Introduction to Principles of Finance Flashcards
This deck only covers KEY definitions. Read Notion for key concepts, maths, and theories.
Define retained earnings.
Funds the firm keeps for its ongoing operations.
Define the role of financial management.
They deal with a firm’s decisions in acquiring and using the cash that is received from investors or from retained earnings.
What is the role of financial institutions and markets?
Facilitates the flow of capital between investors and companies
Define international finance.
The use of financial theory in a global business environment
Define risk.
The uncertainty of future cash flows due to timing and size.
Define a financial asset.
Something worth money, like stocks or bonds. It should depend on the cash flows you expect to receive in the future.
Define real assets.
Physical property like gold, machinery, equipment, or real estate.
Define real markets.
Places/processes which facilitate the trading of real assets.
Define time value of money (TVM).
The theory and application of valuing cash flows at various points in time.
State the agency problem.
Problems arise when a principal (shareholder) hires an agent (manager) and cannot carefully monitor the agent’s actions.
Define corporate governance.
The process of monitoring managers and aligning their incentives with shareholder goals.
Define the role of an auditor.
They examine the firm’s accounting systems and comment on whether financial statements fairly represent the firm’s financial position.
Define the role of an investment analyst.
They follow a firm, conduct their own evaluations, and report to the investment community.
Define the role of investment banks.
They help firms access capital markets.
Define the role of credit rating agencies.
They examine a firm’s financial strength for its debt holders.
