Webinar Vocabulary Summary Flashcards
If the market rate equals the coupon rate then bonds will sell at…
Par Value
If the market rate is greater than the coupon rate the bonds will sell at…
A Discount
If the market rate is less than the coupon rate bonds will sell at…
A Premium
Sustainable Growth Rate (SGR)
Return on Equity * (1-Dividend Payout Ratio)
Weighted Average After Tax Cost of Debt
($Debt/$Equity)Cost of Debt Decimal(1-Tax Rate Decimal)
Coupon Rate
The interest rate that a company promises to pay on bond
Market Rate
The interest rate on other comparable bonds
Par Value
The amount payable on maturity of the bond
Market Rate is the same as…
Yield to Maturity
Gordon Growth Model
Assumes stable growth rates and does not incorporate risk
CAPM Model
Allows to determine expected return on stocks and incorporates risk
Public companies maximize share holder value by…
Maximizing earnings per share
Private companies maximize shareholder value by…
Keeping control within the company
Positive credit ratings do what to cost of capital?
Lowers cost of capital
What is cash flow from operating activities?
It is cash flow generated for sale of products and services
What is the formula for retained earnings
Ending Retained Earnings = Beginning Retained Earnings + Net Income - Dividends
Is depreciation and salvage value on an asset precise or is it an estimate?
It is an estimate
What is an example of accounting difference?
Companies using different accounting methods
What is an example of a timing difference?
Companies using different fiscal years
Do stock holders or bond holders have voting rights?
Stock holders have voting rights
What factors are considered for the initial outlay of a new investment?
Purchase price of new equipment, shipping costs, and investment in working capital
What is the risk associated with debt financing?
Too much debt can lead to bankruptcy
What are inventory related costs?
Product costs, storage costs, and opportunity costs
What statements are required to be filed with the SEC?
Annual audited financial statements
What are the issues with understanding foreign financial statements?
Foreign financial statements use international financial reporting standards and they are different from US accounting standards
What does cash flow from investing activities measure?
It measures investments in long term assets such as building, equipment, and machinery
What does the efficient frontier measure?
It maximizes expected return for a given level of risk
What is the objective of portfolio diversification?
The objective is to reduce risk
What is the definition of a current asset and a current liability?
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
What is differential cash flow?
It is the amount of net cash flow generated a new asset in a yearly basis
What does the current ratio measure
It is a measure of short term liquidity to pay short term obligations
What is the main role of SEC
It regulates public disclosures of entities that sell debt and equity to the public
What leads to an increase in APY?
An increase in the frequency of compounding - like going from annual to monthly compounding
What bonds are taxed at the federal level
Treasury Bonds
What bonds are not taxed at a federal level
Municipal Bonds
What are the two benefits of unbundling and offshoring?
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
What are the two basic types of financial instruments?
Stocks and Bonds
What are primary and secondary markets?
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
Dodd-Frank regulates which segment of the U.S. Economy?
Banking Industry
What does the Sarbanes-Oxley Act require companies to do?
Have Internal Control Audits
What is included in the income statement and not included in the statement of cash flows?
Depreciation
The Basic equation for the balance sheet is
Assets = Liabilities + Equity
Revenues
Amount generated by sale of products and services
Expenses
Amount incurred to manufacture products
Income
The difference between revenues and expenses
Assets
Items that are owned by the company
Liabilities
Amounts owed by the company to others
Equity
Amount invested in the company by shareholders
Items reported in the income statement
Revenues, Expenses, Income
Items reported in the balance sheet
Assets, Liabilities, Equity
Statement of Cash Flows
The statement of cash flows shows the change in cash balance for a period of time
Capital Budgeting
The process used in making financial decisions involving projects that generate cash flows over a multi-year time horizon
Cash Flows Consist of
The cost of the asset, shipping cost, investment and working capital
Differential Annual Cash Flows Consist of…
Incremental cash flow generated every year
Terminal cash flow consists of…
After tax proceeds from the sale of an asset and release of working capital
Net Present Value (NPV)
The present value after tax net cash flows. It is the most commonly used method in capital budgeting
Internal Rate of Return (IRR)
The discount rate that results in a zero net present value
What does Degree of Leverage mean?
DOL means that if there is a percent increase/decrease in sales it will lead to a DOL * % increase/decrease in EBIT
Degree of Leverage is also known as
DOL is aka business risk
What ratios do companies use to tell them if they are efficiently managing working capital?
Current Ratio
Cash Ratio
Receivables Turnover Ratio
How can a firm speed up collection from customers?
Offer discounts if customers pay early and through electronic check
Global Finance Risks
Exchange Rate Risk
County Risk
Political Risk
To manage exchange rate risks companies use what tactic?
Hedging
Devaluation of currency has what effect on exports and imports?
It makes exports cheaper and imports expensive
What methods are used to determine exchange rates?
Free Floating
Fixed Floating (Pegged)
Managed (Dirty) Floating
What costs are associated with international trade?
Taxes
Tariffs
Currency Restrictions
What are the two US legislations that are associated with global trade?
NAFTA
TPP
