BUSFIN MIDTERM EXAM
the system that includes the circulation
of money, the granting of credit, the
making of investments, and the
provision of banking facilities.
Finance
The success of these organizations
requires an understanding factor that cause
interest rates and other returns in the
financial markets to rise and fall, regulations
that affect such institutions, and various
types of financial instruments
Financial markets and institution
This area of finance focuses on the
decisions made by businesses and
individuals as they choose securities for
their investment portfolios.
Investments
refer to functions
provided by organizations that deal with
the management money.
Financial services
deals with decisions
that all firms make concerning their cash
flows, including both inflows and out
flows.
managerial finance
provides general information, including the name of the
corporation, types of activities it will pursue,
amount of stock that initially will be issued, and
so forth, must be filed by the corporate
secretary in which the firm incorporates.
Corporate Charter
a set of rules drawn up by the
founders of the corporation that indicates now
the company is to be governed; includes
procedures for electing directors, rights of
stockholders, and how to change the bylaws
when necessary
By laws
A partnership wherein at least one partner is
designated as a general partner with unlimited
personal financial liability, and the other
partners are limited partners whose liability is
limited to amounts they invest in the firm.
Limited Liability Partnership
it combines features of a corporation and partnership.
Limited Liability Company
A corporation with no more than 100
stockholders that elects to be taxed in the
same way as proprietorships and partnerships,
so that business income is only taxed once.
S corporation
The appropriate goal for management decision;
considers the risk and timing associated with
expected cash flows to maximize the price of
the firm’s common stock.
Stockholders wealth maximization
equals net income (NI) divided by
the number of outstanding shares of common
stock (shares) and can be used as a barometer for
measuring the firm’s potential for generating
future cash flows.
Earnings per Share
An estimate of a stock’s “true” value based on
accurate risk and return data.
Intrinsic Value
refers to the current price
that a share of stock is trading for on the
market.
stock price
Is composed of the financial compensation and
other non-financial benefits received by an
executive from their firm for their service to the
organization. It is typically a mixture of salary,
bonuses, shares of the company stocks
Executive compensation
refers to one’s ability to be conscious of the changing
ways in which businesses are developing.
Business trends awareness
A company’s attitude and
conduct toward its employees, customers,
community, and stockholders.
Business ethics
the financial
manager makes decisions about the expected
cash flows of the firm, which include decisions
about how much and what types of debt and
equity should be used to finance the firm.
capital structure decisions
what type of
assets should be purchased to help generate
expected cash flows.
Capital budgeting decisions
what to do with net cash
flows generated by the firm – reinvest them in
the firm or pay dividends.
Dividend policy
A financial report showing the amounts of
profits or losses from
a firm’s operation over a given time period
Income statement
the cost of producing or
acquiring goods or services to be
sold by a firm.
cost of goods sold
sales less cost of goods sold
gross profit
cost related to
marketing and selling a firm’s product or
service, general and administrative expenses,
and depreciation
operating expenses
gross profit less operating
expenses
operating profit
the cost of borrowed money
interest expense
operating profit less interest expense
earnings before interest and taxes
earnings that may be distributed to
the owners or reinvested in the
company.
net profit
the cost of a firm’s
building and equipment, allocated
over the asset’s useful life.
depreciation expense
profits as a percentage of
sales.
profit margin
A financial report showing a firm’s assets,
liabilities, and owners’ equity at a specific point in time
Balance sheet
include current, fixed and other
assets
total assets
is financing provided by creditors
debt
is the owners’ investment in
the business, both in terms of actual cash
invested and earnings that have been retained in
the business
owner's equity
A financial reports showing a firm’s sources of
cash, as well as its uses of cash.
cash flow statement
Buying or selling fixed assets
Investing activities
serve as intermediaries by channeling the savings of individuals, businesses, and governments into loans or investments
financial institutions
directly or indirectly pay savers interest on deposited funds and provide services for a fee
financial institutions
they provide savers with a secure place to invest funds and they offer both individuals and companies loans to finance investments.
commercial banks
an act of Congress in 1933 that created the federal deposit insurance program and separated the activities of commercial and investment banks
Glass-Steagall Act
are institutions that (1) assist companies in raising capital, (2) advise firms on major transactions such as mergers or financial restructurings, and (3) engage in trading and market making activities.
Investment banks
a group of institutions that engage in lending activities, much like traditional banks, but do not accept deposits and therefore are not subject to the same regulations as traditional banks.
Shadow banking systems
are forums in which suppliers of funds and demanders of funds can transact business directly
financial markets
involves the sale of a new security directly to an investor or group of investors, such as an insurance company or pension fund.
private placement
the sale of either bonds or stocks to the general public, mostly used by firms.
public offering
financial market in which securities are initially issued; the only market in which the issuer is directly involved in the transaction.
primary market
financial market in which preowned securities (those that are not new issues) are traded
secondary market
a financial relationship created between suppliers and demanders of short-term funds
money market
a market that enables suppliers and demanders of long-term funds to make transactions.
capital market
are short-term debt instruments and negotiable certificates of deposit issued by government, business, and financial institutions, respectively
marketable securities
international equivalent of the domestic money market and arise when a corporation or individual makes a bank deposit in a currency other than the local currency of the country where the bank is located
eurocurrency market
long-term debt instrument used by business and government to raise large sums of money, generally from a diverse group of lenders.
bonds
are units of ownership, or equity, in a corporation
and common stockholders earn a return by receiving dividends or; by realizing increases in share price
common stock
a special form of ownership having a fixed periodic dividend that must be paid prior to payment of any dividends to common stockholders. It has features of both a bond and common stock
preferred stock
the securities exchanges on which the two sides of a transaction, the buyer and seller, are brought together to trade securities.
broker market
organizations that provide the marketplace in which firms can raise funds through the sale of new securities and purchasers can resell securities.
securities exchanges
the market in which the buyer and seller are not brought together directly but instead have their orders executed by securities dealers that “make markets” in the given security
dealer market
the process of pooling mortgages or other types of loans and then selling claims or securities against that pool in the secondary market.
securitization
securities that represent claims on the cash flows generated by a pool of mortgages
mortgaged-backed securities