinstruments, such as U.S Treasury bills, commercial paper, and negotiablecertificates of deposit issued by government, business, and financialinstitutions, respectively (BS, current assets) |
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Bonds payable |
Are a form of long term debt. Bonds are issued by corporations, hospitals, and governments (BS, non current liabilities) |
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Common stocks |
It's a security that represents ownership in a corporation (BS, Stockholder's Equity) |
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Depreciation |
The systematic charging of a portion of the costs of fixedassets against annual revenues over time (Depreciation expenses are found at IS) |
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Current ratio |
A measure of liquidity (firm’sability to meet its short-term obligations) calculated by dividing the firm’scurrent assets by its current liabilities |
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Quick ratio |
A measure of liquidity calculated bydividing the firm’s current assets minus inventory by its current liabilities |
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Debt ratio |
Measures the proportion of total assets financed by the firm’s creditors(Debt ratio = Total liabilities/total assets) |
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Times interest earned ratio |
Measures thefirm’s ability to make contractual interest payments; sometimes called the interestcoverage ratio. (Times interest earned ratio = Earnings before interest andtaxes/interest) |
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Gross profit margin |
Measures the percentage of eachsales dollar remaining after the firm has paid for its goods (Gross profitmargin = gross profits/sales) |
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Operating profit margin |
Measures the percentageof each sales dollar remaining after all costs and expenses other thaninterest, taxes, and preferred stock dividends are deducted’ the “pure profits”earned on each sales dollar. (Operating profit margin= Operating profits/sales) |
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Earnings per share (EPS) |
EPS represents the number of dollarsearned during the period on behalf of each outstanding share of common stock.(EPS=Earnings available for common stock holders/number of shares of commonstock outstanding) |
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Net profit margin |
Measures the each sales dollarremaining after all cost and expenses, including interest, taxes, and preferredstock dividends, have been deducted. (Net profit margin=Earnings available forcommon stockholders/sales) |
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Return on equity (ROE) |
Measures the return earned on thecommon stockholders’ investment in the firm (ROE=Earnings available for commonstockholders/Common stock equity) |
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Return on total assets (ROA) |
Often called thereturn on investment (ROI), measures the overall effectiveness of management ingenerating profits with its available assets. The higher the better. (ROA=Earnings available for common stockholders/total assets) |
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Key accounting principles: Economic Entity Assumption |
For accounting purposes, a soleproprietorship and its owner are considered to be two separate entities |
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Monetary Unit Assumption |
For accounting purposes, economic activity is measured in US dollars |
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Time Period Assumption |
There is an assumption that it ispossible to report the activities of a business in distinct time intervals |
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Cost Principle |
Cost refers to the price of a purchasewhen it was originally bought and, therefore, amounts on financial statementsrefer to historical cost |
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Full Disclosure Principle |
If information is vital to a lenderor investor, that information should be disclosed within the financialstatement or its notes |
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Going Concern Principle |
It is assumed that a company willcontinue to exist long enough to meet its objectives and obligations and thatit will not shut down in the foreseeable future |
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Matching Principle |
This obliges companies to use theaccrual basis of accounting, which requires that expenses be matched withrevenues |
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Revenue Recognition Principle |
Under the accrual basis of accounting,revenues are recognized when a product has been sold or a service performed,regardless of when the money is actually received |
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Materiality |
This basic accounting principle or guideline permits an accountant to violateanother accounting principle if an amount is insignificant or immaterial |
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Conservatism |
Where there are two acceptablealternatives for reporting an item, conservatism directs the accountant tochoose the alternative that will result in less net income and/or a lower assetamount |