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FM 101 > MIDTERM > Flashcards

MIDTERM Flashcards

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1
Q

the process of managing the financial resources of an organization

A

Financial Management

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2
Q

what are the core financial management decisions

A
  1. investment decision
  2. financing decision
  3. divedents decision
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3
Q

Determine the amount of investment available from existing funds, both long- and short term

A

investment decision

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4
Q

also known as Long-term investment decisions
It imply committing funds for a long time, similar to fixed assets.

A

Capital Budgeting

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5
Q

also known as short-term investment decisions,
committing funds for a short period of time, such as current assets.

A

Working capital management

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6
Q

Decisions on raising funds from long-term (capital structure) and short-term sources (called working capital)
Sourcing funds

A

Financing Decisions

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7
Q

Decisions over how much of a company’s earnings will be paid as dividends.

A

Dividend Decisions

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8
Q

is the simplest and most common type of business ownership.
business that is owned and operated solely for the benefit of the owner.

A

sole proprietorship

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9
Q

There are two types of these: general and exclusive.
In general, both partners invest their capital, land, labor, and other resources in the company and are equally liable for its debts. In other words, even though you just put a small amount of money into a general partnership, you might be held liable for the entire debt. General partnerships do not need a formal agreement; between the two company owners, partnerships may be implicit or even verbal.
A formal agreement between the partners is needed for limited partnerships. They must also file a relationship certificate with the department

A

partnership

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10
Q

considered legal persons and are considered distinct entities for tax purposes.
corporation’s earnings are taxed as the corporation’s “personal gain.” The money paid to shareholders as dividends or gains is then taxed as the owners’ personal income

A

corporation

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11
Q

what is stocks and bonds?

A

stocks is a form of ownership while bonds is an obligation of the company to the bondholder

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12
Q

Individuals or institutions with “excess funds’
These groups are saving money and looking for a rate of return on their investment

A

supplier of capital

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13
Q

individuals and institutions who need to raise funds to finance their investment opportunities
These groups are willing to pay a rate of return on the capital they borrow

A

users of capital

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14
Q

How is capital transferred between savers and borrowers?

A
  1. direct transfer
  2. indirect transfer through investments bankers
    -they sold exactly what they bought
  3. indirect transfer through a financial intermediary
    - what they bought is converted into their own and then sold
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15
Q

Venue where goods and services are exchanged

A

market

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16
Q

Where individuals and organizations wanting to borrow funds are brought together with those having a surplus of funds

A

Financial Market

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17
Q

(also called “tangible” or “real” asset markets) are for products such as wheat, autos, real estate, computers, and machinery

A

Physical asset

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18
Q

deal with stocks, bonds, notes, and mortgages.

A

Financial asset

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19
Q

are the markets for short-term, highly liquid debt securities

A

Money markets

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20
Q

are the markets for intermediate- or long-term debt and corporate stocks.

A

Capital markets

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21
Q

are the markets in which corporations raise new capital. If GE were to sell a new issue of common stock to raise capital, this transaction would take place. The corporation selling the newly created stock, GE (General Electronics), receives the proceeds from the sale in a primary market transaction.

A

Primary markets

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22
Q

are markets in which existing, already outstanding securities are traded among investors.

A

Secondary markets

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23
Q

are markets in which assets are bought or sold for “on-the-spot” delivery (literally, within a few days).

A

Spot markets

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24
Q

are markets in which participants agree today to buy or sell an asset at some future date

A

Futures markets

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25
Q

where standardized contracts are traded on organized exchanges

A

public markets,

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26
Q

where transactions are negotiated directly between two parties,

A

Private markets,

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27
Q

types of banks or financial institutions

A

commercial bank
investment bank
mutual savings bank
credit union
pension funds
life insurance company
mutual funds
hedge funds

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28
Q

a bank that offers services to the general public and to companies.
is a financial institution that provides services like loans, certificates of deposits, savings bank accounts bank overdrafts, etc. to its customers.
These institutions make money by lending loans to individuals and earning interest on loans.

A

Commercial Banks

29
Q

is a special segment of banking operation that helps individuals or organisations raise capital and provide financial consultancy services to them.
They act as intermediaries between security issuers and investors and help new firms to go public.
Helps business to raise capital

A

Investment Banks

30
Q

a type of thrift institution that’s owned by the people who hold deposits there
Owned by its members

A

mutual Savings Bank

31
Q

a cooperative association that makes small loans to its members at low interest rates and offers other banking services (such as savings and checking accounts)
are not-for-profit organizations that exist to serve their members. Like banks, credit unions accept deposits, make loans and provide a wide array of other financial services.

A

credit union

32
Q

Retirement plan funded by corporations
are financial intermediaries which offer social insurance by providing income to the insured persons following their retirement.

A

pension funds

33
Q

contract in which an insurer, in exchange for a premium, guarantees payment to an insured’s beneficiaries when the insured dies.
contract between you and an insurance company. Essentially, in exchange for your premium payments, the insurance company will pay a lump sum known as a death benefit to your beneficiaries after your death. Your beneficiaries can use the money for whatever purpose they choose.

A

life insurance companies

34
Q

Regulated
Corporations that accept money from savers
an investment program funded by shareholders that trades in diversified holdings and is professionally managed.

A

mutual funds

35
Q

Unregulated
Same with mutual funds but design for wealthy individuals

A

hedge funds

36
Q

first time to the public
Company issues stock in public for the first time

A

IPO (Initial Public Offering)

37
Q

Securities are normally in equilibrium and are “fairly priced”
Investors cannot “beat the market” except through good luck or better information
There are 3 levels of market efficiency
Weak form efficiency – all past information is in the price
Semistrong-form efficiency – all past and present public information is in price
All information, public or private

A

Efficient Market Hypothesis (EMH)

38
Q

Is a report of a company’s financial worth in terms of book value
Statements of financial decision

A

Balance sheet

39
Q

represent the resources that the business owns or controls at a given point in time.
This includes items such as cash, inventory, machinery and buildings.

A

assets

40
Q

represent obligations, which must be paid back

A

liabilities

41
Q

represents the value of money that the owners have contributed to the business - including retained earnings, which is the profit made in previous years.

A

Equity

42
Q

Breaks down the revenue that a company earns against the expenses involved in its business to provide a bottom line, meaning the net profit loss
Income statement measures a company’s performance over a specific time frame
The income statement presents information about:
revenues, expenses and profit

A

income statement

43
Q

The company’s profit after all expenses, including financial expenses, have been paid.
Often called the “bottom line” and is generally the figure people refer to when they use the word “profit” or “earnings”.

A

net income

44
Q

is the amount of money that a company has left over paying all of its expenses

A

profit

45
Q

Effects that line items have on other parts of the business and the business proportions. It reveals the relatioship of each financial statments item to the base amount

A

vertical analysis

46
Q

Analyzing values of line items across two or more years
studies the changes in the items on the financial statement, in both dollar amount and as percentages, for successive accounting periods. The earliest year is known as the “base year”. The base year amounts are what is used to get your percentages

A

horizontal analysis

47
Q

Also known as net working capital
Is a measure of company’s liquidity and short term financial health
When working capital calculation is positive, this means the company’s current assets are greater than its current liabilities. The company has more than enough resources to cover its short-term debt, and there is residual cash should all current assets be liquidated to pay this debt.

A

working capital

48
Q

formula of working capital

A

Working Capital = current assets – current liabilities

49
Q

Companies ability to pay current liabilities using current assets

A

current ration

50
Q

current ration formula

A

Current Ratio = current assets / current liabilities

51
Q

company’s ability to pay current liabilities if they were to become due

A

quick ratio

52
Q

Shows the number of times a company sells its average inventory during the year

A

inventory turnover

53
Q

formula for inventory turnover

A

Inventory turnover = (cost of goods sold ) / average inventory
average inventory = (the beginning + ending inventory) / two

54
Q

company’s ability to collect cash from its credit customers.

A

accounts receivable turnover

55
Q

formula of accounts receivable turnover

A

Accounts Receivable turnover = (Net Credit Sales) ÷ (Average Net Accounts Receivable)

56
Q

number of days in which Sales remain in Accounts Receivable

A

days sales receibvable

57
Q

formula of days sales receivable

A

Days Sales in receivables = average net receivable / (Net Sales / 365)

58
Q

Shows the percentage of assets finance by debt

A

debt ratio

59
Q

Shows the number of times operating income can cover interest expense

A

time interest earned ratio

60
Q

formula of debt ratio

A

Debt Ratio = total liabilities / total assets

61
Q

formula of time interests earned ration

A

Times Interest Earned Ratio = income from operation / interest expense

62
Q

Shows the percentage of each sales dollar that is earned as net income

A

rate of return on net sales

63
Q

formula of Rate of Return on Net Sales

A

Rate of Return on Net Sales = net income / net sales

64
Q

Show how profitability a company has used its assets

A

Rate of Return on Assets

65
Q

formula of Rate of Return on Assets

A

Rate of Return on Assets = (net income + interest expense) / average total assets

66
Q

the summary of operating, investing and financing activities of the firm is presented in the?

A

statement of cash flows

67
Q

the process of using financial ratios, such as the debt-to-equity ratio, to evaluate a company’s financial performance and position

A

ratio analysis or financial ratio analysis

68
Q

the process of evaluating and selecting long-term investments, such as new facilities or equipment, based on their potential returns and risks.

A

capital budgeting

69
Q

balance sheet – accounts receivable
income statement – net sales
cash flow statements – cash flow from operations

A

FM 101 (1 decks)

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