Introduction to Finance Flashcards
What is finance?
Broad terms that describes activities associated with banking, leverage or debt, credit, capital markets, money and investments
What does finance represent?
Money management and the process of acquiring needed funds
Why is finance important?
For evaluating working capital financing because it gives you the tools and information to asses how much money you need and the best way to get it
What is the objective of financial management?
To maximise the value of the firm and attempting to reduce the cost of finance
What are non-current assets?
Assets that last a long time, e.g. buildings
Can either be tangible or intangible
What are current assets?
Assets that last a short time, e.g. inventory
What are current liabilities?
Short-term debt that represents loans and other obligations that must be repaid within one year
What are non-current liabilities?
Long-term debt that represents debt that doesn’t have to be repaid within one year
What does shareholders’ equity represents?
The difference between the value of the assets and the liabilities of the firm
Who buys debt from firms?
Creditors, bondholders or debt holders
Who are the holders of equity?
Shareholders
Who reports to the chief financial officer?
Treasurer and the financial controller
What does the treasurer do?
Responsible for handling cash flows, managing capital expenditure decisions and making financial plans
What does the financial controller do?
Handles the accounting function, which includes taxes, financial and management accounting, and information systems
What is the most important job of a financial manager?
To create value from the firms capital budgeting, financing and net working capital activities
How does the financial manager create value?
Tries to buy assets that generate more cash than they cost and sell bonds, shares and other financial instruments that raise more cash than they cost
What are the goals of the financial manager?
Survive, avoid financial distress and bankruptcy, beat the competition, maximise sales or market share, minimise costs, maximise profits, maintain steady earnings growth, and social responsibility
What goals of the financial manager relate to ways of earning or increasing profits?
Sales, market share, and cost control
What goals of the financial manager relate to controlling risk?
Bankruptcy avoidance, stability and safety
What is the main goal of the financial manager?
Maximise the value of a company’s equity shares
In what ways can a firm borrow funds?
Can go to a bank for a loan, or they can issue debt securities in the financial markets
How can a firm give up ownership?
Through private negotiations or a public sale
What are the financial markets composed of?
Money market and capital markets
What are money markets?
Markets for debt securities that will pay off in the short-term, applies to a group of loosely connected markets, dealer markets
What are capital markets?
Markets for long-term debt and for equity shares
What other markets can financial markets be classified as?
Primary and secondary markets
What are primary markets?
Used when governments and public corporations initially sell securities, the corporations engage in two types of primary market sales of debt and equity: public offerings and private placements
What are secondary markets?
Involves one owner or creditor selling to another, provides the means for transferring ownership of corporate securities
What are the different stock exchanges?
New York Stock Exchange, London Stock Exchange, EURONEXT, Shanghai Stock Exchange, Tokyo Stock Exchange
