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Finance 201 > Key Terms by Chapter, Alphabetized (Chapters 1 - 3) > Flashcards

Key Terms by Chapter, Alphabetized (Chapters 1 - 3) Flashcards

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1
Q

Chapter 1

A

Definition

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2
Q

401K

A

A tax-sheltered retirement plan offered by some employers.

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3
Q

Accounting

A

The business function responsible for creating the historical financial statements.

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4
Q

Asset Manager

A

A professional who makes a living managing a portfolio of assets.

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5
Q

Asset Pricing

A

The process of valuing assets

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6
Q

Business Finance

A

Another word for corporate finance.

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7
Q

Capital Budgeting Analysis

A

The process of deciding what assets to buy.

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8
Q

Cash Management

A

Managing the day-to-day finance operations of a firm.

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9
Q

Certified Financial Planner

A

A professional who has passed the CFP examination.

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10
Q

Chief Financial Officer (CFO)

A

The highest ranking corporate finance officer in a firm.

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11
Q

Commercial Bank

A

A bank that focuses mostly on mid to large sized companies.

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12
Q

Company/Industry Analysts

A

Professionals who produce reports on specific firms and industries.

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13
Q

Consumer Bank

A

A bank that focuses mostly on individuals, families, and small business.

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14
Q

Consumer Insurance

A

Life and property insurance.

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15
Q

Corporate Finance

A

The finance function within a business. One of the three main areas of finance.

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16
Q

Corporate Insurance

A

Insurance sold to businesses.

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17
Q

Cost of Capital

A

How much it costs the firm (in percentage terms) to finance its operations through debt and/or equity.

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18
Q

CPA

A

A Certified Public Accountant.

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19
Q

Credit Analyst

A

A bank position which involves deciding who qualifies for a loan and who does not.

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20
Q

Current Market Value

A

What someone would pay right now for an asset.

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21
Q

Debt

A

Money lent by a creditor to provide financing for the borrower.

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22
Q

Discounted Cash Flow

A

The process of using time value of money skills and forecasting to value assets.

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23
Q

Dollar-Cost-Averaging

A

Automatically investing a fixed percentage or amount every certain period, such as a month.

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24
Q

Equity

A

Ownership in an asset such as a company.

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25
Q

Estates

A

Legal structures used in estate planning.

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26
Q

Fair Return

A

An acceptable return for a passive investor.

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27
Q

Fields

A

Specific areas within finance such as insurance, personal finance, financial planning, asset management, etc.

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28
Q

Finance (verb)

A

To pay for something.

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29
Q

Financial Derivatives

A

Financial assets that derive their value based on an underlying asset. Examples are options, futures, and forwards.

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30
Q

Financial Management

A

Another word for corporate finance.

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31
Q

Financial Policy Implementation

A

Incorporating new finance ideas within a firm.

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32
Q

Free Cash Flows

A

Cash that is left over after business operations and taxes are paid.

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33
Q

Hedge Funds

A

Lightly regulated investment funds that have fewer restrictions than mutual funds pertaining to investment choices.

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34
Q

Index Fund

A

A mutual fund that tracks an already established index such as the S&P 500.

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35
Q

Initial Public Offering (IPO)

A

An organization’s business function responsible for interacting with the organization’s employees (staff, faculty, managers, etc.)

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36
Q

Institutions

A

One of the three main areas of finance which deals with banks, insurance companies, pension funds, and the like.

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37
Q

Insurance Company

A

A firm that offers life, health, auto, etc. insurance services.

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38
Q

Invest

A

To exchange something in hope of a return.

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39
Q

Investment Banking

A

Professional banking services not regulated by federal banking regulations.

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40
Q

Investments

A

One of the three main areas of finance. As its name implies, it involves choosing which assets to invest in.

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41
Q

Longing

A

Buying an asset.

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42
Q

Managerial Finance

A

Another word for corporate finance.

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43
Q

Marketing

A

The business function responsible of generating sales.

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44
Q

Mergers and Acquisitions (M&As)

A

The market for firms that buy and sell each other.

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45
Q

Money Manager

A

Old term for an Asset Manager

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46
Q

Mutual Funds

A

Portfolios of assets professionally managed for others to invest in.

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47
Q

New Issues

A

The market for firms issuing equity or debt for the first time.

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48
Q

No-Load Mutual Fund

A

A mutual fund that does not charge a fee to get into it or to leave it.

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49
Q

Operations

A

The business function responsible for the production of the good or service being sold.

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50
Q

OPM

A

Other people’s money.

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51
Q

Organizational behavior/Human Relations

A

The business function responsible for the people-stuff in the organization.

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52
Q

Passive Investing Strategy

A

Investing without active management.

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53
Q

Pension Company

A

A firm that provides retirement investment plans.

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54
Q

Private Placements

A

Company financing without having to file the necessary public regulatory documents.

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55
Q

Property/Casualty Auto Insurance

A

Insurance required if you own a car.

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56
Q

Real Estate Investment Trust

A

Portfolios that own real estate assets such as buildings and mortgages.

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57
Q

Reinsurance

A

Insurance sold to insurance companies.

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58
Q

Risk Management

A

The area in finance that deals with insurance.

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59
Q

Roth IRA

A

A tax-sheltered retirement plan individuals can use to avoid taxes on portfolio returns.

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60
Q

Seasoned Equity Offering (SEO)

A

Any public equity offering after the IPO.

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61
Q

Shorting

A

Selling an asset.

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62
Q

Specialties

A

Another word for fields.

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63
Q

Strategic Management

A

The business function of managing the strategies and tactics of business operations.

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64
Q

Supply Chain Management

A

A subset of operations responsible for managing the value chain.

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65
Q

Tax Strategies

A

Minimizing the taxes a business pays.

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66
Q

Tax-Sheltered Plan

A

An investment plan that either defers or eliminates income tax.

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67
Q

Teller

A

An entry level bank position.

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68
Q

Trusts

A

Legal structures used in estate planning.

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69
Q

Value Chain

A

The chain of suppliers and customers the business relies on.

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70
Q

Vault.com

A

A website with valuable career information.

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71
Q

Venture Capital

A

High risk, usually early stage professional financing.

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72
Q

Wills

A

Legal documents used in estate planning.

73
Q

Chapter 2

A

Definition

74
Q

Accounts Payable

A

A current liability that represents any money the firm owes suppliers and other firms. Typically the firm does not pay interest on accounts payable.

75
Q

Accounts Receivable

A

A type of current asset which represents any money owed to the firm for services rendered.

76
Q

Accrual Accounting

A

Accounting system based on recording accounts based on historical prices and the matching principle.

77
Q

Accruals

A

Non-cash accounting accounts representing money either owed or due, typically in the short term.

78
Q

Accrued Wages

A

Wages that the company owes to employees, but has not paid yet.

79
Q

Additional PIC

A

A type of equity on the balance sheet which equals the proceeds from a stock offering minus the common stock (par) portion.

80
Q

Balance Sheet

A

One of the three main financial statements. It is a snapshot of the firm’s assets, liabilities, and equity at any point in time.

81
Q

Balance Sheet Equation

A

Assets = Liabilities + Equity

82
Q

Book Value

A

The accounting value recorded on the balance sheet.

83
Q

Cash

A

Most liquid current asset on the balance sheet.

84
Q

Cash Flow from Financing

A

One of the three parts of the cash flow statement.

85
Q

Cash Flow From Investing

A

One of the three parts of the cash flow statement.

86
Q

Cash Flow from Operations

A

One of the three parts of the cash flow statement.

87
Q

Common Stock

A

A type of equity on the balance sheet which represents equity sold to common share holders at par value.

88
Q

Contra-Asset Account

A

An account on the asset side of the balance sheet that reduces the value of the asset, such as accumulated depreciation.

89
Q

Cost of Good Sold (COGS)

A

The cost of raw materials for operations, typically the second line of the income statement.

90
Q

Cost of Services

A

Similar to cost of goods sold, but applies to service companies.

91
Q

Current Assets

A

Assets that are expected to be liquidated within a year.

92
Q

Current Liabilities

A

Liabilities on the balance sheet with a short life span (typically less than one year).

93
Q

Depreciation

A

A non-cash expense used to approximate the decrease in value of an asset.

94
Q

Earnings

A

Another word for net income.

95
Q

Earnings Management

A

Using accrual accounting to make earnings look better or worse than they should.

96
Q

EBIT

A

Stands for “Earnings Before Interest and Taxes”. EBIT is found on the income statement.

97
Q

FASB

A

Federal Accounting Standards Board.

98
Q

FIFO

A

First in, first out inventory system.

99
Q

Financial Statement Analysis

A

The process of examining the three financial statements using financial skills.

100
Q

Fixed Assets

A

Assets on the balance sheet with a lifespan greater than a year.

101
Q

GAAP

A

Generally accepted accounting principles.

102
Q

Gross Profit

A

Typically the third line of the income statement which equals Sales - COGS

103
Q

Historical Cost Principle

A

Accrual accounting principle to recorded assets, liabilities, and equity at historical levels.

104
Q

Income Statement

A

One of the three main financial statements. It covers a period of time and starts with sales, takes out expenses, and ends with net income.

105
Q

Interest Expense

A

Amount owed to creditors that appears on the income statement between EBIT and earnings before taxes.

106
Q

Inventories

A

A current asset that is typically viewed as the least-liquid current asset. Includes raw materials, work-in-process, and finished goods.

107
Q

Investing Activities

A

What type of projects a firm decides to take.

108
Q

LIFO

A

“Last in, first out” inventory system.

109
Q

Liquidity

A

The ability to convert an asset to cash quickly without losing significant value.

110
Q

Marketable Securities

A

Very liquid current asset on the balance sheet such as money markets, t-bills, etc.

111
Q

Matching Principle

A

Accrual accounting principle to match revenues and expenses in the same period.

112
Q

Net Income

A

Typically last line of the income statement, also known as earnings.

113
Q

Non-Cash Expense

A

Any expense that is not an actual cash flow, but is recorded in the financial statements. An example is depreciation.

114
Q

Notes Payable

A

A current liability that represents money borrowed for the short term, typically under 5 years.

115
Q

Operating Accounts

A

Financial statement accounts which generate operating expenses.

116
Q

Operating Expenses

A

The expenses on an income statement that fit between gross profit and EBIT

117
Q

Percentage of Completion Method

A

A type of revenue recognition system where the firm books sales as they complete certain milestones of the service rendered.

118
Q

PP&E

A

Property, plant, and equipment, a part of fixed assets on the balance sheet.

119
Q

Retained earnings

A

Money plowed back into the company from prior earnings (net income).

120
Q

Retained Earnings Forecasting

A

Predicting the amount of retained earnings that will carry from the income statement to the balance sheet in the future.

121
Q

Revenue Recognition

A

Accrual accounting permits firms to time the recognition of sales based on certain rules.

122
Q

Revenues, Sales

A

The top line of the income statement. The total amount of money a business brings in (before subtracting out any costs).

123
Q

Sell-Lease Back

A

A technique used to reduce the amount of assets and especially debt on a firm’s books.

124
Q

Source of Cash

A

A decrease of an asset (including cash) or the increase in a liability.

125
Q

Statement of Cash Flows

A

One of the three main financial statements. It includes cash flow from operations, investing, and financing.

126
Q

Tax Expense

A

Typically second to the last line of the income statement right before net income, represents income taxes paid by the firm.

127
Q

Use of Cash

A

An increase of an asset (including cash) or the decrease of a liability.

128
Q

Chapter 3

A

Definition

129
Q

Accounting Profit

A

Typically net income. A profit that does not account for opportunity costs.

130
Q

Acid Test Ratio

A

Another word for Quick Ratio.

131
Q

Agency Costs

A

The costs that result from the principle-agent problem.

132
Q

AR Turnover

A

Credit Sales/AR, a liquidity ratio.

133
Q

Average Collection Period

A

AR/Daily Credit Sales, a liquidity ratio.

134
Q

CAPEX

A

Capital Expenditures, how much the firm spends on fixed assets.

135
Q

Capital Structure

A

The portion of a firm’s assets that are financed by either liabilities (debt), or by equity. The mix of debt and equity is referred to as the capital structure.

136
Q

Costly Capital

A

All interest-bearing debt plus all equity.

137
Q

Cross-sectional Analysis

A

One of the three ways to use ratios by comparing the firm to other firms’ ratios or industry averages.

138
Q

Current Ratio

A

CA/CL, a liquidity ratio.

139
Q

Debt Ratio

A

D/A, a financing ratio.

140
Q

Debt-to-Equity Ratio

A

D/E, a financing ratio.

141
Q

DuPont Formula

A

A mathematical break-down that breaks ROE into multiple components: profitability, efficiency, and leverage typically.

142
Q

Earnings

A

Another word for Net Income.

143
Q

Economic Profit

A

Accounting profit minus opportunity costs.

144
Q

Efficiency Ratios

A

One of the four classifications of ratios designed to see how well the firm is using its assets and investments.

145
Q

Equity Multiplier

A

A/E, the third part of the DuPont Formula.

146
Q

EVA

A

Economic value added, a measure of economic profit.

147
Q

Financial Leverage

A

The portion of a firm’s asset that are financed by debt. The more debt a company holds, the great its financial leverage.

148
Q

Financing Ratios

A

One of the four classifications of ratios designed to measure how the firm finances its operations.

149
Q

Fixed Asset Turnover

A

Sales/Fixed Assets, an efficiency ratio.

150
Q

Free Cash Flow to Equity

A

Cash left over after operations, taxes, and debt/interest payments available to shareholders.

151
Q

Free Cash Flow to the Firm

A

Cash left over after operations and taxes available to creditors and shareholders.

152
Q

Goal of the Firm

A

Traditionally to maximize shareholder wealth.

153
Q

Gross Margin

A

Gross Profit/Sales, a profitability ratio.

154
Q

High-Growth Firms

A

Firms expected to experience high growth. These types of firms typically have a market-to-book equity ratio greater than 1.

155
Q

Industry Analysis

A

A type of cross-sectional analysis.

156
Q

Inventory Turnover

A

COGS/Inventory, a liquidity ratio.

157
Q

JIT Inventory

A

A system of inventory where the needed inventory shows up just in time.

158
Q

LBO

A

Leveraged buyout. This is when a firm is purchased with a ton of debt.

159
Q

Liquid Asset

A

An asset that can be converted into cash quickly without the loss of significant value.

160
Q

Liquidity Ratios

A

One of the four classifications of ratios designed to measure the ability of a firm to pay its near-term obligations.

161
Q

Net Margin

A

NI/Sales, a profitability ratio.

162
Q

NWC

A

Net Working Capital. Calculated by subtracting Current Liabilities from Current Assets (CA- CL).

163
Q

OIROI

A

Operating Income Return on Investment. Operating income/Total Assets, an efficiency ratio.

164
Q

Operating Margin

A

EBIT/Sales, a profitability ratio.

165
Q

Opportunity Costs

A

Non-cash costs found from asking, “What could the firm have done with the money instead?”.

166
Q

Optimal Debt Ratio

A

The amount of debt that minimizes the firm’s cost of capital.

167
Q

Principle-Agent Problem

A

When the agent (worker or manager) doesn’t act in the best interest of the principle (owner).

168
Q

Profitability Ratios

A

One of the four classifications of ratios designed to measure the profitability of the firm.

169
Q

Quick Ratio

A

(CA-Inventory)/CL, a liquidity ratio.

170
Q

Ratio Analysis

A

Process of using financial analysis to determine the health of a firm.

171
Q

ROA

A

Return on Assets = NI/A, a profitability ratio.

172
Q

ROE

A

Return on Equity = NI/E, a profitability ratio.

173
Q

Seasonal Firms

A

Firms whose performance varies according to the season.

174
Q

Time Series Analysis

A

Same as trend analysis.

175
Q

Times Interest Earned (TIE)

A

EBIT/Interest Expense, a financing ratio.

176
Q

Total Asset Turnover

A

Sales/Total Assets, an efficiency ratio. Sometimes written as “TAT.”

177
Q

Trend Analysis

A

One of the three ways to use ratios by comparing a firm’s ratios across time.

178
Q

WACC

A

Weighted average cost of capital. The average cost of financing a firm in percentage terms.

Finance 201 (7 decks)

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