Ackermann Exam 1
Income =
Revenues-expenses
Working Capital
current assets - current liabilities (a firm's short-term assets and liabilities)
Cash Flow to Stockholders
dividends paid out by a firm less net new equity raised
Current assets
-Cash -Marketable securities -Accounts receivable -Inventory
annual report
1) management's overview 2) Balance sheet 3) income statement 4) Cash flow statement 5) Footnotes
Net Working Capital =
Ending WC - Beg. WC
over-the-counter (OTC) market
Firms not listed on a registered exchange can still have their shares traded. An OTC market, such as NASDAQ, electronically links together broker-dealers. There is no physical building for the exchange.
Assets = Liabilities + Owner's Equity
Important identity
Registered exchange (secondary market)
This is a physical marketplace (building) where traders gather to exchange securities. Example: NYSE
Corporation
a business created as a distinct legal entity composed of two or more indviduals or entities
Sole Proprietorship
a business owned and managed by a single individual
Partnership
a business owned by two or more people
Uses of Cash (Applications of Cash)
a firm's activities in which cash is spent.
Sources of Cash
a firm's activities that generate cash
Statement of Cash Flows
a firm's financial statement that summarizes its sources and uses of cash over a specified period
Cash Flow to Creditors
a firm's interest payments to creditors less net new borrowing
Annuity
a level stream of cash flows for a fixed period of time
Generally Accepted Accounting Principles (GAAP)
a set of accounting standards that is used in the preparation of financial statements
Common-Size Statement
a standardized financial statement presenting all items in percentage terms. Balance sheet items are shown as a percentage of assets and income statement items as a percentage of sales.
Common-Base Year Statement
a standardized financial statement presenting all items relative to a certain base year amount
Consol
a type of perpetuity (almost exclusively in Canada and the UK)
Which of the following is (are) true? a) NASDAQ is a dealer market b) Book value exceeds market value c) a and b d) none of the above
a) NASDAQ is a dealer market
Market value
aggregate value of a firm's shares Market value of equity = #shares outstanding * price per share
Marginal Tax Rate (MTR)
amount of tax payable on the next dollar earned
Annuity Due
an annuity for which the cash flows occur at the beginning of the period
Perpetuity
an annuity in which the cash flows continue forever
__________ markets deal in short-term securities having maturities of less than one year. a) Capital b) Money c) Credit d) a and b e) a and c
b) Money
The U.S. government coding system that classifies a company by the nature of its business operations is known as the: a) Government Engineered Coding System b) Peer grouping codes c) Standard Industrial Classification codes d) Governmental ID codes e) Centralized Business index
c) Standard Industrial Classification codes
Shareholder A sold 500 shares of XYZ stock on the New York Stock Exchange. This transaction: a) is a private placement b) occurred in an over-the-counter market c) took place in a secondary market d) took place in a primary market e) none of the above
c) took place in a secondary market
Discount
calculate the present value of some future amount
Discounted Cash Flow (DCF) Valuation
calculating the present value of a future cash flow to determine its value today
Operating Cash Flow
cash generated from a firm's normal business activities
Which of the following is (are) true? a) The change in net working capital is equal to current assets minus current liabilities b) The effective annual interest rate is greater than the nominal annual interest rate c) a and b d) none of the above
d) none of the above (keep in mind that change in NWC= Ending NWC - Beg. NWC)
Which of the following statements regarding net working capital is correct? a) When current liabilities exceed current assets, net working capital is positive b) When inventory is purchased with cash, net working capital increases c) If net working capital increases, total assets increase d) Net working capital includes cash, accounts receivable, and long-term debt e) None of the above
e) None of the above
Public offerings of debt and equity must be registered with the: a) Market Dealers Exchange b) New York Board of Governors c) NYSE Registration Office d) Federal Reserve e) Securities and Exchange Commission
e) Securities and Exchange Commission
A loan where the borrower receives money today and repays a single lump sum at some time in the future is called a(n) ________ loan. a) amortized b) balloon c) remainder d) interest-only e) pure discount
e) pure discount
Noncash items refer to:
expenses charged against revenues that do not directly affect cash flow
Income Statement
financial statement summarizing a firm's performance over a period of time
Book Value
identical to stockholder equity on balance sheet
Compound Interest
interest earned on both the principal amount and any interest already earned
Interest on Interest
interest earned on the reinvestment of previous interest payments
Simple Interest
interest earned only on the original principal amount invested
Capital markets
long term financial markets (maturity of more than one year, higher risk, possible illiquidity) -Bonds -Preferred stocks -Common stocks -Convertible securities
Financial Ratios
relationships determined from a firm's financial information and used for comparison purposes
Money market
short term financial markets (short maturity, low risk, liquid) -Treasury bills -Certificates of deposits -Commercial paper
Current Liabilities
short-term debt, accounts payable, accrued taxes, accrued compensation
Stakeholder
someone other than a stockholder or creditor who potentially has a claim on the cash flows of the firm
Present Value (PV)
the current value of future cash flows discounted at the appropriate discount rate
Annual Percentage Rate (APR)
the interest rate charged per period multiplied by the number of periods per year
Effective Annual Rate (EAR)
the interest rate expressed as if it were compounded once per year
Nominal Interest Rate (Also "Stated" or "Quoted")
the interest rate expressed in terms of the interest payment made each period.
Capital Structure
the mixture of debt and equity maintained by a firm
Agency Problem
the possibility of conflict of interest between the stockholders and management of a firm
Compounding
the process of accumulating interest on an investment over time to earn more interest
Capital Budgeting
the process of planning and managing a firm's long-term investments
Discount Rate
the rate used to calculate the present value of future cash flows
Money and Capital Markets
the study of markets where financial assets are exchanged
Free Cash Flow (cash flow from assets)
the total of cash flow to creditors and cash flow to stockholders, consisting of the following: operating cash flow, capital spending, and change in net working capital
investments
the valuation of financial assets. How much is a bond, or a share of stock worth?
Fixed assets
total property, plant and equipment less accumulated depreciation
Average Tax Rate (ATR)
total taxes paid divided by total taxable income
Financial management
what assets should the firm invest in and how should those assets be paid for
Effective (True) Rate
what your money actually earns
Secondary Financial Markets
where investors trade existing securities (offer an investor liquidity)
Primary Financial Market
where new securities are bought and sold (IPO's)