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Finance > exam 1 > Flashcards

exam 1 Flashcards

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1
Q

interest

A

an amount paid to the lender as a fee

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2
Q

principal

A

the initial amount borrowed

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3
Q

unsecured debt

A

debt without collateral

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4
Q

collateral

A

the property the lender can take if the borrower fails to pay

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5
Q

default

A

failure by borrower to pay interest and capital back

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6
Q

mortgage

A

a loan secured by real estate

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7
Q

secured debt

A

debt with collateral

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8
Q

short-term debt capital

A

a loan that must be repaid within a year

loan, money market

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9
Q

long-term debt capital

A

loan with term greater than 1 year

loan, bond

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10
Q

par value

A

face value

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11
Q

dividend

A

distribution payment of the corporations net income

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12
Q

2 types of equity capital

A

Preferred and common
only common is required
stockholder focus on common

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13
Q

board of directors

A

protects the interests of the shareholders

consists of execs, large shareholders, officers

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14
Q

finance vs accounting

A

finance focuses on the future, accounting focuses on the past

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15
Q

synonym for forecast/projection

A

Pro Forma

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16
Q

Free Cashflow

A

cash generated by business over what is needed for operations

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17
Q

uses of free cashflow

A

Distribute dividends

Buy back stock

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18
Q

expenditure

A

a cash outflow, but not an expense

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19
Q

non-cash expense

A

reduces current period net income but doesnt use cash in the current period
Dep Exp, Amort Exp

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20
Q

CAPEX

A

Capital Expenditures

money used to acquire and maintain fixed assets

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21
Q

Goal of financial management

A

maximize wealth of stockholders

max value of stock/company

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22
Q

Alternate term for EBIT

A

Operating profit/earning before income tax

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23
Q

3 limitations of a social science

A

imprecise prediction
relationships between social variables (the economy) can change
social phenomena can be difficult to observe

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24
Q

types of businesses

A

corp - stakeholders - 1-3
partnership - partners - 2
sole proprietorship - proprietor - 1
LLC - members - 1 - newest

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25
Q

2 types of stock

A

common - required to be public

preferred - optional

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26
Q

who can become an owner of a private company

A

make an investment or be invited

27
Q

who can be an onwer of a public company

A

anyone who buys a share of stock

28
Q

corp vs incorp

A

corp is formed to serve a function of a business

incorp is the process to be legally set up as a business

29
Q

LLC features

A

combines tax level of a partnership with the limited liability of a corp

30
Q

CEO

A

highest rank in a corp makes managerial decisions

31
Q

CFO

A

executive with responsibility for financial direction of a corp

32
Q

treasurer

A

appointed to manage finances of entire corp or body

33
Q

controller

A

responsible for all accounting activities/day to day managerial decisions of accounting

34
Q

wealth vs income

A

what you have / what you earn

35
Q

net worth

A

the difference between an entity’s assets and liabilities

36
Q

benchmark

A

ratios used for industry standards

37
Q

treasury stock

A

issued stock bought back by the company

38
Q

sales mix

A

portion of sales a particular product makes up

39
Q

why can a gross margin change

A

the cost of goods and merchandise
change in selling price
varies by product due to variable cost per product

40
Q

current ratio

A

current assets/current liabilities

41
Q

operating/working capital

A

current assets-current liabilities

42
Q

gross margin

A

gross profit/net sales

43
Q

operating margin

A

EBIT/net sales

44
Q

net profit margin

A

net income/net sales

45
Q

leverage

A

potential increase on investment returns
decreases amount owners must invest
businesses may default
interest expense could reduce or eliminate profit

46
Q

Ending Retained Earnings

A

Beg. Ret. Earn. + Net Income - Dividends

47
Q

High Low div payout ratio per business

A

big corp/established brand = high

small businesses/young companies = small

48
Q

reinvested profits

A

can increase value and productivity

49
Q

3 plans of a business

A

strategic, operating, financial

50
Q

strategic plan

A

plan including mission statement, statement of corporate scope and target objectives

51
Q

operating plan

A

detailed plan that indicates dept. responsibilities, timelines for tasks and profit targets

52
Q

financial plan

A

projection of company’s finances, assuming operation plan works

53
Q

statement of corporate scope

A

defines a firms line of business and geographic areas of operation

54
Q

mission statement

A

condensed version of a firms strategic plan

55
Q

1st pro forma statement prepared

A

income statement

56
Q

business capacity

A

maximum business potential output

57
Q

EBITDA

A

earnings before income tax, depreciation, and amortization, not shown on income statement

58
Q

3 definitions of risk

A

uncertainty of an outcome
possibility of loss
undesired outcome

59
Q

2 components of return

A

income from investing (stocks/interest,bonds/interest,rental/rent)
growth and capital gains/losses (stocks,bonds, rental value)

60
Q

total return

A

amount received - amount invested
1 component - bonds
2 component - stocks

61
Q

risk - return trade off

A

when expected return > required return - invest

62
Q

assumption of risk

A

the more volatile, the riskier it is

63
Q

interest formula

A

int. = principal * int rate * fraction of a year

Finance (7 decks)

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