Principles of Finance
financial analysis
(also financial statement analysis) refers to an assessment of the viability, stability, and profitability of an organization or project.
private placements
(or non-public offering) is a funding round of securities which are sold not through a public offering, but rather through a private offering, mostly to a small number of chosen investors
working capital management
decisions relating to working capital and short term financing are referred to as working capital management. These involve managing the relationship between a firm's short term assets and it short term liabilities
deferred tax liabilities
deferred tax liabilities generally arise where tax relief is provided in advance of an accounting expense, or income is accrued but not taxed until received.
leverage
the use of borrowed funds with a contractually determined return to increase the ability of a business to invest and earn an expected higher return (usually at a high risk)
ratio analysis
the use of quantitative techniques on values taken from an enterprise's financial statements
time value of money
the value of money, figuring in a given amount of interest, earned over a given amount of time
forecast
to estimate a future condition
Abscond
to flee; to withdraw from
incorporate
to form into a legal company
stock split
to issuer a higher number of new shares to replace old shares. This effectively increases the number of shares outstanding without changing the market capitalization of the company
interest rate
the cost of borrowing money; generally refers to the interest charged by a lender such as a bank on a loan
opportunity cost
the cost of opportunity forgone
gross profit
the difference between net sales and the cost of goods sold
gross profit margin
the difference between net sales and the cost of goods sold
amortization
the distribution of cost of an intangible asset, such as an intellectual property right, over the projected useful life of the asset
net profit
the gross revenue minus all expenses
merger
the legal union of two or more corporations into a single entity, typically assets and liabilities being assumed by the buying party
period
the length of time during which interest accrues
capacity
the maximum that can be produced on a machine or in a facility or group
depreciation
the measurement of the decline in value of assets. Not to be confused with impairment, which is the measurement of the unplanned, extraordinary decline in value of assets
required rates of return
the minimum annual percentage earned by an investment that will induce individuals or companies to put money into a particular security or project
Principal (module 8)
the money originally invested or loaned, on which basis interest and returns are calculated
sustainable growth rate
the optimal growth from a financial perspective assuming a given strategy with clear, defined financial frame conditions/limitations.
interest rate risk
the potential loss that arises for bond owners from fluctuating interest rates
net present value
the present value of a project or an investment decision determined by summing the discounted incoming and outgoing future cash flows resulting form the decision.
premium
the price above par value at which a security is sold
discounting
the process of determining how much money paid/received in the future is worth today. You discount future values of cash back to the present using the discount rate
valuation process
the process of estimating the market value of a financial asset or liability
moral hazard
the prospect that a party insulated from risk may behave differently from the way it would behave if it were fully exposed to the risk
term structure of interest rates
the relationship between the interest on a debt contract and the maturity of the contract
cash flow
the sum of cash revenues and expenditures over a period of time
cash flows
the sum of cash revenues and expenditures over a period of time
financial modeling
the task of building an abstract representation (a model) of a financial decision-making situation.
yield
commonly referred to the dividend; interest or return the investor receives from a security like a stock or bond, and is usually reported as an annual figure
expected return
considering the magnitude and likelihood of exogenous events, the yield that an investor predicts s/he will earn on average
current ratio
current assets divided by current liabilities
maturity
date when payment is due
market value
the total value of the company as traded in the market. Calculated by multiplying the number of shares outstanding by the price per share
matching principle
According to the principle, expenses are recognized when obligations are (1) incurred (usually when goods are transferred or services rendered), and (2) offset against recognized revenues, which were generated from those expenses, no matter when cash is paid out.. In cash accounting-in contrast-expenses are recognized when cash is paid out
fundamental analysis
An analysis of a business with the goal of financial projections in terms of income statement, financial statements and health, management and competitive advantages, and competitors and markets
liquidity
availability of cash over short term ability to service short-term debt
pro forma
For the sake of form only
GAAP
Generally Accepted Accounting Principles refer to the standard framework of guidelines, conventions, and rules accountants are expected to follow in recording, summarizing, and preparing financial statements in any given jurisdiction
IFRS
International Financial Reporting Standards. The major accounting standards systems used outside of the United States
off-balance-sheet
OBS, or incognito leverage, usually means as an asset or debt or financing activity not on the company's balance sheet
asset
Something or someone of any value; any portion of one's property or effects so considered.
Finance
To provide or obtain funding for a transaction or undertaking; to back; to support
income statement
a calculation which shows the profit or loss of an accounting unit during a specific period of time, providing a summary of how the profit or loss is calculated from gross revenue and expenses
conflicts of interest
a conflict of interest (COI) occurs when an individual or organization is involved in multiple interests, one of which could possibly corrupt the motivation for an act in another
bond
a documentary obligation to pay a sum or to perform a contract; a debenture
earnings management
a euphemism, such as creative accounting, to refer to fraudulent accounting practices that manipulate reporting of income, assets or liabilities with the intent to influence interpretations of the income statements
Cash flow statement
a financial document that shows how changes in balance sheets accounts and income effect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities
return of shareholder's equity of common stockholders
a fiscal year's net income (after preferred stock dividends but before common stock dividends) divided by total equity (excluding preferred shares), expressed as a percentage
financial statements
a formal record of all relevant financial information of a business, person, or other entity, presented in a structured and standardized manner to allow easy understanding
sentiment
a general, thought, feeling or sense
metric
a measure of something; a means of deriving a quantitative measurement or approximation for otherwise qualitative phenomena.
ratio
a number representing a comparison between two things
Debtor
a person or firm that owes money, one in debt , or one who owes a debt
exchange
a place for conducting trading
investment
a placement of capital in expectation of deriving income or profit from its use
Nonprobability sample
a subset of the population in which the probability of getting any particular sample may be calculated, and therefore cannot be used to represent the whole population
probability sample
a technique of studying a population subset in which the likelihood of getting any particular subset may be calculated
financing
a transaction that provides funds for a business
fungible
able to be substituted for something of equal value or utility; interchangeable, exchangeable, replaceable
financing activities
actions where money is flowing between the company and investors in the company, such as banks and shareholders.
investing activity
actions where money is put into something with the exception of gain, usually over a longer term
debt ratio
after tax income divided by liabilities
fair market value
an estimate of the market value of a property, based on what a knowledgeable, willing and unpressured buyer would probably pay to a knowledgeable, willing, and unpressured seller in the market.
inflation
an increase in the general level of prices or in the cost of living
Dow Jones Index
an index that shows how 30 large publicly-owned companies based in the United States have traded during a standard trading session in the stock market
compound interest
an interest rate applied to multiple applications of interest during the lifetime of the investment
liabilities
an obligation of an entity from past transactions or events, including any type of borrowing. An amount of money in a company that is owed to someone and has to be paid in the future, such as tax, debit, interest and mortgage payments
liability
an obligation, debt or responsibility owed to someone
allocated
distributed according to a plan
assets
economic resources owned or controlled by a company that are capable of producing future benefits. Something or someone of any value; any portion of one's property or effects so considered
financial forecasting
estimation of future financial outcomes for a company or country
benchmarking
evaluating or measuring something by a standard
derivatives
financial instruments whose value depends on the valuation of an underlying asset; such as a warrant, an option, etc.
Return
gain or loss from an investment
net income
gross profit minus operating expenses and taxes
intangible assets
intangible assets are defined as identifiable non-monetary assets that cannot be seen, touched or physically measured, and are created through time and effort, and are identifiable as a separate asset.
simple interest
interest paid only on the principal
risk premium
is the minimum amount of money by which the expected return on a risky asset must exceed the known return on a risk free asset, or the expected return on a less risky asset, in order to induce an individual to hold the risky asset rather than the risk free asset
treasury bills
mature in one year or less. Like zero-coupon bonds, they do not pay interest prior to maturity; instead they are sold at a discount of the par value to create a positive yield to maturity.
capital
money and wealth; the means to acquire goods and services; especially in non-barter system
free cash flow
net income plus depreciation and amortization, less changes in working capital, less capital expenditures
agent
one who acts for , or in the place of, another (the principal), by authority; one entrusted with the business of another; a substitute; a deputy; a factor
Principal (module 2)
one who directs another (the agent) to act on one's behalf
shareholder
one who owns shares of stock
equity
ownership, especially in terms of net monetary value, of a business
dividends
pro rata payments of money by a company to its shareholders, usually made periodically ( ex: quarterly or annually)
retention ratio
retained earnings divided by net income
operating income
revenue-operating expenses (does not include other expenses such as taxes and depreciation)
outstanding shares
shares outstanding are all the shares of a corporation that have been authorized, issued and purchased by investors and are held by them
preferred stock
stock with a dividend, usually fixed, that is paid out of profits before any dividend can be paid on common stock. It also has priority to common stock n liquidation
taxable income
taxable income refers to the base upon which an income tax system imposes tax
operating liquidity
the ability of a company or individual to quickly convert assets to cash for the purpose of paying operating expenses
effective APR
the amount you pay after fees and compound interest have been added to the charges
annual percentage rate (APR)
the annual rate charged for borrowing or earned through an investment, expressed as a percentage that represents the actual yearly cost of funds over the term of a loan