Business Finance exam 1

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which of the following items encompass the corporate income tax code ch 3

corporations are able to take advantage of accelerated depreciation to lower their tax burdens not-dividends are not taxed since they have already been taxed separately within the corporation -the corporate income tax code applies to both incorporated businesses and unincorporated businesses as well as "S" corporations and LLCs

which of the following is correct about the income statement

correct- tells us about activity for certain transactions over a given period of time false-tells us how much more liabilities the company had than assets -tells us whether the company is on cash or accrual accounting -tells us about activity for all transactions over a given period of time

stockholder-debtholder conflicts ch 1

debt holders DO NOT like risk -managers and stockholders may be more inclined to take on risky projects. the more debt the company uses to fiance, the more risky the company becomes

what is the main difference between debt and equity instruments ch 2

debt instruments provide a legal right to be repaid not -market value changes daily -debt holders can vote for board members -equity instruments do not receive dividends -there is no difference

two types of financing ch 2

debt: loans, bonds(IOUS) -with debt, a legal right to receive money back + interest -no ownership given up equity: ownership(common stock) -no legal right exists to recieve money back from equity investments

what is finance ch 1

decisions relating to how much and what types of assets to acquire, how to raise the capital needed to purchases assets, and how to run the firmas to maximize its value -assets: resources owned by the company (Trucks, equipment, buildings) -capital: financial assets (moeny that is invested, debt vs equity capital) -maximize its value: maximize a firms value so you can provide a fair return to your investors

example of a financial institution ch 2

depository banks investment banks central banks financial service corporations -moves funds through time -spreading out risk -transferring funds from savers to those who need capital does not print money for borrowers

capital allocation process ch 2

describes how money is moved from individuals/companies who have a surplus of capital to individuals/companies who NEED capital types of processes 1) Direct transfer *no middleman) of moeny/securities 2) indirect transfer: includes a middle man also known as IPO 3) indirect transfer through financial intermediary(banks, insurance company, mutual fund) "savers"(investors like me and you) give money to the intermediary to invest, however the investor ends up owning the intermediary's securities

Capital ch 1

fancy word for money

what is finance ch 1

finance is the management of money invested in assets that are expected to product at least a fair return for the owner by the appreciation of the assets market value and/or future cash flows to be received

businesses need to raise money-they make it through financial markets ch 2

financial market: a place of exchange (actual location or electronic network) where financial instruments(stocks, bonds) are bought and sold

What are a few of the benefits of computing financial ratios? ch 4

financial ratios help us to better understand a company's different kinds of financial performances (such as liquidity, asset productivity, use of debt, profitability, or whatever particular kind of performance). Financial ratios computed for different time periods and different companies permit a comparison analysis to be done irrespective of the different sizes of the company over time or the different sizes of companies being compared

what are some of the limitations of financial ratios? ch 4

first they use only historical figures from the standard financial statements(book values), and not assets of liabilities based on their market/cash values. Second, larger, more complicated companies have consolidated financial statements which means complete financial statements many not be available for different businesses/business segments. Third, seasonality can distort ratios.

What "formula" summarizes what management needs to do in order to achieve the primary goal? ch 1

free cash flow > weighted average cost of capital

what is free cash flow (FCF), and why is it important? what five things can be done with it ch 3

free cash flow represents the amount of after-tax operating cash flow(after subtracting capital expenditures and investment in net operating working capital). it represents the amount of net cash flow available to the business owners which they are "free" to distribute to lenders and to all stock holders -used often to value a company in relation to the companies assets 1-debt service payments 2- dividends to stockholders 3-investments in business assets/projects to grow the company 4-extraordinary compensation to management/employees 5-charitable and other contributions

what are 4 things communicated in the cash flow statement ch 3

gross cash flow from operations total investing expenditures total net funds from financial activities net change in the company's balance of cash

Limited liability corps (LLC) ch 1

hybrid of the partnership and corp - a limited partnership without general partners(limited partners are only liable for the firms debt. their maximum liability is based upon their investment in the company-CANNOT manage daily activities and has no legal authority to make decisions for the company) pros: limited liability their liability is limited to the amound that they invested -income is taxed at personal level

what can be the relationship between ethical problems in business and shareholder value ch 1

if a publicly-held corp has management and employees who violate generally accepted standards of ethical behavior, then this could lead to common stockholders losing confidence in managements ability to serve their interests, and this could lead to a lower demand for the stock, and thereby, a lower value/price for the stock

Sarbanes-Oxley Act ch 1

law passed that requires CEOs and CFOs to certify the accuracy of their firms financial statements, attempts to reduce fraud

what is the largest source of external funds for most U.S. companies ch 2

loans from commercial banks

what is the primary goal of business finance ch 1

maximizing shareholder wealth OVER THE LONG FUN maximize stock price , by producing enough Free cash flow profits that are equal to or greater than the weighted average cost, maximize the intrinsic value(true value personal thought) not: maximizing profit, staying in business as long as possible, maximizing intrinsic value per bond, maximizing creditor wealth, by producing enough profit to equal or exceed the cost of debt

profitability ratios ch 4

measure a companys ability to control expenses relative to sales

debt ratios ch 4

measure a companys use of debt, whether it may have too much or too little indebtedness

market ratios ch 4

measure to what extent management is increasing the companys market value

what are the major kinds of investment companies? ch 2

mutual funds private equity funds hedge funds exchange traded funds

which is not contained on the balance sheet

not- the cumulative historical cost received for all liabilities is- the cumulative historical cost paid for all assets -the cumulative historical amounts of capital raised -the cumulative historical cost accrued for all assets -how the company has financed the purchase of all assets

all of these are identifying elements of business finance/financial management except ch 1

provides a heavy influence of speculation when generating revenues true -a synonymous term to corporate finance -accounts for future appreciation of a business assets' value and/or cash flow -focuses on decisions relating to how much and what type of assets to acquire -can be applicable to both profit and non-for-profit companies

what is significant about the statement of cash flow

significant- picks up where the income statement stops -shows changes in cash over a period of time. it shows how items have affected the balance sheet and income statement -3 types of activities on Stmt, 1-operating(day to day activities) 2- investing(purchase/sale of long term assets and purchase/sale of investments) 3-(relate back to raising money- sell stock/repurchase stock(treasury), take out/repay loan, issue/payback bonds wrong-informs investors on where their dividends are coming from -contains information on dividend distribution dates -informs debtors when they will be issuing new stock -the statement of cash flows is not significant

what are the four basic markets for financial assets (Securities) ch 2

spot markets and future markets money markets and capital markets primary markets and secondary markets private markets and public markets

The Instructor said the list of financial ratios in the textbook we are reviewing are not "exhaustive"? What does this mean? ch 4

the list of financial ratios in the textbook represent those that among the most reviewed ratios, and there are many other types of ratios which could be defined and computed. So, the list in the textbook is not an exhaustive list

which of the following best describes investing, and not speculating ch 1

the probability of a fair, just and reasonable return is between 50 and 100%

which financial institution is owned by all us national commercial banks but is controlled by a board that is appointed by the president of the united states ch 2

the us central bank the federal reserve system: its 12 independent district banks and their boards of directors(elected by district-based commercial banks as stockholders and by the board of governors), and its board of governors(comprised by 7 members appointed by the POTUS)

what is unusual about the cash flow statement compared to the income statement and balance sheet(generally) ch 3

there are no separate general ledger accounts for the CF statement lines items like there are for the income statement and the balance sheet, the CF statement is derived from the changes to the balance sheet account balances

asset management ratios ch 4

these ratios measure how effectively a company is managing its investment in its assets, how productive the assets are, whether or not the company has excess assets or a deficiency of assets

commercial banks: ch 2

thr traditional department of stores of finance through which the federal reserve expands or contracts the money supply not -often accept money from savers and then use these funds to buy stock, long-term bonds, or short-term debt instruments issue by businesses or government units -an example of an investment intermediary -have a primary goal of helping companies raise equity capital

what is the primary goal of business finance ch 1

to maximize the market value of the shareholders equity investment (by working to produce enough free cash flow profitability to at least cover the company's weighted average cost of capital). The focus is on making the market value of the businesses' assets increase in value, and this will lead to an increase in the value of the businesses' owners equity investment.

what is the main purpose of profitability ratios ch 4

to see if the company produces enough profit, and if management can a) forecast sales b) control expense

what are the two basic legal categories of business organization ch 1

unincorporated and incorporated

liquidity ratios ch 4

whether or not a company had/will have enough cash to meet short-term obligations

which of the following usually refer(s) to a legal corporation? ch 1

"S" corp and Limited Liability Corp (LLC) not: partnership, sole proprietorship( have the most number of firms in us economy-but don't generate a lot of money)

what is the difference between intrinsic value and market price with respect to the valuation of common stocks ch 1

"intrinsic value" is an ESTIMATE of a stocks theoretical "true" value (the cash flows that the investor would get if they knew every piece of info about company)based on accurate risk and return data. hard to measure bc we dont have perfect info. "market value" is the current price being paid in the market for a stock based on "perceived" but may not be TRUE value of company

what is the difference between a "private market" and a "public market" ch 2

"private" means securities are exempt from registration with the securities and exchange commission ("S.E.C.") because the total dollar amount raised is below $5 million and involves no more than 35 non-accredited investors. "public" means permission has been obtained from the S.E.C. to raise $5 million or more from more than 35 non-accredited(authorized) investors

Sole Prioprietorship ch 1

- 1 ownership -mainly used for small businesses initially then converted into something else pros: easy and cheap to create -few regulations -lower income taxes (income is taxed at YOUR income tax rate- income tax rates on corps are higher than personal income tax rates) cons: difficult to raise large amounts of capital (equity capital) -UNLIMITED personal liability (if someone sues your personal assets could be taken) -life of business is limited(if you die no longer exists) -the amount of capital that can be raised is limited bc the single owner is responsible for debts

a primary function goal of managers in a publicly owned company is assumed to be ch 1

- to maximize the long-run value of the firms common stock and to maximize the share holder wealth not -increase the social responsibility of the company

partnership ch 1

-2 or more people Pros: -easy and cheap to create -income taxes on personal level cons: unlimited personal liability- would be split between if bankrupt sued etc

How can Stockholders manage/minimize the Agency problem? ch 1

-aligning management compensation to the primary goal (performance-based compensation- tieing and incentive to performance- CEO would need to make company better to get money on stock- make the stock go up) -sell the company to another company (so management may lose their jobs)(common stock has voting rights, more common stock more say) -incurring monitoring and bonding costs -have more independent (outside) directors on the board -separate the role of chairman of the BOD from the CEO person -require management (i.e., corporate officers and BOD members) to purchase a substantial amount of the companies common stock

Why is "profit maximization" not strong enough to be the primary goal of business financial management? ch 1

-because it only addresses accounting net income (and not free cash flow) -bc accounting net income ignores managing a company's level of riskiness -bc accounting net income ignores the companys weighted average cost of capital -bc focusing only on free cash flow would ignore risk and WACC -financial management: focuses on decisions relating to how much and what types of assets to acquire, how to raise the capital needed to purchase the assets, and how to run the company in a way that maximizes its value financial management function of busi finance is managing the companys mix of debt and equity financing

what is a major difference between the individual and corporate income tax codes? ch 3

-carry-back and carry-forward provisions not-progressive tax rates -dividend income is taxable -flat tax rate -there is not difference individual: pay taxes on wages/salaries./investment income(dividends, interest income) and on the profits of our businesses(prop, partnership) -tax rates are "progressive" (more you earn, higher % of taxes you pay, taxable income = gross income -tax exemptions/deductions) corporate taxes:-corps pay 21% tax rate -double taxation -compute marginal/average tax rates similar to persoanl taxes -corporations can own bonds and stocks that general income(interest income, dividend income) -interest paid is tax deductible -dividends paid are not tax deductible, interest exp is tax deductible -corporate capital gains -corporate loss carry forward -consolidation -taxation of s corps -depreciation

corporations ch 1

-company is distinct and separate from its owners/managers -80% generate most revenue -BOARD OF DIRECTORS ultimately has the decision making power for businesses related to them BOD-responsible for deciding on executive compensation packages not responsible for: keeping an eye on the financial performance of company or addressing shareholder concerns -is a separate legal entity from its owners pros: limited liability(worst thing that coup happen is the stockholder loses their investment) -unlimited life(if ceo dies company goes on) -easy access to capital!!!!!! cons: double taxation(profit is taxed then if the company pays dividends, those dividends(paid to investors) are taxed again(bc personal income tax)- Same earnings TAXED TWICE

How can "Finance" be defined by the kinds of professions its equips? ch 1

-corporate finance (treasure: cash management, treasury: finance, financial planning) -commercial banking -money management (i.e., professional investing) -investment banking -consulting

commercial banks/credit unions ch 2

-have a variety of functions for "savers" and "borrowers" -stereotypical "bank" chase wells fargo handle checking accounts, make loans

typically corps provide the best means to maximize value of a company BC ch 1

-limited liability: reduces risk for investors(lower risk=higher value) -growth opportunities: corps are able to raise more capital easier -liquidity: stock can transfer easily between people, therefore corps are more liquid

what are the basic forms of being incorporated? ch 1

-limited partnerships -corporations ("inc." and "corp".) -"s" corporations (income tax code designation) -limited liability companies ("LLCs")

debt capital ch 1

-loans, bonds (IOUs) -requires repayment of principle plus interest -no ownership exchange Cost of debt = interest

consequences of having a short run focus: ch 1

-mgmt should retain a long term focus of their company to maximize shareholder value -corporate governance (is the system of rules, practices and processes by which a company is directed and controlled. essentially it revolves around acting in the best interest of the stakeholders): establishment of rules/practices by BOD to ensure that managers act in interest of shareholders whole balancing the needs of other groups

Sarbanex Oxley Act of 2002: ch 1

-requires CEO and CFO to certify that their firms financial statements are accurate not -setup the securities and exchange commission to regulate stock trading -mandates social responsibility in organizations -mandates that companies adhere to security analysis and portfolio theory in accordance to sound corporate finance principles

equity capital ch 1

-stock (common or preferred) -selling "ownership" -no repayments of principle or interest -deals with ownership cost of equity = required return (via a dividend and stock price increasing)

what is the purpose of a stock market index ch 2

-to measure a sample of common stocks market price performance not -to give information about all stocks in the market -to give a price for each industry -to measure a sample of bonds market price performance -to buy and sell

free cash flow is

-used often to value a company in relation to the companys assets -not -calculated in accordance to an organizations operating, investing and insurance activities -gives us a historical observation of cumulative costs in accordance with assets and liabilities -can never be negative -represents the amount of before-tax, net cash flow available to the business owner that the business owner is "Free" to invest and distribute

bondholders andother lenders: ch 1

-will almost always discourage additional debt from the company even though the debt might generate future profits for the company not -applaud the use of a company's use of additional debt for the possible generation of greater profits -almost always in alignment with shareholders in regards to the decision-making of managers -receive floating payments that vary with the performance of the company

How did the instructor categorize the six (6) largest kinds of financial institutions? ch 2

1) depository institutions (e.g., commercial banks, credit unions, S&Ls) 2)contractual savings institutions (e.g., insurance companies, pension funds) 3) investment intermediaries (e.g., mutual funds, private equity funds, finance companies) 4) investment banks(as advisors, underwriters and brokers) 5)financial service corporations(combinations of all of the above under one holding corporation, like JP morgan chase, bank of America, Wells Fargo corp) 6) central banks(e.g., federal reserve system)

what changes could management make to improve its free cash flow performance

1-increase EBIT(by increasing sales and improving operating profitability) 2- reduce effective income tax rate(by making investments which reduce taxes) 3-reduce capital expenditures 4-reduce investment in net operating working capital

S-corp ch 1

100 or less owners -income taxes at the individual level(avoids corp tax rates)

How is "Finance" different from "Accounting" ? ch 1

Accounting is about recording and reporting accurately according to GAAP the financial impact on an entity's historical business transactions finance is about investing in an asset(s) with a reasonable expectation of receiving at least a fair return (in cash value terms) in the future (plus the original cash value of the amount invested)

what are the three basic ways financial capital is channeled from "net savers" to "productive project investors"? ch 2

CHART direct transfers: net savers purchase financial securities (financial instruments) directly from productive project investors indirectly through a financial intermediary: net savers purchase securities issued by F.I.s, and F.I.s purchase securities issued by productive project investors investment banks purchase/underwrite securities issued by productive project investors, then sell those securities to F.I.s and/or net savers

How many different levels of profitability are displayed ch 3

EBITDA, EBIT, EBT, net income -sales is not a level of profitability

What is false in regards to financial statement ch 4

FALSE-seasonality of business does not play an important factor in calculating ratios TRUE- a company can compare its financial ratios to both prior year ratios and set management goals -a price/earnings ratio is useful tool to determine whether or not a stock is over of under valuated -ratios have a limitation in that measured historical ratios do not always entirely predict future results 100% of the time -a company's financial ratios are often compared to the industry averages to gauge its performance amongst its competitors, however, this is done with caution and with a deep understanding of what the ratios measure -financial statements provide info about the companies financials, that is useful to investors, creditors -downside: managers can use differing acct techniques to make their financials appear a certain way -downside: financial stmts in theory can be fraudulent and mislead investors, creditors(Sarbanes Oxley attempts to avoid this)

what is finance? ch 1

Investments: Decisions relating to stocks and bonds -security analysis: finds values with securities (stocks, bonds) -portfolio theory: answers the question what is the best way to structure portfolios (baskets of stocks and or bonds) -market analysis: assesses the prices of stocks or bonds to determine if the prices are too high or too low

what does the balance sheet communicate ch 3

It shows the historical cost of all assets purchased on a cumulative basis and still in service less any applicable accumulated depreciation for long-term assets ("book value"), as well as a list of the major categories of liabilities and equity capital used to finance the purchase of those assets. -reports book values of items (assets, liabilities, SE) -ignores market value (AKA Prestons building has a higher market value bc location to campus) -requires estimates (allowance for uncollectible, depreciation)

analyzing a companys liquidity ratios: ch 4

NONE OF THE BELOW -involves analyzing a companies industry turnover ratio, total debt ratio, and current ratio to evaluate the general health of a company -uses analysis of the current ratio and a market-to-book ratio to ensure that a company has enough cash to cover long-term liabilities -gives an investor a good idea of the worth of a company -re-analyzes all the company's assets and puts a market value on them, which in return is used in calculation of the liquidity of the company

what is the formula for net operating profit after tax("NOPAT") and what does it measure ch 3

NOPAT=EBIT(1-income tax rate). the profit a company would generate if it had no debt (therefore no interest expense) and only had operating assets(with no financial assets it would not have any interest income, either)

What are the S&P 500 Index, the Dow Jones Industrial Average ("DJIA"), and the NASDAQ Composite Index? What is one important way these indices are used? ch 2

S&P 500 index: an industry-broad portfolio of 500 of the largest, widely-held, U.S. corporations the corporations the common stock of which is publicly-traded. managed by the standard and poor corporations. this index reflects the average stock price performance for all companies in the index Dow Jones Industrial Average: a small portfolio of 30 very large and very well-known corporations common stock. This index reflects the average stock price performance for these very-large "blue chip" companies with the implication being their performances as a group is one kind of indicator as to how the stock market is doing in general (even though it is not a representative sample from a statistical perspective) NASDAQ composite index: a portfolio of approx 2,700 technology-oriented corporations' common stocks. The price-performance of these three indices tend to track together over time primarily because professional investors own the majority of common stocks outstanding. These indices are used primarily to gain a sense of how the average large public companies common stock value is doing, the implication being that if the value is increasing, then professional investors believe corporations' financial condition is expected to improve in the future. Also, stock price movements influence consumer confidence and consumer spending (70% of gross domestic product, one key measure of an economy performance)

what does the income statement communicate ch 3

The Income Statement shows for a designated period of time (i.e., one month, one quarter, or one year) the total value of all products sold, the cost to the company of those goods/services sold, all other expenses incurred during the designated period, and whether or not the total value of sales was more than, equal to or less than the total amount of expenses (i.e., net earnings or net losses). -net income=revenues-expenses(tied to balance sheet through Retained earnings bc RE =rev-exp-div -classify as "operating(apple selling iphones)" and "non-operating(apple buying rent on college houses)" of core/daily operations -includes depreciation, salary expense, rent expense, amortization(non-cash) -operating income is also known as EBIT(earnings before interest and taxes) EBIT = sales rev - operating costs

What is the purpose of liquidity ratios? ch 4

To see if the company can cover short-term liabilities -tells us if a company will be able to pay off their debts and remain a viable organization -liquid assets:assets that can be quickly converted into cash(inventory is more liquid than a building)

what is the difference between a "money market" vs a "capital market" ch 2

a "money" market is places of exchange for debt instruments with an original maturity of less than one year. A "capital" market is places of exchange for debt instruments with an original maturity of more than one year and also the market for equity securities(common stocks and preferred stocks)

what is the difference between a "primary market" vs a "secondary market" ch 2

a "primary" market is the market where securities are sold by the issuing productive project investor and the P.P.I. receives cash - recieves proceeds from same a "Secondary" market is the market for securities which have been previously sold in the primary market can be bought and sold multiple times does not recieve proceeds from sale. most common type

what is the difference between a "spot" market vs a "futures" market? ch 2

a "spot" market is for current "on the spot" transactions(i.e., today) a "futures" market is for transactions to occur in the future

what is the difference between a commercial bank and an investment bank? ch 2

a commercial bank essentially makes loans to businesses and owns a portfolio of government securities financed with deposit liabilities and other capital. an investment bank essentially advises corporations and governments about what kind of securities to sell, acts as an underwriter to purchase and re-sell the offerings of securities by corporations and governments, and operates wholesale and/or retail brokerage operations (Bank of Oklahoma and Goldman Sachs)

what is the difference between a stock exchange (with a physical location) and the over-the-counter market? ch 2

a stock exchange with a physcial location is essentially a wholesale market for large value blocks of securities transactions by the members only. The members are investment companies and investment banks trading large blocks of securities. the "over-the-counter" market is places of exchange where security brokers and dealers (brokers which carry inventories of securities) trade securities in large or small blocks on both a wholesale and retail basis, and usually are transacting business over telephone lines (i.e., by phone) or the internet

the following is true about the business population in the us except ch 2

a substantial majority of all existing companies are actively traded daily true -a majority of us businesses are non-employers -most businesses have fewer than 100 employees -companies must seek permission from the SEC to sell their common stock to the investing public

debt instruments(short and long term) ch 2

accoount for 80% of annual trading. equity accoutns for 20%(common and preferred stock) lower risk=lower return(us treasury bill classified as "risk free") higher risk=higher return(investing in stocks is risky)

which of the following best describes a situation at equilibrium ch 1

actual market price = intrinsic value

what are the advantages and disadvantages of incorporation ch 1

advantages: -lower risk to owners, management and employees because an incorporated business(in all forms) is a legally separate person -easier to sell the company (i.e., just sell the stock to sell all assets) -easier to obtain external financing(raising money though sources external (outside) the company -access to capital markets -unlimited life of the firm -limited liability disadvantages: -more complicated to form and maintain -subject to the corporation income tax code -"double taxation" = businesses' net earnings are subject to corporate income tax and any distracted net earnings to shareholders (dividends) are subject to either the personal or corporate income tax code

what are the advantages and disadvantages to a business of being unincorporated? what two forms of unincorporated businesses were described in the text? ch 1

advantages: simple to form, subject to only the individual income tax code disadvantages: personal assets at risk, harder to finance and to sell(must sell assets separately) forms: sole proprietorship and partnerships

the main conflict between managers and stockholders is referred to as ch 1

agency problem not: stockholder, manager, debtor, business

what is the agency problem in business finance, and what are agency costs? ch 1

agency problem: when management fails to achieve the primary goal, conflicts between the business owners goals and the managements goals agency costs: the various costs of the agency problem -arise by stockholders and management

investment banks ch 2

aka underwriters raise capital for businesses buy securities from a company and resell them to "savers" (investors)

which of the following are sources of cash

all -sale of stock -decrease in accounts receivable(Asset) -depreciation -increase in accounts payable(liability)

what is the difference between a common stock traded in the secondary market vs the IPO market? ch 2

an "IPO" is an "initial public offering" of securities by a corporation (usually common stock) wherein it is the first time the corporation is selling its stock on a "public" vs "private" basis, in the primary market. - known as a "primary transaction"(recieve money from sale of stock). IPOS generally over the long run under preform the overall market A "Secondary" market(receives no money from sale) is the market for securities which have been previously sold in the primary market can be bought and sold multiple times

what does an increase in accounts receivable mean ch 3

an increase in accounts receivable means the total amount of sales is growing, and/or the total amount of sales on credit are growing, and/or the company's collection efforts are becoming less productive, and/or that customers have slowed-down their payment rate in general

which of the following are correctly categorized with a financial statement they might appear on

an increase or decrease in accounts recievable(cash flow statement - operating activities) not -total liabilities and equity(income statement) -asset sales(cash flow statement-operating activities) -EBITDA(cash flow statement - investing activities) -Net income(cash flow statement - calculated from the sum of operating, investing and financing cash flows

how does an investor in a common stock receive a return on their equity investment ch 2

an investor in common stock pays a price as greed between that investor and whomever is selling the stock in hopes of receiving in the future (a) cash dividend payments per share (i.e., dividend income) plus (b) an increase in the market price of the common stock which the investor can realize in cash in the future by selling the common stock (i.e., capital gains income)

which of the following is not a potential career in finance? ch 1

auditing careers: investment banking money management corporate finance insurance investments governments

how can "business finance" be defined generally ch 1

business finance is the management of money invested in assets that are expected to produce at least a fair return for the owner by the appreciation of the assets market value and/or future cash flows

what is finance ch 1

capital markets: markets where interest rates, stocks, bond prices are determined -includes financial institutions: banks, investment banks, stockbroakers, -these people bring "savers" (people who have money) to businesses

a company with a total debt to capital ratio of 57% ch 4

carries a higher percentage of equity than a company with a total debt ratio of 72%

a difference between publicly-owned corporations and closely-held corps ch 2

closely held corporations are owned by a select group of individuals who are typically associated with a firms operations and management not -most large companies are closely held -closely help corps have stocks that are solely traded on the new York stock exchange(NYSE) or trough discount brokers such as Charles schwab -closely-held corporations have risk which is substantially lower than AAA+ treasury bonds and US treasury bills

what is the difference between a commercial bank and a financial service corporation? ch 2

commercial bank essentially makes loans to businesses and owns a portfolio of government securities financed with deposit liabilities and other capital. financial service corp is a holding corporation which owns several types of financial intermediaries (commercial bank, mutual funds, investment bank, insurance plus)

a publicly-held companys stock price is more efficient when ch 2

companies are followed by many equity analysts not -the size of the company is minimized, allowing for easier analysis -companies close off investors to focus instead on their primary efficiencies -the performance of the companys stock outperforms the market, regardless of size

How can financial ratios be used to asses performance ch 4

compare to Industry average compare to prior years compare to management goals


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