Finance Exam 1

corporation

a company or group of people authorized to act as a single entity (a legal person) as recognized by law. Adv- limited liability Dis- Separation of ownership and management (agency problem) Double taxation

international finance

any of the three areas of finance above, but done internationally. May involve travel or working in other countries regularly and needing to be familiar with various exchange rates and speaking foreign languages

Balance sheet includes

assets, liabilities, stockholders equity, debt

corporate finance

called "business finance" because not all businesses are corporations. Many of the well-known companies you do business with have corporate finance divisions; people within making financial decisions

Operating Cash Flow

cash generated from a firm's normal business activities OCF = EBT + Depreciation - Tax

finance

creation and management of money

Financial Manager( CFO)

deal with capital structure, working capital management, and capital budgeting

Business Finance

is the study of answering the following questions: · What long-term investments should a firm take on? o What lines of business will you operate in, what buildings, machinery or equipment may you need? · Where will you get long-term financing to pay for investments? o Should a loan be taken out or other investors brought in? · How will everyday financial activities be managed? Paying suppliers and collecting from customers

Income statement

measures performance over a specific period of time

capital spending

money spent on fixed assets less money received from the sale of fixed assets.

cash flow

the difference between cash coming in and cash going out of a business

corporate ladder

the different levels of management in a company

average tax rate

total taxes paid divided by total income

paid to shareholders and creditors reinvested in the firm to pay corporate taxes

where does cash generated by a corporation typically go? Multiple select question.

investments

working with investments like stocks and bonds, valuating assets, and assessing risk and return. often stock brokers, bond traders or financial advisors

Change in networking capital

· As the firm changes its investment in current assets, it's current liabilities will often change as well, to determine the change in net working capital, we find the difference between the beginning and ending net working capital.

FALSE

"Profit maximization" is the goal for the management of a corporation in the short run only.

marginal tax

% tax paid on the next dollar earned

Balance Sheet

- a snapshot of what a firm's assets and liabilities are at a given point in time "as of...X". It serves as a convenient means for organizing and summarizing what a form owns ___assets__ and what a firm owes ___liabilities___ to make sure we always have enough money

accounting value on a specific date.

A balance sheet reflects a firm's:

partnership

A business without separate legal authority formed by two or more people is known as a Blank______. A legal entity binding 2+ business partners in responsibility and liability, to earn a profit.

the amount the shareholder invested in the corporation

A shareholder's liability is limited to which of these?

unlimited

A sole proprietor has Blank______ personal liability for all business debts and obligations.

stakeholder

A(n) Blank______ is someone other than an owner or a creditor who potentially has a claim on the cash flows of the firm.

use of debt in its capital structure

Financial leverage refers to a firm's Blank______. Multiple choice question.

How many employees will I need?

According to the textbook, which of the following is not one of the three main questions to be addressed if you wanted to start your own business?

competitors. firms of different sizes. year-to-year for your firm.

Common-size statements are best used for comparing: Multiple select question.

FALSE

Current assets plus current liabilities equals net working capital.

financial leverage

Debt in a firm's capital structure creates:

managers

In a shareholder-manager relationship, who is the agent?

Sarbanes-Oxley Act

Intended to protect against corporate accounting fraud and financial malpractice

assets to cash

Liquidity refers to the ease of changing Blank______.

Goals of Financial Management

Maximize the current value per share of the company's existing stock Maximize the market value of the existing owners' equity Maximize the market value of existing owner's equity

Advantages of a Corporation Due to Financial Markets

Ownership can transferred easily Money can be raised quickly

Ratio Analysis

Relationships between pieces of financial information, used for comparison in a firm. In this chapter will pull pieces of financial information from the ____income statement_________ and ____balance sheet______ to create ratios.

Income Statement

Revenues - Expenses = Net Income

corporate accounting fraud and financial malpractice

The Sarbanes-Oxley Act is intended to strengthen protection against:

the existing shares of the stock

The goal of the financial management is to increase the value of Blank______.

the cash youd get if you sold it

The market value of an item is:

agency

The relationship between stockholders and management can best be described as a(n) Blank______ relationship.

working capital management capital structure capital budgeting

What three subjects is the financial manager concerned with?

secondary

When one owner or creditor sells to another, the transaction takes place in the Blank______ market.

change in net working capital operating cash flow capital spending

Which of the following are components of cash flow from assets?

suppliers employees government

Which of the following are considered non-owner stakeholders in a company?

It is the market where initial public offerings are made. Proceeds from the sale of securities go to the issuing firm.

Which of the following are defining features of the primary market?

Corporations can sue and be sued. Corporations are separate legal entities. Corporations can enter contracts.

Which of the following are reasons that the corporation is the most important form of business?

The common-size income statement can show which costs are rising or falling as a percentage of sales.

Which of the following best explains why financial managers use a common-size income statement?

cash accounts payable

Which of the following items are used to compute the current ratio?

financial institutions

· companies that specialize in financial matters, banks and credit unions & insurance companies.