Chapter 1 Flashcards
Financial Services
The area of finance concerned with the design and delivery of advice and financial products to individuals, businesses, and governments.
Managerial Finance
Concerns the duties of the financial manager in a business
Financial Manager
Actively manages the financial affairs of all types of businesses, whether private or public, large or small, profit seeking or not for profit.
Sole Proprietorship
A business owned by one person and operated for his or her own profit.
Unlimited Liability
The condition of a sole proprietorship (or general partnership), giving creditors the right to make claims against the owner’s personal assets to recover debts owed by the business.
Partnership
A business owned by two or more people and operated for profit.
Articles of Partnership
The written contract used to formally establish a business parntership.
Stockholders
The owners of a corporation whose ownership, or equity, takes the form of common stock or, less frequently, preferred stock.
Limited Liability
A legal provision that limits stockholders’ liability for a corporation’s debt to the amount they initially invested in the firm by purchasing stock.
Common Stock
The purest and most basic form of corporate ownership.
Dividends
The periodic distributions of cash to the stockholders of a firm.
Board of Directors
Group elected by the firm’s stockholders and typically responsible for approving strategic goals and plans, setting general policy, guiding corporate affairs, and approving major expenditures.
President or CEO
Corporate official responsible for managing the firm’s day-to-day operations and carrying out the policies established by the board of directors.
Limited Partnership (LP)
A partnership in which one or more partners have limited liability as long as at least one partner (the general partner)has unlimited liability. The limited partners are passive investors that cannot take an active role in the firms management.
Rick
The chance that actual outcomes may differ from those expected.
Risk Averse
Requiring compensation to bear risk.
Business Ethics
Standards of conduct or moral judgement that apply to persons engaged in commerce.
Treasurer
The firm’s chief financial manager, who manages the firm’s cash, oversees its pension plans, and manages key risks.
Controller
The firms chief accountant, who is responsible for the firm’s accounting activities, such as corporate accounting, tax management, financial accounting, and cost accounting.
Marginal Cost-Benefit Analysis
Economic principle that states that financial decisions should be made and actions taken only when the added benefits exceed added costs.
Accrual Basis
In preparation of financial statements, recognizes revenue at the time of sale and recognizes expenses when they are incurred.
Cash Basis
Recognizes revenues and expenses only with respect to actual inflows and outflows of cash.
Corporate Governance
The rules, processes, and laws by which companies are operated, controlled, and regulated.
Individual Investors
Investors who own relatively small quantities of shares so as to meet personal investment goals.
Institutional Investors
Investment professionals such as banks, insurance comp., mutual funds, and pension funds that are paid to manage and hold large quantities of securities on behalf of ogthers.
Principal-Agent Relationship
An arrangement in which an agent acts on the behalf of a principal. Ex. shareholders of a company (principals) elect management (agents) to act on their behalf.
Agency Problems
Arise when managers place personal goals ahead of the goals of stakeholders.
Agency Costs
Arising from agency problems that are borne by shareholders and represent a loss of shareholder wealth.
Incentive Plans
Management compensation plans that tie management compensation to share price; one example involves the granting of stock options.
Stock Options
Extended by the firm that allow management to benefit from increases in stock prices over time.
Performance Plan
Plans that tie management compensation to measures such as EPS or growth in EPS. Can also include performance shares and cash bonuses.
Performance Shares
Shares of stock given to management for meeting stated performance goals.
Cash Bonuses
Cash paid to management for achieving certain performance goals.
Finance
The science and art of managing money
