CH 6 Flashcards
A firm owned by a single individual and not organized as a corporation
Sole Proprietorship
A firm owned jointly by two or more persons and not organized as a corporation
Partnership
A legal form of business that provides owners with protection from losing more than their investment should the business fail.
Corporation
A legal provision shielding owners of the corporation from losing more than they have invested in the firm
Limited Liability
Their profits may be taxed twice; happens with corporations, once as corporate profits and again when the profits are disbursed to investors.
Double Taxation
A situation in a corporation in which the top management, rather than the shareholders, controls day-to-day operations.
Separation of ownership from control
Conflict between interest of shareholders and interest of top management. A problem caused by an agent pursuing his own interests rather than the interests of the principal who hired him.
Principal- agent problem
A flow of funds from savers to borrowers through financial intermediaries such as banks
Indirect finance
The flow of funds from savers to borrowers through financial markets, such as the NYSE.
Direct finance
A periodic interest payment on a bond
Coupon payment
Markets in which firms sell newly issued stocks and bonds to initial buyers
Primary market
Markets in which stocks and bonds that have already been issued are sold by one investor to another
Secondary market
A summary of a firm’s revenues, costs and profit over a period of time
Income Statement
A financial statement that sums up a firm’s financial position on a particular day, usually the end of a quarter or year
Balance Sheet
Revenue - explicit costs
Accounting Profit
