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Principles of Finance > 1 Introduction to Financial Management > Flashcards

1 Introduction to Financial Management Flashcards

Contains key definitions ONLY.

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1
Q

Agency problem.

A

The difficulties that arise when a principal hires an agent and cannot fully monitor the agent’s actions.

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2
Q

Angel investors.

A

Individuals who provide small amounts of capital and expert business advice to small firms in exchange for an ownership stake in the firm.

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3
Q

Asset classes.

A

A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same laws and regulations.

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4
Q

Auditor.

A

A person who performs an independent assessment of the fairness of a firm’s financial statements.

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5
Q

Board of directors.

A

The group of directors elected by stockholders to oversee management in a corporation.

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6
Q

Chief executive officer (CEO).

A

The highest ranking corporate manager.

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7
Q

Corporate governance.

A

The set of laws, policies, incentives, and monitors designed to handle the issues arising from the separation of ownership and control.

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8
Q

Credit analyst.

A

A person who analyses a company’s ability to repay its debts and reports the findings as a grade.

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9
Q

Defined benefit plan.

A

A retirement plan in which the employer funds a pension generally based on each employee’s years of service and salaries.

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10
Q

Defined contribution plan.

A

A retirement plan in which the employee contributes money and directs its investment. The amount of retirement benefits is directly related to the amount of money contributed and the success of its investment.

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11
Q

Double taxation.

A

A situation in which two taxes must be paid on the same income.

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12
Q

Economies of scale.

A

Cost advantages when fixed costs are spread over a large number of units.

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13
Q

Employee stock option plan (ESOP).

A

An incentive program that grants options to employees (typically managers) as compensation.

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14
Q

Equity.

A

An ownership interest in a business enterprise.

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15
Q

Ethics.

A

The study of values, morals, and morality.

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16
Q

Fiduciary.

A

A legal duty between two parties where one party must act in the interest of the other party.

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17
Q

Finance.

A

The study of applying specific value to things we own, services we use, and decisions we make.

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18
Q

Financial asset.

A

A general term for securities like stocks, bonds, and other assets that represent ownership in a cash flow.

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19
Q

Financial institutions and markets.

A

The organisations that facilitate the flow of capital between investors and companies.

20
Q

Financial management.

A

The process for and the analysis of making financial decisions in the business context.

21
Q

Financial markets.

A

The arenas through which funds flow.

22
Q

401k plan.

A

A defined contribution plan that is sponsored by corporate employers.

23
Q

General partnership.

A

A form of business organisation where the partners own the business together and are personally liable for legal actions and debts of the firm.

24
Q

Hybrid organisations.

A

Business forms that have some attributes of corporations and some of proprietorships/partnerships.

25
Q

Individual retirement account (IRA).

A

A self sponsored retirement program.

26
Q

International finance.

A

The use of finance theory in a global business environment.

27
Q

Investment.

A

The analysis and process of choosing securities and other assets to purchase.

28
Q

Investment analyst.

A

A person who analyses a company’s business prospects and gives opinions about its future success.

29
Q

Investment banks.

A

Banks that help companies and governments raise capital.

30
Q

Investors.

A

Those who buy securities or other assets in hopes of earning a return and getting more money back in the future.

31
Q

Invisible hand.

A

A metaphor used to illustrate how an individual pursuing his own interests also tends to promote the good of the community.

32
Q

Limited liability.

A

Limitation of a person’s financial ability to a fixed sum or investment.

33
Q

Maximisation of shareholder wealth.

A

A view that management should first and foremost consider the interests of shareholders in its business decisions.

34
Q

Option.

A

The opportunity to buy stock at a fixed price over a specific period of time.

35
Q

Perks/perquisites.

A

Nonwage compensation, often in the form of a company car, golf club membership, and so forth.

36
Q

Public corporation.

A

A company owned by a large number of stockholders from the general public.

37
Q

Real assets.

A

Physical property like gold, machinery, equipment, or real estate.

38
Q

Real markets.

A

The places and processes that facilitate the trading of real assets.

39
Q

Restricted stock.

A

A special type of stock that is not transferable from the current holder to others until specific conditions are satisfied.

40
Q

Retained earnings.

A

The portion of company profits that are kept by the company rather than distributed to the stockholders as cash dividends.

41
Q

Risk.

A

A potential future negative impact to value and/or cash flows. It is often discussed in terms of the probability of loss and the expected magnitude of the loss.

42
Q

Sole proprietorship.

A

A business entity that is not legally separate from its owner.

43
Q

Stakeholder.

A

A person or organisation that has legitimate interest in a corporation.

44
Q

Time value of money (TVM).

A

The theory and application of valuing cash flows at various points in time.

45
Q

Unlimited liability.

A

A situation in which a person’s personal assets are at risk from a business liability.

46
Q

Venture capitalists.

A

Similar to angel investors except that they are organised at groups of investors and can provide larger amounts of capital.

Principles of Finance (3 decks)

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