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C 214: Financial Management > Final Study Guide > Flashcards

Final Study Guide Flashcards

1
Q

Loan from investor to firm

A

Bond

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2
Q

Firm pays interest payments periodically until the bond

A

matures plus the bond price

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3
Q

Ownership in the corporations

A

Stocks

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4
Q

The goal of a corporation is to

A

Enhance long run stock value

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5
Q

Balance risk vs.

A

Profit

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6
Q

Essentials for success

A

Equity, productive employees and capital equipment, customer demand

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7
Q

Corporations are simply

A

passthrough legal entities

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8
Q

The benefits and costs of corporations are shared by

A

Shareholders, employees, and customers

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9
Q

Management makes self-interest to benefit themselves rather than achieving organizational goals

A

Agency cost

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10
Q

Principles of financial decision making

A

Efficient market prices
Balancing risk and return
Time value of money

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11
Q

Competitive, liquid, transparent, standardized

A

Efficient market prices

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12
Q

Return must compensate for risk

A

Balancing risk and return

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13
Q

Risk premium for buying a riskier stocks or bonds or securities

A

Risk Aversion

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14
Q

The value of money depends upon size, timing, and certainty of receipt

A

Time value of money

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15
Q

Financial Markets involve two types of firms

A

Non-Financial (Walmart, Microsoft, GM) that sell stocks and bonds
Financial Firms (BlackRock, fidelity) that manage pensions, 401k, and buy stocks and bonds

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16
Q

IPO stands for

A

Initial Public Offering

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17
Q

Selling for the first time in the primary market

A

Initial Public Offering

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18
Q

Disclosure of potential risks and returns

A

Prospectus

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19
Q

Group of investment banks underwriting security issuance

A

Syndicate

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20
Q

Firm issues stock/bonds to be bought by the investors

A

Primary Markets

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21
Q

Every time they issue bonds or stock, they do so where

A

in the Primary Markets

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22
Q

Corporations get cash

A

Cash inflow

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23
Q

Stock/bonds are traded among investors; the firm is not involved

A

Secondary Markets

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24
Q

Competitive bid/as from many buyers and sellers

A

Auction Market

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25
Q

The New York Stock Exchange is an example of

A

Auction Market

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26
Q

A dealer buys and sells securities upon investor inquiry

A

Dealer Market

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27
Q

NASDAQ is an example of a

A

Dealer Market

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28
Q

10K Reports are filed

A

Annually

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29
Q

10 Q Reports are filed

A

Quarterly

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30
Q

Assets = Liabilities + Equity

A

Balance Sheet

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31
Q

Increase in asset = cash outflow

A

Balance sheet

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32
Q

Increase in liability/equity = cash flow

A

Balance Sheet

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33
Q

Sales Revenue - Cost of Goods Sold =

A

Gross Profit

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34
Q

Gross Profit - Operating Expense - Depreciation =

A

EBIT

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35
Q

EBIT - Interest =

A

EBIT minus taxes

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36
Q

EBIT minus taxes (@25%)=

A

Net Income

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37
Q

Net Income/sales =

A

Net Margin

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38
Q

Dividends Paid + Added to Retained Earnings =

A

Net Income

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39
Q

Dividends Paid/ Net Income =

A

Payout Ratio

40
Q

The Statement of Cash Flows includes

A

Cash Flow from Operations (CFO)
Cash Flow from Investments (CFI)
Cash Flow from Financing (CFF)

41
Q

CFO is cash earned by

A

Producing and selling the firm’s products

42
Q

CFO =

A

Net Income + Depreciation Expense - ((Increase in Current Assets - Decrease in Current Assets) - (Increase in Current Liabilities - Decrease in Current Liabilities))

43
Q

Examples of Current Assets

A

Accounts Receivable
Inventory
Prepaid Expenses

44
Q

Examples of Current Liabilities

A

Accounts Payable
Accrued Expenses

45
Q

Current assets are also referred to as

A

Operating Expenses

46
Q

Current Liabilities are also referred to as

A

Operating Liabilities

47
Q

CFF is cash raised by

A

selling bonds and stocks

48
Q

CFF =

A

Increase in stock + Increase in bonds - Dividend paid

49
Q

CFI is cash spent for

A

Investing projects

50
Q

Bill paying capacity

A

Liquidity

51
Q

Ratios dealing with liquidity

A

Current Ratio
Quick Ratio

52
Q

Revenue Per Asset

A

Efficiency

53
Q

Ratios dealing with efficiency

A

Total Asset Turnover
Fixed Asset Turnover

54
Q

Debt Vs. Equity

A

Financing

55
Q

Ratios dealing with financing

A

Debt Equity
Financial Leverage

56
Q

Net Income

A

Profitability

57
Q

Ratios dealing with profitability

A

Return on Equity
Return on Assets

58
Q

Trend Analysis, Cross Sectional, and Goals

A

Financial Ratio Analysis

59
Q

Compares ratios of a firm over time

A

Trend Analysis

60
Q

Compares firm to competitors

A

Cross Sectional

61
Q

Internal performance goals

A

Goals

62
Q

The value of money depends on when you receive it

A

Time Value of Money (TVM)

63
Q

The value of cash today

A

Present value

64
Q

The value of cash in future

A

Future Value

65
Q

The metric that translates between PV and FV

A

Interest Rate

66
Q

The rate of increase in a cash balance per period

A

Interest rate

67
Q

PV * (1 + interest rate)

A

FV

68
Q

PV * (1+ inflation rate)

A

FV

69
Q

FV/(1+Interest Rate)

A

PV

70
Q

When the Market rate is equal to the coupon rate, bonds will sell at

A

par value

71
Q

When the market rate is greater than the coupon rate, bonds will sell at

A

a discount

72
Q

When the market rate is less than the coupon rate, bonds will sell at

A

a premium

73
Q

PV of future cash flows, discounted at the risk-adjusted required return

A

Bond & Stock Price

74
Q

A loan from an investor

A

Bond

75
Q

Investor becomes part owner

A

Stock

76
Q

Principal of a bond

A

Face Value of the Bond

77
Q

Principal of stock

A

Price of stock

78
Q

Interest of a bond is

A

a legal obligation of the firm

79
Q

Dividends of stock are distributed

A

at the discretion of the firm

80
Q

Maturity of bond

A

Principal repaid to the investor

81
Q

Maturity of stocks

A

none

82
Q

Pricing of both stocks and bonds

A

Vary with the market

83
Q

Liquidity of both stocks and bonds

A

Can be sold to other investors

84
Q

If not mentioned in the question, FV for a bond is

A

$1000

85
Q

Bonds:
Annual Interest Payment =

A

Coupon Rate * Face Value

86
Q

A bond’s price and yield keeps changing based on the

A

supply and demand of the market

87
Q

Coupon rate at par price

A

yield

88
Q

If price increase, yield

A

increases

89
Q

If price decreases, yield

A

decreases

90
Q

If the bond yield increases from 4-5%, the price drops. This drop in price caused by the 1% increase in yield is called

A

Duration

91
Q

Long term bonds have a

A

Higher Duration and Greater Price Volatility

92
Q

Bond’s required return is the yield necessary to compensate for risk

A

Required return for a bond

93
Q

What factors affect a bond’s required yield?

A

Treasury Yields
Credit Risk
Economy
Term
Collateral
Taxes

94
Q
A
94
Q
A

C 214: Financial Management (9 decks)

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