What Is Finance All About Flashcards
Agency Costs
Costs incurred to resolve conflicts between managers, stockholders, and bondholders.
Finance
The application of a series of financial and economic principles to maximize a firms wealth and the value of its stock.
Financial Planning
Projecting cash requirements, setting up guidelines to control costs, establishing future sales and profit targets, deciding the best allocation of scarce funds, and developing alternative strategies in case existing plans do not work out.
Macro Factors
Broad economic and financial developments that impact the sales and profits of the firm.
Global Firm
A firm with asset, investments, and operations on a worldwide basis.
Micro Decisions
Internal decisions by a firm that influence the outcome of sales, help control costs, and determine pricing policies.
Outsourcing
A firm decides to invest and produce products abroad (or rely on imports) instead of building plants in the United States to produce these products.
Risk/Return trade-off
The required rate of return that justifies making an investment, given a level of risk
Wealth Maximization
Contribution to the value of a firm by selecting those investments that have the best risk/return trade-off
Financial Analysis
Evaluation of the income and balance sheet statements
Risk
The degree of uncertainty associated with the outcome of an investment. It is a measure of the volatility of returns obtained from a project, and takes into consideration the probability of loss in any investment venture.
Instability; uncertainty about the future; more specifically, the degree of uncertainty involved with a project or investment.
Tracking Stock
New stock issued by a parent company that trades on its own. This strategy is adopted to gain recognition for a highly valued division (subsidiary) and to have the market recognize it’s superior performance via the price of the tracking stock.
Internet
A communication system that allows suppliers and users of information to exchange that information on computers.
