MGT 3210 Midterm Exam Study Guide

Debt

A claim on the value of a business's asset, legally enforceable to pay back.

Operating Agreement

A contract outlining the internal workings and management structure of an LLC, required by Missouri law for LLCs with 2 or more members.

Limited Liability Company (LLC)

A corporation that can be operated as a partnership; members, articles of organization, and operating agreement.

C-corporation

A legal entity that is separate and distinct from its owners; shareholders & board of directors.

Registered Agent

A person designated to receive legal documents on behalf of an LLC, often the business owner.

Missouri Employer Tax Identification Number

A state tax identification number associated with a business, required for many businesses operating in Missouri.

Federal Employer Identification Number (EIN Number)

A unique number used for tax filing and business identification purposes at the federal level, obtained after incorporating a business.

Personal equity

Amount contributed depending on personal worth, not all personal wealth is easily available.

Tax Accounting

An accounting approach based on specific requirements set by governmental taxing agencies.

Partnership

An association of persons who carry on as co-owners of a business for profit.

Sole Proprietorship

An individual operates a business as their own, without any formal structure or separation from personal finances.

Accounting Equation

Assets = Liabilities + Owners' equity; represents the value of a business.

Cash Equivalents

Assets that can be quickly converted into cash within a few days, providing liquidity to a business.

Dilution math

Calculation for ending equity after selling a percentage of the company.

Gifts and grants

Capital or resources that don't require repayment and have no ownership claims.

Articles of Organization

Document filed with the state to establish an LLC, containing essential information about the company.

Unsecured debt

Does not give the lender the right to seize any specific asset, requires court action to collect unpaid debt.

Cost Projections

Estimates of future expenses and expenditures, including cost of goods sold, to help in financial planning and decision-making.

Growth Potential

Evaluated by investors to estimate expected gain and time required to receive gains.

Cons to Using Outside Equity

Expensive, creates problems of control and decision-making, reduces future profits, growth, and wealth.

Cash budget

Financial plan for the future, based on a single level of operations, expressing the use of resources necessary to achieve strategic goals.

Short-term debt

Form of short-term financing by issuing a note for cash to another company, paid to the bearer and fully transferable.

GAAP

Generally accepted accounting principles; formal, rule-based accounting standards.

Financial Modeling

Helps determine concept feasibility, resource requirements, growth expectations, and communicate potential to investors.

Royalty Financing

Hybrid form of investing, rarely used.

Independent Contractors

Individuals hired to accomplish specific goals without being under substantial control by another party.

Managerial Accounting

Intended for planning, directing, and controlling a business; used for budgeting and evaluation of investment decisions.

Liquidity

Measures the time before an asset can be converted to cash, and the expected time before a liability must be paid.

Outside equity

Money from selling part of the business to people not involved in the business.

Business License

Official permission from the government or regulatory agency to operate a business, often required at the state and city levels.

Harvest or Exit

Plan to pay investor's profits.

Cash flow management

Planning and trading the amount and timing of money to be received and aid during the business cycle.

Balance Sheet

Presents a 'snapshot' of financial holdings and liabilities on a specified date; includes assets, liabilities, and owners' equity.

Income Statement

Primary source of information about a business's profitability; calculates net income as revenues minus expenses.

Choose a Business Name

Process of selecting and reserving a unique name for a future business, typically with a state's Secretary of State office.

Tax abatements

Provided by state and local governments to reduce taxes payable.

Tax credits

Provided by the U.S. government and some states to reduce taxes payable.

Secured debt

Provides the lender with the right to seize specific assets if the loan is not paid.

Pros to Using Outside Equity

Reduces exposure to financial loss, no increased costs in the form of interest, provides new ideas, procedures, and processes.

Statement of Cash Flows

Reports cash flows from operating, investing, and financing activities.

Cash receipts budget

Schedule of amounts and timings of cash receipt into a business.

Cash disbursement

Schedule of amounts and timings of payments of cash out of a business.

Equity

Selling ownership stake in the business for cash or services.

Profit Sharing

Shareholders are paid dividends in proportion to their shares; members can choose how to share profits.

Commercial paper

Short-term financing by issuing a note for cash to another company.

Marketable securities

Stocks and bonds representing ownership or debt of public firms and government issued debt.

Financial Flexibility

The ability to adapt to changing financial circumstances.

Financial Strength

The ability to meet financial obligations and maintain long-term financial independence.

Working Capital

The capital required to bridge the gap between inventory purchase and the sale, essential for sustaining business operations.

Gross Margin

The difference between net revenue and cost of goods sold, representing the profitability of a business's core operations.

Cost of Goods Sold (COGS)

The direct costs related to producing goods or services, deducted from net revenue to calculate gross margin.

Pass Through Taxation

The distribution of business earnings to owners, who then pay individual taxes on the earnings, rather than the business itself being taxed.

Check the Box Taxation

The election of a subchapter-S corporate form, allowing for single taxation for the owner, by checking the appropriate box on a tax return.

Liability Exposure

The extent to which individuals or entities are exposed to financial risk or responsibility.

Pricing Basics

The fundamental principles of setting prices, often influenced by microeconomics concepts such as supply and demand, and pricing elasticity.

Piercing the Veil

The legal dissolution of a corporate form, reverting it to a sole proprietorship or general partnership, due to careless mixing of personal and business assets.

Assumed Name

The name under which a business operates, also known as a trade name or DBA (doing business as).

Trade Name

The official name under which a business operates, also known as an assumed name or DBA (doing business as).

Formation

The process of organizing a business entity, such as an LLC, including the submission of necessary documents and information to the state.

Dissolution

The process of winding up a business entity or partnership.

Capital Structure

The proportion of debt and equity used to finance a business's operations.

Double Taxation

The taxation of business earnings at both the business and individual owner levels, resulting in two layers of taxation.

Revenue

The total income generated from sales or services, calculated as unit price multiplied by units sold.

Cash-to-cash cycle

Time required for a business to acquire resources, convert them into product, sell the product, and receive cash from the sale.

Bootstrapping

Using own capital and funds generated by the start-up.

Annual Meetings

Yearly gatherings of a company's directors and shareholders to discuss and make decisions about the business.

Annual Reporting

Yearly submission of financial and operational information to the government or regulatory agency.