MANGMT 1010: EXAM 2
87 Cards in this Set
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Finance is
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the study of how people and businesses evaluate investments and raise capital to fund them
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What long-term investments should the firm undertake?
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What long-term investments should the firm undertake?
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How should the firm raise money to fund these investments?
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Capital Structures
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How can the firm best manage its cash flow as they arise in its day-to-day operations?
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working capital management
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A key component of finance is..
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the management and interpretation of the information.
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Financial Markets
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institutions that facilitate financial transactions
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Three types of business organizations..
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sole proprietorship, partnership, and corporation.
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Sole proprietorship..
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business owned by a single individual who is liable for everything. (Sole Owner)
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General Partnership..
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same as sole proprietorship but with more than one owner, so everything is split.
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Equity
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ownership
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Shares..
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units of ownership
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(Limited Partnerships) General Partner:
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runs the business and faces unlimited liability for debts
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(Limited Partnerships) Limited Partner:
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Can only be help liable for the amount the limited partner invested.
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Corporation...
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functions financial apart from the owners. Owned by stockholders.
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Shareholders...
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stockholders
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Dividends.
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distributions of a portion of company's earnings decided by the Board of Directors
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Limited Liability Company (LLC)...
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a cross between partnership and corporation. No liability of personal belongings and no double taxation
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Chief Financial Officer (CFO)...
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responsible for managing the firm's financial affairs. Oversees it all.
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Maximizing Shareholder Wealth can be achieved by..
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maximizing the stock price.
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Agency Problem..
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the conflict of interest between the stockholders and the managers of a firm
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Sarbanes-Oxley Act (SOX)...
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protects investors by improving the accuracy and reliability of corporate disclosures
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Four Principles of Finance..
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Money has a time value, there is a risk-return tradeoff, cash flows are the source of value, and market prices reflect information
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Money have a time value..
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a dollar today is worth more than a dollar in a year (interest)
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There is a risk-return tradeoff.
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investors wont take on addition risk unless there is a higher "expected" return rate
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Cash Flow..
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the amount of money that can actually be taken out of the business over the same interval.
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Cash Flows are the Source of Value..
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ash flows represent actual money that can be spent and determines an investor's value
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Market Prices Reflect Information.
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investors respond to new information by buying and selling their investments.
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Capital Budgeting..
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the decision-making process used to analyze potential investments in fixed assets
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Capital Structure..
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the mix of long-term sources of funds used by the firm.
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Forensic Accounting..
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the use of accounting for legal purposes
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Financial Accounting Standards Board (FASB)
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determines financial and accounting standards
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Accounting..
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system for collecting, analyzing, and communicating financial information
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Bookkeeping..
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recording of accounting transactions.
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Accounting Information System (AIS)..
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identifying, measuring, recording, and retaining financial info. for use in accounting statements
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Controller..
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person who manages all of the firm's accounting activities (Chief Accounting Officer)
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Financial Accounting..
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concerned with external users of a company's financial information.
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Two fields of accounting..
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financial and managerial
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Managerial Accounting..
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serves internal users of a company's financial information
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Certified Public Accountants (CPAs)..
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accountant licensed by the state and offering services to the public.
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Audit..
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examination of company's accounting system to determine whether its financial reports reliable to its operations
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Generally Accepted Accounting Principles (GAAP)..
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accounting guidelines that govern the content and form or financial reports
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Tax Services..
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assistance provided by CPAs for tax preparation and tax planning.
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Management Advisory Services..
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assistance provided by CPA firms in areas such as financial planning, info systems and design
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Core Competencies for Accounting..
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combination of skills, technology, and knowledge that will be necessary for the future CPA.
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Private Accountant..
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salaried accountant hired by a business to carry out its day-to-day financial activities
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Management Accountants..
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accountant who provides financial services to support managers in various business activities within a firm
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Certified Management Accountant (CMA)..
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professional designation awarded in recognition of management accounting qualifications
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Certified Fraud Examiners (CFE)..
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award for qualifying for a specialty area within forensic accounting.
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The Sarbanes-Oxley Act of 2002 was enacted to..
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restore public trust in corporate accounting practices
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Accounting Equation..
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Assets= Liabilities + Owner's Equity
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Asset..
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any economic resource expected to benefit a firm. (Land, buildings, equipment) (Accounts Receivable)
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Liability..
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debt owned by a firm to an outside organization
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Owners Equity..
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amount of money that owners would receive if they sold all the assets and paid off all the liabilities.
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Net Worth...
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or Owners Equity.the difference between what what a firm owns (assets) and what is owes (liabilities)
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Financial Statements..
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any of several types of reports summarizing a company's financial status to stakeholders
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Balance Sheets..
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supply detailed information about a firms assets, liabilities, and owner's equity
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Current Assets..
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can be converted to cash within a year
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Liquidity..
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ease with which an asset can be converted into cash
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Fixed Assets.
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long-term use or value
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Depreciation..
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decreasing value of a product over tim
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Intangible Assets..
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nonphysical asset, patent or trademark, that has economic value in the form of expected benefit
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Goodwill..
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amount paid for an existing business above the value of its other assets
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Current Liabilities..
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debts that must be paid within a year
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Accounts Payable..
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unpaid bills, wages, and taxes that must be paid within a year
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Long-Term Liabilities..
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debts that are not due for at least a year.
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Paid-In Capital..
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money that is invested in a company by its owners
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Retained Earnings.
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net profit that is kept by the owners rather than paid in dividend payments to stockholders.
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Income Statements (Profit-Loss Statement)..
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lists a firm's annual revenues and expenses so the bottoms line shows a profit or a loss
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Revenues.
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the funds that flow into a business from the sale of goods and services
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Cost of Revenue..
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costs that a company receive to obtain revenues from other companies
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Costs of Goods Sold...
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costs of obtaining materials for making the products sold by a firm during the year.
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Gross Profit.
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firm's revenue minus its cost of revenues.
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Operating Income..
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gross profit minus operating expenses
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Net Income (Net Profit)...
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gross profit minus operating expenses and income taxes
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Operating Expenses..
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costs, other than the cost of revenues
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Statements of Cash Flow..
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financial statements showing a firm's yearly cash receipts and cash payments
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Budget..
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detailed statement of estimated receipts and expenditures for a future period of time
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Revenue Recognition..
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formal recording and reporting of revenues at the appropriate time
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Full Disclosure.
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statements should not include just numbers but also managements interpretations and explain those numbers
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Solvency Ratios..
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for estimating short-term and long-term risk (debt)
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Profitability Ratios..
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for measuring potential earnings
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Activity Ratios..
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evaluating managements use of assets
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Short-Term Solvency Ratios..
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company's ability to pay immediate debts
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Current Ratio...
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company's ability to pay current debts out of current assets
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Leverage..
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ability to finance an investment through borrowed funds
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Earning per Share..
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measures the net profit that the company earns for each share of outstanding stock
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Activity Ratios..
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how efficiently company is using resources
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MANGMT 1010: Exam 1