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1. BA-FM 22P(2018)-A (LEC) Financial Analysis and Reporting > Chapter 1: Finance > Flashcards

Chapter 1: Finance Flashcards

1
Q

The art and science of managing money

A

Finance

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2
Q

Focuses on how resources are use to achieve corporate goals

A

Finance

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3
Q

focuses on determination of value and how to make the best decisions with respect to the use of funds or financial resources

A

Finance

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4
Q

The field of _________ is actually an outgrowth of economics

A

Finance

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5
Q

Finance is sometimes referred to as ___________

A

financial economics

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6
Q

Used to be branch of economics

A

Finance

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7
Q

Factors that made the study of Finance Important

A
  1. Globalization
  2. Computerization
  3. Corporate Reorganization
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8
Q

Field of Finance is actually an outgrowth of economics

A

Relationship to Economics

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9
Q

Financial managers must understand the economic framework within which they operate in order to react or anticipate to changes in conditions.

A

True

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10
Q

Primary economic priniple used by Financial Managers is ______________

A

Marginal Analysis

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11
Q

Financial decisions should be implemented only when benefits exceed costs.

A

Marginal Analysis

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12
Q

Also differ with respect to decision-making

A

Relationship to accounting

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13
Q

the focus is on cash flows.

A

Finance

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14
Q

Used to be a job that was largely mechanical

A

Evolution of Finance

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15
Q

Used to be a branch of economics

A

Evolution of Finance

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16
Q

Single period and a short-term. Ignores the time value of money.

A

Profit Maximization

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17
Q

Long-term goal; Considers return on investment.

A

Wealth maximization

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18
Q

Is the overall standards of conduct or moral judgment

A

Ethics

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19
Q

Key activities of Financial Manager

A
  1. Financing Decision
  2. Dividend decision
  3. Investment Decision
  4. Management of Financial Resources
  5. Risk Management
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20
Q

end goals are the efficient allocation of funds to specific assets

A

Investment Decision

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21
Q

appropriate dividend policy of a firm and its subsequent effects.

A

Dividend Decision

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22
Q

Obtaing the best financing mix and ultimately determining the optimal capital structure of the firm.

A

Financing Decision

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23
Q

concerned with protecting and utilizing assets with a minimum degree of risk.

A

Risk management

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24
Q

Include banking, personal financial planning, investments real estate and income.

A

Career opportunities

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25
Q

Efficient utilization of the firm’s funds/resources

A

Management of Financial Resources

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26
Q

Responsible for managing the firm’s short-term investments of cash

A

Cash Manager

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27
Q

Advantages of Profit Maximization

A
  1. Easy to compute
  2. Provides quick term reference to firm.
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28
Q

Disadvantage of Wealth Maximization

A
  1. Difficult to trace relationship between stock market price and financial decision
  2. not easy to determine
  3. needs in depth analysis
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29
Q

Disadvantages of Profit Maximization

A
  1. Emphasis on short-term
  2. Does not consider the risks and timing returns
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30
Q

Titles and Designation of finance

A
  1. Cash Manager
  2. Treasurer
  3. Controller
  4. CFO
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31
Q

Concerned with both inflows & Outflows funds on day-to-day basis.

A

Treasurer

32
Q

Responsible for the auditing, financial reports, & Management Auditing.

A

Controller

33
Q

Responsible for all the financial activities of the firm

A

CFO

34
Q

responsible for managing the firm’s short-term investment of cash

A

Cash Manager

35
Q

Is a popular measure used by many firms to determine whether an investment - proposed or existing - positively contributes to the owners wealth.

A

Economic Value Added (EVA)

36
Q

Eva is calcuated by:

A

subtracting the cost of funds used to finance an investment from its after-tax operating profits.

37
Q

positive EVAs

A

increase shareholder wealth

38
Q

negative EVAs

A

reduce shareholder value

39
Q

Can one reconcile the need of the firm for wealth maximization and the need of the firm to be _______________

A

Social Responsibility

40
Q

Advantages of wealth maximization

A
  • Puts emphasis on long term
  • Considers risks and uncertainty
  • Recognizes the timing of the financial performance inflows or returns
41
Q

Formula of EPS

A

EPS = Net Income / Shares Outstanding

42
Q

Primarily prepares the firm’s financial plans and budgets.

A

Financial Analyst

43
Q

Manages specific foreign operations and the firm’s exposure to fluctuations in exchange rates

A

Foreign Exchange Manager

44
Q

In large firms, arranges financing for approved asset investments.

A

Project Finance Manager

45
Q

Administers the firm’s credit policy by evaluating credit applications, extending credit, and monitoring and collecting accounts receivable.

A

Credit analyst/manager

46
Q

In large companies, oversees or manages the assets and liabilities of the employees’ pension fund.

A

Pension fund manager

47
Q

Evaluates and recommends proposed asset investments.

A

Capital Expenditures manager

48
Q

Frequently manages the firm’s cash collection and disbursement activities and short-term investments, coordinates show-term borrowing and banking relationships.

A

Cash Manager

49
Q

Other duties include financial forecasting, performing financial comparisons and working closely with accounting.

A

Financial Analyst

50
Q

Coorinates consultants, investment bankers, and legal counsel.

A

Project Finance Manager

51
Q

Basic Forms of Business Organizations

A
  • Sole Proprietorship
  • Partnership
  • Corporation
52
Q

Owned by one person

A

Sole Proprietorship

53
Q

an artificial being created by operation of law, having the right of succession and the powers, attributes, and properties expressly authorized by law or incident to its existence.

A

Corporation

54
Q

Two or more people pool together money and expertise, put these in a common fund and share profits later

A

Partnership

55
Q

Is primarily concerned with the presentation of financial data

A

Accounting

56
Q

Is primarily concerned with analyzing and interpreting this information for decision-making purposes

A

Financial Manager

57
Q

Financial Manager uses this data as a vital tool for making decisions about the financial aspcts of the firm.

A

Financial Statements

58
Q

Strengths of SOle proprietorship

A
  • Owner receives all profits (and
    sustains all losses)
  • Low organizational costs
  • Income included and taxed on
    proprietor’s personal tax return
  • Independence
  • Secrecy
  • Ease of Dissolution
59
Q

Strenghts on Partnership

A
  • Can raise more funds than sole
    proprietorship
  • Borrowing power enhanced by more owners
  • More available power and managerial skill
  • Income included and taxed on partner’s tax returns
60
Q

Strengths on Corporation

A
  • Owners have limiud liability, which guarantees that they can not lose more than they invested
  • Can achieve large size via sale of stock
  • Ownership (Stock) is readily transferable
  • Long life of Firm
  • Can hire professional managers
  • Has better acess to financing
  • Receives certain tax advantages
61
Q

Weaknesses of Sole Proprietorship

A
  • Owner has unlimited liability - total wealth can be taken to satisfy debts
  • Limited fund-raising power tends to inhibit growth
  • Proprietor must be jack-of-all-trades
  • Difficult to give employees long-run career opportunities
  • Lacks continuity when proprietor dies
62
Q

Weaknesses of Partnership

A
  • Owners have unlimited and may have to cover debts of other partners
  • Partnership is dissolved when a partner dies
  • Difficult to liquidate or transfer partnerihip
63
Q

Weaknesses of Corporation

A
  • Taxes generally higher, because corporate income is taxed, and dividends paid to owners are also taxed
  • More expensive to organize than other business forms
  • Subject to heater government regulation
  • Lacks secrecy, because stock- holders must receive financial reports
64
Q

primarily responsible for the flow of funds from the lender to the borrower

A

Financial System

65
Q

Have a surplus of money that they probably want to generate more money with individuals and companies

A

Savers

66
Q

Another way a business can raise money or capital is through selling _____________

A

EQUITY

67
Q

Do not have enough money and therefore may need to borrow money individuals, companies, governments.

A

Borrowers

68
Q

is also known as shares or stocks and it represents ownership.

A

Equity

69
Q

The third way savers and borrowers are linked in the financial markets is through the issue of ________.

A

BONDS

70
Q

A ________ is a loan that is represented
by an IOU (I owe you).

A

BOND

71
Q

These _______ are issued directly to investors, missing out the banks.

A

IOUs

72
Q

are interest bearing securities which entitle holders to annual interest and repayment at maturity.

A

Bonds

73
Q

Sell bonds to investors.

A

Companies and governments

74
Q

They receive the loan in return for paying interest payments and making full repayment on a fixed future date

A

Companies and governments

75
Q

Buy corporate and government bonds in return for interest payments and full repayment of the loan on a fixed future date

A

INVESTORS

76
Q

10 basic Principles of Financial Management

A
  1. Risk-Return Trade-Off
  2. The time value of Money
  3. Cash-not Profits- is the King
    4.Incremental Cash Flows
  4. Competitive Markets
  5. Efficient capital Markets
  6. The Agency Problem
  7. Taxes Bias Business Decisions
  8. All Risk Is not Equal
  9. Ethical Behavior means doing the Right thing
77
Q

Advantages of Wealth Maximization

A
  • Puts emphasis on long term
  • Considers risks and uncertainty
  • Recognizes the timing of the financial performance inflows or returns
  • Recognizes the timing of the financial performance

1. BA-FM 22P(2018)-A (LEC) Financial Analysis and Reporting (7 decks)

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