exam 1 Flashcards by Brody Unknown

interest

an amount paid to the lender as a fee

How well did you know this?

Not at all

Perfectly

principal

the initial amount borrowed

How well did you know this?

Not at all

Perfectly

unsecured debt

debt without collateral

How well did you know this?

Not at all

Perfectly

collateral

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

How well did you know this?

Not at all

Perfectly

default

failure by borrower to pay interest and capital back

How well did you know this?

Not at all

Perfectly

mortgage

a loan secured by real estate

How well did you know this?

Not at all

Perfectly

secured debt

debt with collateral

How well did you know this?

Not at all

Perfectly

short-term debt capital

a loan that must be repaid within a year

loan, money market

How well did you know this?

Not at all

Perfectly

long-term debt capital

loan with term greater than 1 year

loan, bond

How well did you know this?

Not at all

Perfectly

par value

face value

How well did you know this?

Not at all

Perfectly

dividend

distribution payment of the corporations net income

How well did you know this?

Not at all

Perfectly

2 types of equity capital

Preferred and common
only common is required
stockholder focus on common

How well did you know this?

Not at all

Perfectly

board of directors

protects the interests of the shareholders

consists of execs, large shareholders, officers

How well did you know this?

Not at all

Perfectly

finance vs accounting

finance focuses on the future, accounting focuses on the past

How well did you know this?

Not at all

Perfectly

synonym for forecast/projection

Pro Forma

How well did you know this?

Not at all

Perfectly

Free Cashflow

cash generated by business over what is needed for operations

How well did you know this?

Not at all

Perfectly

uses of free cashflow

Distribute dividends

Buy back stock

How well did you know this?

Not at all

Perfectly

expenditure

a cash outflow, but not an expense

How well did you know this?

Not at all

Perfectly

non-cash expense

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

How well did you know this?

Not at all

Perfectly

CAPEX

Capital Expenditures

money used to acquire and maintain fixed assets

How well did you know this?

Not at all

Perfectly

Goal of financial management

maximize wealth of stockholders

max value of stock/company

How well did you know this?

Not at all

Perfectly

Alternate term for EBIT

Operating profit/earning before income tax

How well did you know this?

Not at all

Perfectly

3 limitations of a social science

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

How well did you know this?

Not at all

Perfectly

types of businesses

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

How well did you know this?

Not at all

Perfectly

2 types of stock

common - required to be public | preferred - optional

who can become an owner of a private company

make an investment or be invited

who can be an onwer of a public company

anyone who buys a share of stock

corp vs incorp

corp is formed to serve a function of a business | incorp is the process to be legally set up as a business

LLC features

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

CEO

highest rank in a corp makes managerial decisions

CFO

executive with responsibility for financial direction of a corp

treasurer

appointed to manage finances of entire corp or body

controller

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

wealth vs income

what you have / what you earn

net worth

the difference between an entity's assets and liabilities

benchmark

ratios used for industry standards

treasury stock

issued stock bought back by the company

sales mix

portion of sales a particular product makes up

why can a gross margin change

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

current ratio

current assets/current liabilities

operating/working capital

current assets-current liabilities

gross margin

gross profit/net sales

operating margin

EBIT/net sales

net profit margin

net income/net sales

leverage

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

Ending Retained Earnings

Beg. Ret. Earn. + Net Income - Dividends

High Low div payout ratio per business

big corp/established brand = high | small businesses/young companies = small

reinvested profits

can increase value and productivity

3 plans of a business

strategic, operating, financial

strategic plan

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

operating plan

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

financial plan

projection of company's finances, assuming operation plan works

statement of corporate scope

defines a firms line of business and geographic areas of operation

mission statement

condensed version of a firms strategic plan

1st pro forma statement prepared

income statement

business capacity

maximum business potential output

EBITDA

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

3 definitions of risk

uncertainty of an outcome possibility of loss undesired outcome

2 components of return

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

total return

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

risk - return trade off

when expected return > required return - invest

assumption of risk

the more volatile, the riskier it is

interest formula

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