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C214 Financial Management > Webinar Vocabulary Summary > Flashcards

Webinar Vocabulary Summary Flashcards

1
Q

If the market rate equals the coupon rate then bonds will sell at…

A

Par Value

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2
Q

If the market rate is greater than the coupon rate the bonds will sell at…

A

A Discount

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3
Q

If the market rate is less than the coupon rate bonds will sell at…

A

A Premium

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4
Q

Sustainable Growth Rate (SGR)

A

Return on Equity * (1-Dividend Payout Ratio)

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5
Q

Weighted Average After Tax Cost of Debt

A

($Debt/$Equity)Cost of Debt Decimal(1-Tax Rate Decimal)

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6
Q

Coupon Rate

A

The interest rate that a company promises to pay on bond

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7
Q

Market Rate

A

The interest rate on other comparable bonds

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8
Q

Par Value

A

The amount payable on maturity of the bond

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9
Q

Market Rate is the same as…

A

Yield to Maturity

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10
Q

Gordon Growth Model

A

Assumes stable growth rates and does not incorporate risk

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11
Q

CAPM Model

A

Allows to determine expected return on stocks and incorporates risk

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12
Q

Public companies maximize share holder value by…

A

Maximizing earnings per share

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13
Q

Private companies maximize shareholder value by…

A

Keeping control within the company

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14
Q

Positive credit ratings do what to cost of capital?

A

Lowers cost of capital

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15
Q

What is cash flow from operating activities?

A

It is cash flow generated for sale of products and services

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16
Q

What is the formula for retained earnings

A

Ending Retained Earnings = Beginning Retained Earnings + Net Income - Dividends

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17
Q

Is depreciation and salvage value on an asset precise or is it an estimate?

A

It is an estimate

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18
Q

What is an example of accounting difference?

A

Companies using different accounting methods

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19
Q

What is an example of a timing difference?

A

Companies using different fiscal years

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20
Q

Do stock holders or bond holders have voting rights?

A

Stock holders have voting rights

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21
Q

What factors are considered for the initial outlay of a new investment?

A

Purchase price of new equipment, shipping costs, and investment in working capital

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22
Q

What is the risk associated with debt financing?

A

Too much debt can lead to bankruptcy

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23
Q

What are inventory related costs?

A

Product costs, storage costs, and opportunity costs

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24
Q

What statements are required to be filed with the SEC?

A

Annual audited financial statements

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25
Q

What are the issues with understanding foreign financial statements?

A

Foreign financial statements use international financial reporting standards and they are different from US accounting standards

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26
Q

What does cash flow from investing activities measure?

A

It measures investments in long term assets such as building, equipment, and machinery

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27
Q

What does the efficient frontier measure?

A

It maximizes expected return for a given level of risk

28
Q

What is the objective of portfolio diversification?

A

The objective is to reduce risk

29
Q

What is the definition of a current asset and a current liability?

A

A current asset is a cash or any other asset that can be converted to cash within 12 months and a current liability is any liability that has to paid within 12 months

30
Q

What is differential cash flow?

A

It is the amount of net cash flow generated a new asset in a yearly basis

31
Q

What does the current ratio measure

A

It is a measure of short term liquidity to pay short term obligations

32
Q

What is the main role of SEC

A

It regulates public disclosures of entities that sell debt and equity to the public

33
Q

What leads to an increase in APY?

A

An increase in the frequency of compounding - like going from annual to monthly compounding

34
Q

What bonds are taxed at the federal level

A

Treasury Bonds

35
Q

What bonds are not taxed at a federal level

A

Municipal Bonds

36
Q

What are the two benefits of unbundling and offshoring?

A

a. It reduces costs and results in higher sales and employment
b. It allows for sale intermediate and final goods at lower prices and increases employment

37
Q

What are the two basic types of financial instruments?

A

Stocks and Bonds

38
Q

What are primary and secondary markets?

A

Primary markets are where companies directly sell securities to investors and secondary markets are where securities are sold from third parties like the New York Stock Exchange

39
Q

Dodd-Frank regulates which segment of the U.S. Economy?

A

Banking Industry

40
Q

What does the Sarbanes-Oxley Act require companies to do?

A

Have Internal Control Audits

41
Q

What is included in the income statement and not included in the statement of cash flows?

A

Depreciation

42
Q

The Basic equation for the balance sheet is

A

Assets = Liabilities + Equity

43
Q

Revenues

A

Amount generated by sale of products and services

44
Q

Expenses

A

Amount incurred to manufacture products

45
Q

Income

A

The difference between revenues and expenses

46
Q

Assets

A

Items that are owned by the company

47
Q

Liabilities

A

Amounts owed by the company to others

48
Q

Equity

A

Amount invested in the company by shareholders

49
Q

Items reported in the income statement

A

Revenues, Expenses, Income

50
Q

Items reported in the balance sheet

A

Assets, Liabilities, Equity

51
Q

Statement of Cash Flows

A

The statement of cash flows shows the change in cash balance for a period of time

52
Q

Capital Budgeting

A

The process used in making financial decisions involving projects that generate cash flows over a multi-year time horizon

53
Q

Cash Flows Consist of

A

The cost of the asset, shipping cost, investment and working capital

54
Q

Differential Annual Cash Flows Consist of…

A

Incremental cash flow generated every year

55
Q

Terminal cash flow consists of…

A

After tax proceeds from the sale of an asset and release of working capital

56
Q

Net Present Value (NPV)

A

The present value after tax net cash flows. It is the most commonly used method in capital budgeting

57
Q

Internal Rate of Return (IRR)

A

The discount rate that results in a zero net present value

58
Q

What does Degree of Leverage mean?

A

DOL means that if there is a percent increase/decrease in sales it will lead to a DOL * % increase/decrease in EBIT

59
Q

Degree of Leverage is also known as

A

DOL is aka business risk

60
Q

What ratios do companies use to tell them if they are efficiently managing working capital?

A

Current Ratio
Cash Ratio
Receivables Turnover Ratio

61
Q

How can a firm speed up collection from customers?

A

Offer discounts if customers pay early and through electronic check

62
Q

Global Finance Risks

A

Exchange Rate Risk
County Risk
Political Risk

63
Q

To manage exchange rate risks companies use what tactic?

A

Hedging

64
Q

Devaluation of currency has what effect on exports and imports?

A

It makes exports cheaper and imports expensive

65
Q

What methods are used to determine exchange rates?

A

Free Floating
Fixed Floating (Pegged)
Managed (Dirty) Floating

66
Q

What costs are associated with international trade?

A

Taxes
Tariffs
Currency Restrictions

67
Q

What are the two US legislations that are associated with global trade?

A

NAFTA

TPP

C214 Financial Management (4 decks)

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