Major types of investments

Economic resources

Items that can be used to produce goods and services and are limited in supply

Job satisfaction vs job enrichment

Job satisfaction is a measure of the WORKERS' contentedness with their job. Job enrichment is the PROCESS OF ADDING MORE MOTIVATORS (done by businesses to improve morale.)

Lean vs Six Sigma

Lean operations focuses on increasing efficiency by reducing waste, while Six Sigma focuses on continuously improving quality throughout the business.

Homeowner's insurance

Maintain your home in case of property damage, like house fire

Financial manager

Makes financing, investing, and cash flow management decisions. Role: to maximize the stock price.

Business letter format

No paragraph indents, all components aligned on the left side of the margin, single-spaced within paragraphs, double-spaced between paragraphs

Job obsolescence

Obsolescence: the degree to which workers lack knowledge/skills to have good performance

Financial intermediaries

People make loans and borrow money through financial intermediaries, which include banks, insurance companies, mutual funds). People lend money to a company indirectly through financial intermediaries.

Mutual funds

People's investments (savings), buy stocks, bonds, and other financial instruments on behalf of its investors

Capital goods

Physical assets a company uses in the production process to make products and services consumers will use

What is the first step in designing a multi-table query?

Pinpoint exactly what you want to know

Insurance companies

Premiums, investment earnings

IPO pros/cons

Pros: An opportunity to grow as a business and earn more money. Cons: The business might be scrutinized and seen under a microscope. Image now matters, huge change in company culture. Not everyone is ready for the process and it's not always necessary, depending on the company's aims and ambitions.

Auditor

Publicly traded corporations must hire an auditor, a neutral third party that should check the financial statements and make sure they follow the GAAP

Sarbanes-Oxley Act (SOX) (2002)

Purpose was to improve the accuracy of information given to shareholders. Increased penalties for providing false information.

Quality control (Taguchi method)

QC is a process to ensure product quality is maintained or improved. The Taguchi method focuses on product design and development.

Revolving credit (2/3 main types of credit)

Revolving credit accounts allow you to repeatedly borrow until a maximum limit, known as the credit line. As long as you pay off your debt and do not exceed the limit, you are free to borrow. Interest is charged on the amount you do not pay back before the due date. Ex: credit cards

Why is finance important?

Setting up a business requires start-up capital to purchase essential equipment Businesses need to finance their working capital - the day to day finance needed to pay bills and expenses and build up stocks Finance is used for business expansion and also R/D

Arbitrage

Taking advantage of price differences to earn a profit. Market A has apples for $1, market B has apples for $1.50. Arbitrage is buying a bunch of apples from Market A then selling them at market B.

Three main types of taxes

Taxes on what you earn, what you buy, and what you own. Excise taxes/sin taxes are on cigarettes, airline tickets, fuel, tobacco

Deductible

The amount you must pay out of pocket before an insurance company covers the rest.

Liquidity

The ease and speed with which an asset can be turned to cash

Simple loan (1/4 basic credit market instruments)

The lender provides the borrower with an amount to be repaid by some maturity date, with an additional payment of interest.

Fixed-payment loan/fully amortized loan (2/4 basic credit market instruments)

The lender provides the borrower with some amount (of the principal + interest) to be repaid in consistent chunks of time for some number of years. Installment loans fall into this category

Outstanding shares

The number of stocks a company has issued. Represents all the shares the public can buy, including restricted shares.

Market price

The price for which something sells

IPO/going public

The process of a private corporation issuing its first few shares to the public. Process takes around 4-6 months. "grueling process."

Variance analysis

The process of investigating any differences between budgetary figures and actual figures

Real interest rate vs nominal interest rate

The real one takes inflation into account while the nominal one does not

Amortization

The spreading of payments over multiple periods (Amortize: a verb - to spread out payments over multiple periods)

Corporate governance

The system by which companies are directed and controlled. The Board of Directors is in charge, and is responsible for approving goals and policies. Shareholders are very involved though, as they appoint Board and other important people.

Authorized shares

The total number of shares a corporation can issue. Number is assessed at corporation's creation and can be increased/decreased through shareholder vote.

Thrifts

They specialize in saving accounts and real estate financing

Enron scandal

Throughout 1990s-2001, Enron was one of the most successful companies. However, its shares fell >$60 bn by the end of 2001. Executives manipulated financial statements and artificially inflated the stock price.

Job interviewers often say to job applicants, "Tell me about yourself. " What's the purpose of this request?

To test the applicant's communication skills

Cash flow statement (3/4 and 4/4 required financial statements)

Uses info from income statement and balance sheet, ultimate goal is to chart the flow of cash. Liquidity. Cash is important man. Used to pay things. Last required financial statement is the statement of stakeholder's/owner's equity. Shows changes in capital balance/new investments in the business.

Opportunity cost

What you give up for something else. Can be calculated from a Production Possibilities Curve. *Assuming you have limited time as a hunter-gatherer and have to split it between hunting and gathering, how many berries do you lose if you want to catch 1 more rabbit each day?*

Time value of money

What you have worth now is worth more than the same amount in the future.

Insurance premium

What you pay for an insurance policy. Premiums are as central to an insurance company's revenue as subscribers are to Netflix's. Except, the premium is also a transfer of liability to the insurance company.

Credit cards vs debit cards

When using credit cards, you are using borrowed money so it can be easy to get pulled into a cycle of debt. When you use a debit card, you're drawing from money you already have. Credit cards allow you to make larger purchases and to build your credit score (for loans) but debit cards are less risky.

Working capital

Working capital = current assets - current liabilities

Promissory note

(a legal instrument) A signed document promising to pay some amount to some person by some time

IPO process summary

1. Decide on an investment bank to lead through the process 2. File the IPO prospectus, which includes everything investors should know (financial statements, risk factors) 3. SEC checks it makes sure it's legit, then it's released 4. Go on a roadshow--prospective investors get to meet the CEO and ask questions

Financial planning process

1. Gathering client information. 2. Establish goals and objectives. 3. Analyzing financial situation. 4. Developing and presenting financial plan. 5. Implementing plan. 6. Monitoring and reviewing financial plan.

Why is budgeting and financial planning important?

1. Planning to set *realistic* targets 2. Effective allocation of resources 3. Assessing performance

Occupational interest inventory

A career guidance tool that shows the kind of work you might like.

Becoming more socially minded in marketing can bring a business

A competitive advantage

Bonds

A debt security that promises to make periodic payments over a specified period of time. Borrower can be a company or even the US government. Borrowers use bonds because they need liquidity at a certain moment, people buy bonds as a form of investment. You get interest on your bond on top of the principal (the amount they owed.)

Checking account

A deposit account that allows for withdrawals and deposits. Are very liquid and can be accessed through checks and ATM machines

Ponzi scheme

A form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors

Board of directors

A group of people who have ultimate decision-making power in a corporation, though they are elected by the shareholders. They get to choose the CEO and fire them if they want to. Many board of directors used to be CEOs themselves.

Flat tax

A percentage of their profits businesses in some states pay regardless of how much they make

Pension funds

A plan that provides retirement income

Mutual funds

A professionally-managed investment that pools money from many investors and invest funds in a diversified portfolio of securities. Include: large-cap funds, growth funds

Capital gains tax

A tax an investor must pay when they sell an asset for a higher price than the purchase price. Paid when the asset is sold. In the US, taxes are on *net capital gains*, so if you have many capital losses, they will balance out your capital gains. Short-term capital gains tax is usually higher than long-term capital gains tax. (Keeping it for over a year is a good thing.)

Luxury tax

A tax on goods considered expensive, unnecessary, and non-essential (jewelry and perfume)

Installment credit (1/3 main types of credit)

A type of loan where you borrow one lump sum and pay it off in installments (chunks of the principle and interest) in regular fixed intervals. Ex: personal loans, auto loans, student loans

Credit market/loan market

AKA the loan market, involves loan offers and mortgage-backed loans

Accounts payable vs accounts receivable

Accounts payable (current liability) represents money your business owes to suppliers while accounts receivable (current asset) represents money customers owe to your business

Adverse variance vs favorable variance

Adverse: Exists when the difference between the budgeted and actual figures leads to a profit *lower* than expected Favorable: Exists when the difference between the budgeted and actual figures leads to a profit *higher* than expected

Cash accounting vs accrual accounting

Cash accounting: An accounting method where payment receipts are recorded when they are received Accrual accounting: An accounting method where revenue or expenses are recorded when a transaction is made rather than when the payment is received Difference lies in the timing of when revenue and expenses are recognized

The Federal Reserve System

Central bank of the US. Central banks are government agencies that oversee a country's banking system and manages the money supply and interest rates.

Financial conglomerates/financial services firms

Combine more than one (above) institution. Bank of America and JP Morgan Chase do both commercial banking and investment banking

Commercial bank vs investment bank

Commercial banks focus on accepting deposits and making loans while investment banks focus on raising capital, IPOs (remember companies need to choose an investment bank when going through IPO process), managing assets

Credit management

Concerns how much credit you need to support your spending and what types of credit to use

Business consolidation vs business convergence (for banks)

Consolidation is mergers/acquisitions of banks by banks. Business convergence mixes banks and other financial services like securities and insurance.

Debt vs equity vs derivative securities

Debt: a loan that forces the borrower to make periodic interest payments and repay the full amount, like bonds. Equity: an ongoing ownership in a business or property, like common stock. Derivative securities: neither debt or equity but have value from a physical commodity, like stock options or futures

Banks and credit unions

Deposits, loans to people and businesses. Credit unions are set up like cooperatives, trying their best to satisfy their members (members own the credit union.)

Which security can reduce the impact of significant fluctuations in exchange rates and commodities?

Derivatives (financial contracts that get value from an underlying asset)

At what stage in the entrepreneurial process does an entrepreneur determine the amount of capital needed to launch the business?

Development

The Halifax Retail chain uses computer applications to track its inventory and order goods from its vendors. Which tech is the company using to streamline its purchasing processes?

Electronic data interchange (EDI)

Dodd-Frank Act (2010)

Encourages whistleblowers by giving them financial incentives and decreased burden on small firms

The ABC Corporation identifies all the risks that threaten the company. Then, it decides which risks it wants to focus on and shares this information with its stakeholders. The company is practice

Enterprise risk management

Financial institutions

Entities that provide financial services, like managing investments, making loans, and taking deposits. Role: moving funds from those who have extra funds to those that need funds and moving funds through time (if you need $2000 now, you can get a loan. Your future salary now becomes funds).

Common stock

Equity investments that represent ownership in a corporation

Banks (solid, official definition)

Financial institutions that accept deposits and make loans. The average person interacts the most with this financial institution. Include: chartered banks, credit unions, trust and loan companies

Float vs restricted shares

Float refers to a company's shares that can be traded without restrictions. To buy restricted shares, people might need permission from the SEC.

Phrases regarding risk in investing

Fly-by-night vs Feet-on-the-Ground stock Risk averse vs risk preferer or risk lover (in describing investor traits)

Balance sheet (1/4 required financial statements)

Follows the accounting equation: Assets = Equity + Liabilities. If Alan has an office building worth $300,000 (asset), $100,000 as his capital (equity), and $200,000 from a lank loan (liability), we see A=E+L. Assets reflect the total value of the property a business has, liabilities reflect the size of financing of an organization's assets from third-party organizations, and equity/owner's equity reflects the value of investment in the organization from its owners. Kinda like internal finance + external finance -> what you have total.

Car insurance

For drivers in the case of an accident

Health insurance

For expected and unexpected health care expenses

Life insurance

For those with dependents, will ease financial burden on dependents in case of death

General lien vs specific lien

General: a claim against some or all of a debtor's property. Specific: a claim against a specific piece of property. Tax lien is an involuntary lien filed by the IRS or the government. A general lien. Mortgage lien is a voluntary lien filed by the bank (you chose to make a loan with the bank.)

Income statement/Profit Loss Sheet (2/4 required financial statements)

Goal here is to calculate the net income. Net sales - COGS = gross profit. Then subtract operating income and other expenses.

Double taxation

Happens only to corporations, because corporations are a separate legal entity. First, the corporation pays its taxes, then when the remaining profits are distributed to the shareholders, the shareholders must pay taxes on the personal level as well. THE EXEPTION IS S CORPORATIONS, these are only taxed on the personal level.

Unearned income

Income from investments rather than work (someone paying rent, dividends from preferred stock)

Internal vs external risks

Internal risks: personnel management, low morale, tech issues External risks: economic downturn, political trade wars

Internal finance vs external finance

Internal: Internal money raised from the businesses own assets or retained profits External: External money raised from outside the business

Short-term investments

Investments that last 1 year or less. Usually used to make use of idle funds or provide liquidity. Include: deposit accounts, US Treasury bills (T-bills), Certificates of deposit (CDs), Money market, mutual funds

Fixed-income securities

Investments that make fixed cash payments at regular intervals. Include: bonds, preferred stock

Why corporations issue stocks?

It's a good way for them to raise funds to finance activities

Components of a personal financial plan

Budgeting and tax planning, managing liquidity, financing large purchases, protecting assets and income (insurance), investing, planning retirement

Hedge funds

Alternative investments available only to sophisticated investors, usually institutions or people with significant assets. Include: long and short equities, funds of funds

Handshake agreement

An agreement between parties that is informal and not recorded in writing

Bancassurance

An arrangement between a bank and insurance company, where the insurance company is allowed to sell products to the bank's clients.

Marginal analysis

An examination of additional benefits of an activity compared to additional costs incurred from that activity. Purpose: will an activity result in a marginal revenue grater than or equal to the marginal cost?

Why do Final Accounts/Financial Statements matter?

Apart from helping stakeholders make informed decisions, they *ideally keep the current investors and attract even more.* Many stakeholders care, include: shareholders (well was it worth it), employees (job security and satisfaction), managers, competitors (>:)), government (taxes), financiers (banks, angel investors), suppliers, potential investors

APR (annual percentage rate) vs APY (annual percentage yield). APY is AKA effective annual rate (EAR)

Both exist for loans and for borrowers and investors to find the best deal. APR represents annual rate charged for earning or borrowing money. APY does the same but considers compounding interest. The more the interest compounds, the higher the APY. Investment companies (like for CDs, IRAs) like to advertise the APY, while lenders advertise the APR (banks).

Why has technology's use increased in financial-information mangagement?

Passage of laws that recognize electronic documents as legally binding

Open credit

Payments vary, but you have to pay in full by the end of the billing cycle