Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

GROSS - Economics > Chapter 6: Financing a Business > Flashcards

Chapter 6: Financing a Business Flashcards

1
Q

What do business need in order to finance their activities?

A

a steady flow of money

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Where does a majority of a businesses funds come from?

A

internal funds

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What are INTERNAL FUNDS?

A

money a company receives from the sale of its products or services

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are EXTERNAL FUNDS?

A

money from an outside source

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What are four examples of external funds?

A
  • loans
  • sale of stock
  • selling a bond
  • floating a bond
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is FLOATING A BOND?

A

selling it to the public to make a profit off interest

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What percentage of a companies needs are covered by internal funds?

A

58%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What are EARNINGS?

A

the funds that remain after expenses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are another names for earnings?

A

profit and residual

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is another name for profit residual?

A

earnings

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What are RETAINED EARNINGS?

A

money put back into the company

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Explain earnings and retained earnings in terms of companies and dividends…

A

If a company pays dividends, then earnings and retained earnings are different because the dividend payments are taken out of retained earnings

If a company does not pay dividends, earnings and retained earnings are the same

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What percentage of a companies needs are covered by external funds?

A

42%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

In what two ways can a company borrow money?

A
  • float a bond

- take out a loan

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

If retained earnings are not enough, what three things can a company do to get more money?

A
  • borrow
  • sell stock
  • spend less
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What are the four different forms of borrowing and what percentage do they account for?

A
  • long term debt: 16%
  • short term debt: 12%
  • trade loan: 10%
  • sale of stock: 4%
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is a form of long term debt?

A

bonds

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What three things can companies borrow money for long term?

A
  • equipment
  • buildings
  • land
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What three things can companies borrow money for short term?

A
  • payroll
  • raw materials
  • merchandise
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What is a TRADE LOAN?

A

credit extended by vendors to their customers

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What is PRINCIPAL?

A

amount borrowed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What is the cost of borrowing?

A 
interest = principal x rate x time 
I = PRT
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

KNOW how to calculate the cost of borrowing!

What is the interest when the principal is 1000 the rate is 10% and the time is 1 yr?

A

$1100

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What is a DISCOUNTED LOAN?

A

a loan from which interest is deducted in advanced and the borrower receives the remainder

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What is DISCLOSURE?

A

a federal law (practiced today) that requires all loans to be expressed in APR (annual percentage rate)
have to tell you exactly what you are paying so loans are higher in price

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What is the most important type of bonds?

A

corporate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What is COMMERCIAL CREDIT?

A

loans to businesses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

What is CORPORATE BOND?

A

a certificate representing debitness to the owner (owing someone money)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

What ate the 4 characteristics of a corporate bond?

A
  • $1000 face value to maturity
  • your a creditor of the company
  • maturity date (4 yrs)
  • IOU
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
30
Q

What two things can stockholder do?

A
  • select the board

- declare dividends

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
31
Q

What is ROUNDLOT?

A

buying shares in even hundreds

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
32
Q

What is ODDLOT?

A

buying shares not divisible by hundreds

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
33
Q

What is the difference between roundlot and oddlot?

A

roundlot is bought in even hundreds, oddlot is not

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
34
Q

What are COMMON STOCKS?

A

tied to the profits of the earnings of a company

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
35
Q

What are PREFERRED STOCKS?

A

purchased/ sold based on dividend yield

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
36
Q

What is the difference common and preferred stocks?

A

common: tied to the profits of the earnings of a company
preferred: purchased/ sold based in dividend yield

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
37
Q

What is the SECURITIES AND EXCHANGE COMMISSION (SEC)?

A

a federal agency charged with protecting the public against wrong doing in the sale of securities

38
Q

What does the securities and exchange commission (sec) operate under?

A

caveat emptor

39
Q

What is CAVEAT EMPTOR?

A

let the buyer be aware

it requires the company to provide the public, through the prospectus, their annual report if you own the stock

40
Q

What is the INITIAL PUBLIC OFFERING (IPO)?

A

how stock is first offered to the public

41
Q

Why sell stock?

A

to raise money to start your company

42
Q

How stock is first offered to the public?

A

ipo

43
Q

What is UNDERWRITING?

A
  • you hire a securities firm to buy your entire issue of stock
  • the firm gives you the cash and they then sell the shares to the public
44
Q

What is SYNDICATE?

A

if the issue is too large for one firm, the seller may share it amongst firms (each firm takes a piece)

45
Q

What do IPO’S only reflect?

A

brand new companies

46
Q

What is FLOAT?

A

when the firm sells the stock to their clients

47
Q

Once stocks are sold to the public, all future sales are handled through… ?

A

a stock exchange which is a physical entity

48
Q

What are stock exchanges considered?

A

physical entities

49
Q

What are two examples of stock exchanges?

A
  • New York Stock Exchange (NYSE)

- The American Stock Exchange

50
Q

What is another name for the New York Stock Exchange?

A

the big board

51
Q

What is the OVER THE COUNTER MARKET (OTC)?

A

a list of small companies which are sold from brokers accounts throughout the country which is not a physical entity

52
Q

Which of the two is a physical entity?

stock exchanges or over the counter markets

A

stock exchanges

53
Q

How is the buying and selling of stocks done?

A

through an auction

54
Q

What is LISTED?

A

companies have the right to sell stock on one exchange

55
Q

Who are the two types of people that can buy stocks?

A
  • investors

- speculators

56
Q

What are INVESTORS?

A

a person who buys stock in order to share in the profits/ growth of the company over a longer period of time

57
Q

What are SPECULATORS?

A

those who buy or sell stock to earn a quick profit

58
Q

What is another name for a speculator?

A

trader

59
Q

In what two ways do investors make money?

A
  • dividend payments

- capital gains

60
Q

What are the two groups speculators fall into?

A
  • bulls

- bears

61
Q

What are BULLS?

A

a person who anticipates an increase in the price of a stock

they buy long

62
Q

What are BEARS?

A

a person who anticipates a decrease in the economy or stock price
they sell short

63
Q

What is BUYING LONG?

A

buy stock at a low price and sell at a high price

64
Q

What is SELLING SHORT?

A

you make money when the price of a stock drops

65
Q

What are the two types of corporate bonds?

A
  • mortgage bond

- debenture bond

66
Q

What is a MORTGAGE BOND?

A

backed by the assets of the company issuing (guaranteed)

67
Q

What is a DEBENTURE BOND?

A

backed by a promise to pay loaner back
no guarantee
higher rate of return

68
Q

What is DEFAULT?

A

to not pay an obligation when it matures

69
Q

What is MUTUAL FUND?

A

a corporation that sells stock and uses the proceeds to invest or speculate in the securities market

70
Q

What are 2 advantages of a mutual fund?

A
  • spread the risk through diversification

- professional management

71
Q

What is a BALANCE SHEET?

A

finical statement summarizing a firms assets, liabilities, and net worth

72
Q

What is an ASSET?

A

the value of the things we own

73
Q

What are five examples of assets?

A
  • cash
  • accounts receivable
  • machines and equipment
  • buildings and land
  • inventory
74
Q

What are ACCOUNTS RECIEVABLE?

A

money owed to a firm by its customers

75
Q

What is INVENTORY?

A

products ready for sale yet unsold

76
Q

What are LIABILITIES?

A

money that is owed by a business to someone

77
Q

What are three examples of liabilities?

A
  • accounts payable
  • notes payable
  • mortgage
78
Q

What are ACCOUNTS PAYABLE?

A

money owed to suppliers

79
Q

What are NOTES PAYABLE?

A

short term loans owed by the company in less than a year

80
Q

What is MORTGAGE?

A

long term loans

81
Q

What is NET WORTH?

A

surplus + common stock

82
Q

What is an INCOME STATEMENT?

A

summary of a firms revenue, costs, and takes over a period of time

83
Q

What is another name for income statement?

A

profit and loss statement

84
Q

What is another name for a profit and loss statement?

A

income statement

85
Q

How do you calculate an income statement?

A

sales - expenses = gross income
gross income - corporate tax = net income

net income - dividends (if paid) = retained earnings

86
Q

What are five expenses that need to be considered in an income statement?

A
  • manufacturing cost
  • depreciation
  • selling costs
  • interest
  • administrative cost
87
Q

When are earnings and retained earnings of a company the same and when are they different?

A

They are different when the company pays dividends because the dividend payments are taken from their retained earnings

They are the same when the company pays NO dividends

88
Q

How do you find the dividend yield?

A

dividend / last

  • move decimal 2 places to the RIGHT*
  • ALWAYS IN A %*
89
Q

How do you find the earnings per share?

A

last / PE ratio

ALWAYS IN $ AND CENTS

90
Q

How do you find the sales?

A

ADD two 0’s to the number stated

91
Q

How do you find the opening price?

A

Look at the net change:

  • If (+) you subtract the net change from last
  • If (-) you add the net change to last
92
Q

How do you find the value of a P/E Ratio?

A

lower is better

GROSS - Economics (7 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions