Unit 6 Flashcards
The financial structure is made up of ____________.
the sources of financing of the company
The sources of financing of a company are ____________.
where the company has obtained the necessary funds to be able to obtain the assets that form its structure.
The two fundamental types of financial sources are ___________.
- Owners/stockholders equity
2. Liability
Owners/stockholders equity is composed of ______________.
financial sources whose ownership corresponds to the owners of the company.
Owners/stockholders equity is characterized by ____________.
not having a determined maturity in time or by having a variable remuneration.
The stockholders equity is made up of ____________.
share capital (fundamentally), subsidies/grants, and (reserves).
The funds that the owners of the company make are called ____________.
share capital
The contributions without right of return made by third parties is called __________.
subsidies/grants
Reserves are _______.
funds earned by the company in the performance of their activities that remain within the company, instead of being returned to the partners.
Liabilities are composed of ______________.
the financial sources whose ownership corresponds to the creditors of the company.
The characteristic of liabilities is _________.
that they have a determined maturity in time and a predetermined remuneration (fixed annuity).
Owners/stockholders equity can be defined as ____________.
the part of the value of the assets of the company that corresponds to the owners
The financial sources that make up the net equity are characterized as _____________.
non enforceable financing
Non enforceable financing means that ___________.
the funds do not have a specific maturity date in
which the company must return the amount originally provided by the owner of the financial source.
Non-enforceable financing can be obtained from two different sources:
- Through external contributions of funds
2. By retaining earnings
External contributions of funds is when ___________ .
the owners or other persons deliver funds to the company without there being a specific date
for the return of those funds.
Within external contributions of funds, we can
differentiate those made by ___________ (capital and reserves contributed) from those made by __________ (grants and donations).
the partners
third parties
When a company retains earnings, they _____________.
decide to retain the net income earned during a period –thereby generating reserves –rather than to distribute it to the stockholders as dividends.
Reserves are ___________.
the net income earned during a period that has been retained.
Dividends are __________.
the net income earned during a period that has been distributed to the stockholders
The Stockholders Equity comprises ______________.
share capital
reserves
grants
Equity financing involves ______________.
using the funds contributed by the owners
stockholders
In stock corporation, _____________
equity is represented by a security called “shares”
The use of shares in securities is done to ______________. Therefore, any investor wishing to recover their investment in the capital of a company may do so by ____________.
make it easier for investors to acquire or sell said shares.
selling that investment to another potential investor.
A share is defined as ______________.
the security that represents one of the equal fractional parts into which the capital stock of a stock company or a corporation is divided.
The concrete portion of a share is obtained by ______________.
dividing the face/nominal value of the share between the total value of the company’s capital stock
The face/nominal value of a share indicates _______________ and is used as ______________.
the amount of the total share capital contributed by
the initial owners to the company.
a basis to determine the rights of the owner of the
share.
The nominal value of a share does not have to be equal (in fact, it is not usually equal) to ___________. Therefore, it is necessary to clearly differentiate which concept we are referring to when we speak of the “value” of a share, since there are several other meanings referring to the term “value” in addition to the nominal value.
the real value of the share
The emission value would be ______________.
the value of the cash that has to be delivered to the company to receive the share at the time of its birth.
The emission value can be ______________.
equal to nominal value or with issue premium (higher than nominal).
The theoretical value or book value is _______________.
the part of the value of the stockholders’ equity of the
company that corresponds to the share.
Book value =
book value = (nominal value / equity) * stockholder’s equity
The economic value, AKA intrinsic or reasonable value of the share is _______________.
the price at which a purchase-sale of the share between two interested and duly informed parties would take place
The price or quotation is ___________.
the amount of money that would be paid to buy the share (or that would be received if sold) in a real transaction of sale.
The price or quotation is the current or market price of the share.
True
The types of shares are:
- Ordinary
- Preferred or privileged
- Repayable
- Gold shares
- Non-voting shares
Ordinary shares are ________. They __________.
the most common shares.
grant the basic set of rights of the share (attendance and vote in General Meeting, dividends, preferential
subscription right, right to participate in the liquidation patrimony, other rights)
The basic set of rights of a share is the right to ___________.
(attendance and vote in General Meeting, dividends, preferential subscription right, right to participate in the liquidation patrimony, other rights)
Preferred or privileged shares are shares that ___________. They are usually ___________. They
are not very common.
grant additional rights.
economic rights as a priority in the dividend or additional dividends.
Preferred or privileged shares are very common.
False
Repayable shares are ______________.
shares with a determined maturity in the issue agreement
Gold shares are ___________.
existing shares in certain companies owned by the State that allow you to have the right of veto over the relevant decisions of these companies
Non-voting shares are ______________. Likewise, they have other privileges such as _______________.
shares that lose the right to vote in exchange for receiving a minimum (no less than 5%) annual, preferential and cumulative dividend.
preference in the liquidation assets or being the last ones affected in case of capital reduction due to losses.
The most common definition of “reserves” is _______________.
the accumulated results (both positive and negative) that the company has obtained over time and that have not been distributed to the owners in the form of dividends
The term “reserves” also applies to ___________, such as contributions made by the partners without any consideration (reserve for share issue premium and other contributions from partners and owners) or ______________ (as in the case of reserves to collect actuarial gains and losses or balance sheet revaluation reserves).
other funds obtained by the company through other means
other reserves to collect certain unrealized expenses or income
contributions made by the partners without any consideration are ____________.
reserves for share issue premium and other contributions from partners and owners
“Reserves” has several advantages:
- It is an internal decision and therefore does not require an agreement with parties external to the company.
- Avoids the entry of new investors in the company.
- It produces a multiplier effect on the company’s financing capacity.
A share issue premium is _______________.
the result of a capital increase in which the
subscribers of the shares must deliver to the company a value higher than the nominal value of the shares issued.
The difference between the value of the assets delivered and the nominal value of the new shares forms _____________. This issue is made to avoid, diluting _____________.
the reserve for the share issue premium
the value of the old shares with the issuance of the new ones
Other contributions from the partners are contributions ___________.
from the partners for specific cases, mainly to compensate for the losses accumulated by the company in previous years.
Grants are ________________. These funds are not repayable, but they ______________. If those conditions are not met, _____________.
funds provided by government agencies, foundations, non profit organizations, or individuals.
usually require the fulfilling of some conditions.
the funds may become refundable
Two types of grants are:
- Current or operating grants
2. Capital grants
Current or operating grants are ______________. This type of subsidy is considered ________________.
grants whose purpose is to influence prices or allow employers to receive a minimum income, as well as to compensate negative exploitation results produced during the year.
an income for the year in which it is received
Capital grants are ____________. Therefore, capital grants are ______________ but a distributable income between all the periods in which the assets acquired are in operation.
grants used to finance specific operations and projects.
not considered an income for the year in which
they are granted
Liability is formed by _____________, whose extinction will require the delivery of valuable assets for the company. It is composed, therefore, by the _______ of the company.
the current obligations of the company
debts
Two types of liabilities are:
- spontaneous liabilities
2. contracted liabilities or debts
Spontaneous liabilities are ___________________.
liabilities accumulated automatically as a result of the company activity.
Spontaneous liabilities can arise from _____________, thereby incurring on the obligation to pay later for those goods and services.
the purchases of goods and services on credit
Contracted liabilities or debts differ from spontaneous liabilities in that they _________________ (interests). Depending on their term, we can differentiate between ___________.
require an explicit borrowing agreement, and they have an explicit cost.
long-term debts (term longer than the year) and short-term debts (term shorter than the year).
long-term debts last __________.
short-term debts last ________.
longer than the year
shorter than the year
A loan is a financial operation in which _____________.
a lender (usually a financial entity) makes available to the borrower a certain amount of money that must be returned following the conditions stipulated in a contract.
As a general rule, the contract of a loan stipulates the
following conditions:
- The maturity and form of repayment of the borrowed amount (time to return it, amortization method, grace period).
- The interest accrued by the loan (fixed, variable or mixed).
- Guarantees provided (personal guarantee, mortgage…)
- Other fees and commissions (study commission, commission for opening, commission for modification or change of guarantees, commission for early repayment, costs of public notaries, costs for other linked financial products)
Sometimes large companies and public administrations need to finance large capitals to undertake large-scale projects. In these cases, loan financing may not be attractive for a single financial institution, since _____________.
the amount may be too high for a single entity to run the
risk of financing it
The solution to financing large scale projects when loan financing from a single institution is not attractive is ________________.
dividing this great need for capital into a multitude of small loans, which facilitates the various creditors that provide the necessary financing for the project. (A debenture)
A series of small loans with different creditors to finance one large project is called a ______________.
DEBENTURE
Debentures are usually incorporated into securities, thus ________.
facilitating their possible transmission and making the issue more attractive to potential investors.
Based on debenture securities, we have ___________ and ____________.
Long-term securities (bonds)
Short-term securities (bills of exchange and IOU)
Long-term securities (bonds) are debentures that _______________.
give the holder the right to receive the interest on the loan either periodically (periodic coupon bonds), or in the amortization of the security (zero coupon bonds), as well as the perception of the principal on the
amortization date.
periodic coupon bonds are
bonds where the holder receives interest on the loan periodically and the principal on the amortization date
zero coupon bonds are _____________.
bonds where the the holder receives interest on the loan in the amortization of the security as well as principal on the amortization date
Short-term securities (bills of exchange and IOU) are _________.
short-term securities (between 3 and 18 months) issued at a discount.
______________ are usually issues made to
obtain financing for temporary cash imbalances.
Short-term securities (bills of exchange and IOU)
__________________ are bonds where the refund value, coupon, and prize are paid.
Periodic coupon bonds
_______________ is where the refund value, interests, and prize are paid.
Zero coupon bond
Coupons are just interests paid during the period of a bond.
True
Emission value is ____________. This amount may be equal to _____________.
the amount of money received by the company in exchange for the bond or obligation in its issuance.
the nominal amount of the security or less than the nominal value (issued with an issue premium, this premium being the difference between the nominal value of the security and the issue value).
Coupons are _______________. They are calculated as ________________.
payments of debt interests.
the product of the nominal interest rate of the issue for the nominal value of the security.
Refund value is ____________. It can be equal to _______________.
the payment by which abonus is amortized.
the nominal or higher than the nominal.
Prize is __________________.
payments for some bonds at their amortization
Cash flows of Bills of exchange and promissory notes are ______________. Therefore, they are usually ______________.
short-term debt securities (maximum of 18 months).
securities issued at a discount and with interest calculated using the simple capitalization rule.
The two cash flows of bills of exchange and promissory notes are:
- Emission value
2. Refund value
The emission value is calculated as _______________. The interest is calculated using _______________.
the face value of the security minus the interest,
the simple commercial discount method
In IOUs and bills of exchange, the refund value is _______________.
the same as the face value
A Bill of Exchange is a ___________________.
legally binding document containing an order to pay a certain sum of money to a person within a predetermined time frame or on-demand by the bearer of the bill.
A _________ issues Bill of Exchange to a _________ for payment of money.
creditor
debtor
A prominent feature of Bill of Exchange is _______________.
it needs to be accepted by a debtor to in order to be
valid.
It is used in business to settle the outstanding debt between the parties involved in a transaction.
Bill of exchange
There are 3 parties involved in the bill of exchange, they are:
- Drawer
- Drawee
- Payee
The Drawer is _______________. He is the person who is ______________ and is required to ______________.
the person who draws (or makes) the Bill.
entitled to receive the money (i.e the Creditor).
sign the bill and send it to the drawee for acceptance.
The Drawee is _____________. He is the person who
___________. The Drawee has to ____________.
the person on whom the bill is drawn.
owes the money
accept the bill of exchange drawn by the drawer
The Payee is the person who ____________. In most cases, the drawee and the payee are
receives the payment.
the same individuals
Mr C is a trader of cosmetics. He sells goods to Mr D worth 30.000 EUR on credit. Mr C made the sale on credit with a credit period of two months. After making the sale, Mr C draws a bill on Mr D for 30.000 EUR payable after 2 months from the date of the bill. Identify the drawer, drawee, and payee.
Drawer: Mr. C
Drawee: Mr. D
Payee: Mr. C
A promissory note is ________________.
a negotiable instrument containing a written promise to pay a certain amount of money to its holder by an individual or an entity either on demand by the holder or at a pre-specified date
The most important feature of Promissory Note is _____________.
once it is drawn by the debtor, it need not be accepted by the creditor.
The two parties involved in the promissory note are:
- Drawer
2. Drawee
Drawer/Maker is ___________.
the debtor who promises to pay the amount to lender or creditor.
the one who owes money
The Drawee is the ______________.
creditor who is been promised by the borrower or debtor about the pending payment.
the one who should receive the money
The key differences between an IOU and a BOE are:
- Creditor (seller) draws the BOE and the Debtor (buyer) draws the IOU
- A BOE is an Order to pay and an IOU is a Promise to pay
- A BOE must be accepted by all parties and an IOU don’t need to be accepted by the creditor
- A BOE is Payable to bearer and an IOU is Not payable to bearer
- In a BOE, the Drawer and payee may be the same, and in an IOU, Drawer and payee can not
be the same - There can be 3 parties present in a BOE, but only 2 in an IOU
A lease is a contract ________________. At the end of the contract, the lessee has the option to choose between the following three ways of resolving the
contract.
whereby one of the parties (the lessor, which is usually a financial entity) transfers the use of an asset to the other party (lessee) in exchange for the payment of a series of amounts in time until the end of the contract
A lessee has the option to _______________ at the end of a leasing contract.
a) Not continue with the use of the property and return it to the lessor
b) Make a new lease agreement
c) Acquire the good paying a quantity known as purchase option
Leasing is an operation very similar to financing the acquisition of a good through a loan, although there are some differences between both operations.
True
The differences between a lease and a loan are:
a) In general, loan installments are post-payable. In leasing, they are usually paid in advance = pre-payable.
b) In leasing, the installment of the financial transaction is calculated on the value of the asset minus the purchase option.
c) With the leasing, the Value Added Tax (VAT) of the purchase is accrued installment by installment, while in a sale financed with a loan the VAT would accrue at the time of acquisition.
d) The assets acquired through leasing have a special system of amortization in the corporate tax.
In general, leasing operations are usually amortized in a similar way to loans, that is, ____________. The calculation of this installment, however, presents the difference with a loan _____________.
through constant installments of principal and interest.
the “capital to be returned” of the leasing is equal to the value of the asset less the purchase option.
If we consider that a company acquires a good whose cash value is V by a leasing operation at the interest rate i and which will be amortized in n payments plus
a final payment in the form of a purchase option (that is, a total of n+1 payments), ascending this purchase option to the PO amount, the installment that will amortize the leasing (without taking into account the VAT) would be the following:
leasing installment = (V - PO) / PV
When the purchase option is the same amount as the rest of the leasing installments, the formula to calculate the installment is _____________.
installment = (V - leasing installment) / PV
Short term loans are __________________. Therefore,
they share most of the characteristics of _____________. In addition, they present the particularity that ______________.
loan contracts in which the period to amortize the loan usually does not go beyond the year.
a long-term loan
when the lower term results, the repayment of the loan is often made in a single payment upon expiration.
The discount of commercial effects/ BOEs consists of _________.
giving the bank the right to collect the future debts of customers and other debtors instrumented in endorsed BIO, in exchange for the bank advancing the nominal of those effects, minus the expenses of the operation (interests and commissions ).
The amount received in exchange for the discount of an BIO or a remittance (set) of BOE is called
_________, and will be equal to the ___________.
**if the effects are not paid upon maturity, the entity may (in addition to recovering the face value of the discounted effects) charge return fees.
“cash”
face/nominal value of the BOE minus the following costs:
a) Discount interest
b) BOE commission
c) Stamps
d) Stamping Commission
e) Minimum discount amounts
f) ** charged return fees
The advance on bank receipt is similar to the BOE discount in that ___________.
the company delivers a receipt against a customer to the bank, in exchange for an amount of money that will be equal to the nominal amount of the receipt minus the cost of the anticipation of the money. Upon the expiration of the receipt, the bank will proceed to collect it, thereby extinguishing the
customer’s debt.
The advance on bank receipt presents the following differences to the discount of BOE:
- The document is not a commercial BOE, but a bank receipts, so it does not have costs per stamp.
- Receipts do not have the same probative force in a trial as a BOE, so the bank assumes more risks with these operations.
- This means that it applies higher interests than in the effects discount.
- Settlement of interest and expenses is at maturity, not at the time of the advance.
If a current account receives payment orders for an amount greater than the balance of the account, the financial institution can ______________. In this case, the current account will not present a ___________. It is said then that the account is in red numbers.
grant an automatic credit for the amount necessary to meet the payment orders.
balance in favor of the customer (credit balance/positive balance), but a balance in favor of the financial institution (debit balance/negative balance).
The disadvantages of overdraft in a current account are:
- It has the highest interest rate of all financing
- It may involve fees for opening the overdraft, for the unused balance, and, sometimes, for claiming the debit balance. These commissions are high.
- It is not a secure financial source because it is up to the financial institution to grant or deny the granting of this credit.
- The limit of maximum interest to TAE = 2.5 times legal interest of the money
A credit policy consists of ________________.
a contract with the financial institution, by which this entity makes available to the customer a quantity of money during a certain period. In that period, the client will be able to dispose of the money or return it when and how he wants, using a current account for it. At the maturity (if it is not renewed) or at its cancellation, the bank will charge the client the balance of the policy plus the costs accrued up to that moment.
The operation of a credit policy can be equivalent to that of ________________ but with _______________.
a current account with an agreed debit balance
a much lower cost.
Credit policies are usually contracted at ________________, although it is also common that, __________.
semiannual or annual maturities
upon expiration of the term, the contract is automatically or expressly renewed
Periodically, the bank will charge in the credit policy the costs of the following costs:
- Opening commission
- Interests for used credit amount
- Commission for unutilized credit amount
- Exceeded interest
- interest generated in the bank’s favor if it is stipulated in the contract
Opening commission is ______________.
a commission that is calculated according to the limit of the policy’s disposition, payable only once at the beginning of the life of the same.
Interests for used credit amount are ______________.
the interests on the use of credit. Its calculation is carried out by the Hamburg method.
Commission for unutilized credit amount is ___________.
commission paid for the part of the loan contracted and not used.
Exceeded interest is when, _______________.
in the case of exceeding the credit limit granted,
the bank authorizes an overdraft, applying in this case the interest and commissions used for a bank overdraft.
During the time an account has a balance in favor of the customer (credit balance), the bank may generate interest in its favor if it is stipulated in the contract.
True
The CASH FLOWS of CAPITAL at C0 is:
+ No Shares * E.V.
‐ Costs
The CASH FLOWS of CAPITAL at Cn is:
-dividends
‐ No Shares * R.V.
The CASH FLOWS of CAPITAL between C0 and Cn is:
‐dividends
The CASH FLOWS of a GRANT at C0 is:
+GRANT
‐ Costs
The CASH FLOWS of a GRANT at Cn is:
nothing
The CASH FLOWS of a GRANT between C0 and Cn is
nothing
The CASH FLOWS of BONDS/DEBENTURES at C0 is:
+ No Bonds * E.V.
‐ Costs/ Fees
The CASH FLOWS of BONDS/DEBENTURES at Cn is:
‐ Coupon
‐No bonds*RV
‐Prize
The CASH FLOWS of BONDS/DEBENTURES between C0 and Cn is:
-Coupon
The CASH FLOWS of a LONG-TERM LOAN at C0 is:
+ Principal
‐ Costs/ Fees
The CASH FLOWS of a LONG-TERM LOAN at Cn is:
‐installment
The CASH FLOWS of LONG-TERM LOAN between C0 and Cn is:
‐installment
The CASH FLOWS of LEASING at C0 is:
+ Asset value
‐ leasing instalment
‐ Costs/ Fees
The CASH FLOWS of LEASING at Cn is:
‐ Purchase Option
The CASH FLOWS of LEASING between C0 and Cn is:
‐ leasing instalment
The CASH FLOWS of BOE /IOU at C0 is:
+ Emission value
‐ Costs/ Fees
The CASH FLOWS of BOE /IOU at Cn is:
‐Refund value
The CASH FLOWS of BOE /IOU between C0 and Cn is:
nothing
The CASH FLOWS of SHORT TERM LOAN at C0 is:
+ Principal
‐ Costs/ Fees
The CASH FLOWS of SHORT TERM LOAN at Cn is:
nothing
The CASH FLOWS of SHORT TERM LOAN between C0 and Cn is:
‐Principal
‐ Interests
** both paid in the first year
