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Financial Management > 1 - Intro to Financial Management > Flashcards

1 - Intro to Financial Management Flashcards

1
Q

System that includes the circulation of money, granting of credit, making of investments, and provision of banking facilities.

A

Finance

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2
Q

Areas of finance

A
  1. Financial management
  2. Capital markets
  3. Investments
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3
Q

Focuses on decision to how much and what type of assets to acquire and how to maximize the firm’s value

A

Financial management

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4
Q

Also called Corporate Finance

A

Financial management

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5
Q

Relate to the markets where interest rates & stock and bond prices are determined

A

Capital markets

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6
Q

Studies also the financial institution that supply capital to the business

A

Capital markets

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7
Q

Banks, investment banks, stockbrokers, etc. bring together ____ who have money to invest & entities who need capital

A

‘savers’

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8
Q

(Federal Reserve System) Regulates banks & control the supply of money

A

Government organizations

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9
Q

Decisions concerning stocks & bonds

A

Investments

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10
Q

Number of activities in Investment:

A
  1. Security Analysis
  2. Portfolio theory
  3. Market analysis
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11
Q

Finding proper values of individual securities (stocks & bonds)

A

Security analysis

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12
Q

Best way to structure portfolios of stocks & bonds; and very important because investors want to hold diversified portfolios

A

Portfolio theory

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13
Q

Portfolios are also known as

A

‘Baskets’

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14
Q

Issue of whether stock and bond markets at any given time are too high, too low, or about right.

A

Market analysis

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15
Q

Investor psychology is examined to determine whether stock prices have been bid up to unreasonable heights

A

Behavioral finance

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16
Q

What is the hierarchy of organizational chart?

A

BOD - CEO - COO - CFO

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17
Q

Top governing body, chairperson, highest-ranking individual

A

Board of Directors (BOD)

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18
Q

Next to BOD (but BOD often serves as the CEO - Sole proprietorship)

A

Chief Executive Officer (CEO)

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19
Q

Firm’s president

A

Chief Operating Officer (COO)

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20
Q

Senior VP; 3rd-ranking officer

A

Chief Financial Officer (CFO)

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21
Q

What does COO do?

A

Marketing
Production
HR
& Other Operating Departments

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22
Q

What does CFO do?

A

Accounting
Treasury
Credit Legal
Capital Budgeting
Investor Relations

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23
Q

If firm is publicly owned ____ and ____ must certify to the SEC that the annual report are accurate

A

CEO and CFO

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24
Q

If proven that inaccurate, the CEO and CFO may be

A

fined or even jailed

25
Q

Passed by Congress that requires CEO and CFO to certify that their firm’s financial statements are accurate

A

Sarbanes-Oxley Act of 2002

26
Q

An unincorporated business owned by 1 individual; easy & inexpensive and subject to lower income taxes than corporations. But also subject to unlimited personal liability.

A

Proprietorship

27
Q

An unincorporated business owned by 2 or more persons; income is allocated on a pro rata basis as well as taxes. If a partner is unable to fulfill his share of the liability, the other partner will be held responsible.

A

Partnership

28
Q

Legal entity created by a state distinct from its owners and have unlimited life, easy transferability of ownership.

A

Corporation

29
Q

Corporation’s earnings are taxed, and then when its after-tax earnings are paid out as dividends, those earnings are taxed again as personal income to stockholders.

A

Double taxation

30
Q

Allows small businesses that meet qualifications to be taxed as if they were a proprietorship/partnership rather than corporation

A

S Corporations

31
Q

S Corporations can have no more than how many stockholders

A

100 stockholders

32
Q

Larger corporations are called?

A

C Corporations

33
Q

Popular type of organization that is hybrid between a partnership and a corporation

A

Limited Liability Company (LLC)

34
Q

Similar to an LLC but
used for professional
firms in the fields of
accounting, law, and
architecture and taxed as a partnership

A

Limited Liability Partnership (LLP)

35
Q

What is the main financial goal

A

Create value for investors

36
Q

Represent individuals and organizations who have chosen to invest their hard-earned cash into the company for a return on investment

A

Company’s stockholders

37
Q

Investors like higher expected cash flows but dislike

A

risk

38
Q

The larger the expected cash flow, lower perceived risk,

A

higher the stock’s price

39
Q

Cash flows & risk that investors would expect if they had all of the information that existed about a company.

A

“True”

40
Q

What investors expect, given the limited information they have

A

“Perceived”

41
Q

Estimate of a stock’s ‘true’ value based on accurate risk & return data

A

Intrinsic value

42
Q

Intrinsic value can be estimated, but not measured

A

precisely.

43
Q

Stock value based on perceived but possible incorrect information

A

Market price

44
Q

Investor whose views determine the actual stock price

A

Marginal investor

45
Q

Actual market price equals the intrinsic value; no pressure for a change in the stock’s price.

A

Equilibrium

46
Q

Easy to determine - can be found on the Internet and published in newspapers every day

A

Actual stock prices

47
Q

Have the best information about the firm’s future prospects

A

Firm’s managers

48
Q

Establishment of rules & practices by BOD to ensure that managers act in shareholders’ interest while balancing need of other key constituencies

A

Corporate Governance

49
Q

Requires holding managers accountable for poor performance

A

Effective governance

50
Q

Motivate managers to act in their stockholders’ best interest

A

Effective executive compensation plans

51
Q

Effective executive compensation plans consists of:

A
  1. reasonable compensation packages
  2. firing managers who don’t perform well
  3. threat of hostile takeovers
52
Q

Sufficient to attract and retain able managers but should not go beyond what is needed. Structured so managers are rewarded on basis of stock’s performance over the long run, not stock’s price on an option exercise date.

A

Compensation packages

53
Q

Individuals who target corporations for takeover because they are undervalued

A

Corporate Raiders

54
Q

Acquisition of a company over the opposition of its management

A

Hostile Takeover

55
Q

Primary financial goal for managers of publicly owned companies; implies that decisions should be made to maximize long-run value of firm’s common stock

A

Shareholder Wealth Maximization

56
Q

Business ethics was coined by

A

former New York Attorney General & former Governor Elliot Spitzer

57
Q

To prevent reckless actions that would cause another financial crisis

A

Dodd-Frank Act

58
Q

“Standards of conduct or moral behavior”

A

Ethics

59
Q

Company’s attitude and conduct toward its employees, customers, community,
and stockholders.

A

Business Ethics

Financial Management (5 decks)

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