Accounting Info Flashcards
Four Factors of Production
- Labor
- Capital
- Entrepreneurs
- Physical Resources
Planned Economies
Communism & Socialism
- government owns all businesses and control decisions
- government expecting society to take over production once it has matured
Per Capita Rate of Consumption
The average consumption by a person belonging to a particular nation
Monopolistic Competition
Competition between businesses in the market
Oligopoly
Industry characterized by a handful of sellers with the power to change prices
- follows a trend from other businesses to protect sales
Monopoly
Industry has only one producer, having complete control of prices
Aggregate Output
Total quantity of goods produced during a given period
Trend : increase, means economic growth
Gross Domestic Product (GDP)
Total value of all goods and services produced within a given period
Trend: GDP goes up, aggregate output goes up
GDP per Capita
GDP per individual person
Total GDP/Total population = GDP per Capita
Productivity
A measure of economic growth comparing how much a system produces with its resources needed
Trend: Increase in productivity = government standard of living increases
Balance of Trade
Value of products that are exported - the value of imported products
Trend:
positive - exports more than imports
negative - imports more than exports
Inflation
Widespread price increases, additional money distributed proportionately
Consumer Price Index
Measures the prices of typical products purchased in urban areas
- a method of measuring inflation based on price increases
Recession
A period which aggregate output declines
- producers need fewer employees to produce products
Fiscal Policies
Policies used by government regarding how it collects and spends revenue
Monetary Policies
Policies used by a government regarding its control over the size of its money supply
Variable costs
These costs varies goes up you sell more
Ex: supplies, hourly labor, commission, ingredients
Fixed costs
Same however much you sell
Ex: rent, fixed salaries
Profit
Sales- Costs
Costs
Fixed Costs + Variable Costs
Compound Growth
Cumulative growth from interest paid to investors over a period of time
How long does it take to double your investment?
“Rule of 72”
- divide the annual interest rate or the # of years that you want to double your money by 72
Ex: reinvest annually by 8% you’ll double your money in 9 years
72/8 = 9
Stock
A portion of ownership of a corporation.
The ownership of a company is broken down into smaller parts called shares, which you could buy and sell.
Stocks expressed - Market Value
Current price of a share in the stock market
Stock expressed - Book value
The firms owners equity divided by the # of common shares owned by shareholders
Dividend
A payment to shareholders from the company’s earnings
Blue Chip Stock
A common stock issued by a respected company with a stable pattern of dividend payouts
Mutual Funds
Company that pools cash investments from individuals and organizations to purchase a portfolio of stocks, bonds, etc…
Cannot be traded like a stock.
No loan fund
Not charged sales commissions when they buy or sell funds
Loan fund
Investors are charged sales commission when they buy or sell funds
Exchange Traded Funds (ETF)
A bundle of stocks/bonds that are in an index tracking the overall movement of a market. It can be traded like a stock.
Advantages of ETF’s over Mutual Funds
- Traded like a stock, low operating expenses
- Annual Fees are as low as .04% of assets
- Require no minimum investment, although because ETF must be bought and sold through a broker they require transaction fees
Trading securities
Stocks, bonds, mutual funds are known as securities because they represent secured claims by investors
Security Markets
Markets in which stocks and bonds are sold
Primary Security Markets
New stocks and bonds are sold and bought by firms and governments
Securities & Exchange Commission
Government agency that regulates U.S. security markets
Investment bank
Financial institution that specializes in issue it and reselling new securities
Investment banking services
- Advise companies
- Buy and assume liability for new securities
- Create distribution networks
Second security market
Market in which stocks are sold to the public
Stock exchange
Institutional auction setting in which stocks can be bought and sold
- buyers can use NYSE’s Direct service to automatically conduct trades electronically
Stock broker
Executes buy/sell orders on behalf of customers in return for commission
- brokers offer clients consulting advice in personal financial planning/strategies
Dow Jones Industrial Average
U.S. market index, measures the performance of the industrial sector of the U.S. stock markets from firms on the NYSE (30 blue chip companies)
S & P 500
Market index of U.S. equities based on the performance of 500 large cap stocks
The Russel 2000 index
Index that uses 2000 stocks to measure the performance of the smallest U.S. companies
Calculating Total Return from investment
(Current dividend payment + capital gain)/ (original investment)
multiplied x100 = Total Return (%)
Secured Loan
The borrower guarantees repayment of the loan by pledging the asset as collateral
Collateral
Asset pledged for the fulfillment of repaying a loan
- banks gains possession of pledged assets
Annual Percentage Rate (APR) - one year rate that is charged for borrowing
One year rate that is charged for borrowing
Unsecured Loan
Loan for which collateral is not required
- requires good credit history
Maturity date
Future date when repayment of a bond is due from the borrower
Face Value
Amount of money that the bond buyer (lender) lent the issuer and that the lender will receive on repayment
Default
Failure of borrower to make payment when due to a lender
Gross profit
Firms revenue - cost of revenues
Operating Expenses
Costs other than the costs of revenues
Net Income
Gross Profit - Operating expenses and income taxes
Income Statements
“Profit and loss statements”
- description of revenues and expenses
Earnings per share
Net Income divided by # of shares of common stock
- used to either buy or sell the firms stock
Return on Equity
Annual net income / stockholders equity
Pension Fund
No deposit pool of funds managed to provide retirement income for its members
Du Pont Analysis
ROE = Profit Margin x Asset Turnover x Financial Leverage
Net Income Net Income Net Sales Average Total Assets
————— = ————- X ————- X ————————
StakeH Equity Net Sales Average Total Assets Average stockholders Equity
