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)