Financial Markets and Business Terms: A Comprehensive Glossary, Quizzes of Financial Management

Download Financial Markets and Business Terms: A Comprehensive Glossary and more Quizzes Financial Management in PDF only on Docsity! TERM 1 Incremental cash flow DEFINITION 1 the difference between the cash flows a company will produce both with and without the investment it is thinking about making. TERM 2 Opportunity cost DEFINITION 2 the next best alternative available to the decision maker for a given level of risk TERM 3 efficient market DEFINITION 3 a market in which the prices of securities at any instant in time fully reflect all publicly available information about the securities and their actual public values TERM 4 agency problem DEFINITION 4 problems and conflicts resulting from the separation of the management and ownership of the firm TERM 5 Capital budgeting DEFINITION 5 the decision-making process with respect to investment in fixed assets TERM 6 Capital structure decision DEFINITION 6 the decision-making process with funding choices and the mix of long-term sources of funds TERM 7 working capital management DEFINITION 7 the management of the firm's current assets and short-term financing TERM 8 financial markets DEFINITION 8 those institutions and procedures that facilitate transactions in all types of financial claims. TERM 9 sole proprietorship DEFINITION 9 a business owned by a single individual TERM 10 partnership DEFINITION 10 an association of two or more individuals joining together as co-owners to operate a business for profit TERM 21 venture capital firm DEFINITION 21 an investment firm that provides money to business start- ups TERM 22 primary market DEFINITION 22 a market in which securities are offered for the first time for sale to potential investors TERM 23 inititial public offering IPO DEFINITION 23 the first time a company issues its stock to the public TERM 24 secondary market DEFINITION 24 a market in which currently outstanding securities are traded TERM 25 money market DEFINITION 25 all institutions and procedures that facilitate transactions for short-term instruments issued by borrowers with very high credit ratings TERM 26 seasoned equity offering SEO DEFINITION 26 the sale of additional stock by a company whose shares are already publicly traded TERM 27 spot market DEFINITION 27 cash market TERM 28 futures markets DEFINITION 28 markets where you can buy or sell something at a future date TERM 29 organized security exchange DEFINITION 29 formal organizations that facilitate the trading of securities TERM 30 over-the-counter market DEFINITION 30 all security markets except organized exchanges. The money market is an over-the-counter market. Most corporate bonds also are traded in the market. TERM 31 investment banker DEFINITION 31 a financial specialist who underwrites and distributes new securities and advises corporate clients about raising new funds TERM 32 underwriting DEFINITION 32 the purchase and subsequent resale of a new security issue. The risk of selling the new issue at a satisfactory (profitable) price is assumed (underwritten) by the investment banker. TERM 33 underwriter's spread DEFINITION 33 the difference between the price the corporation raising money gets and the public offering price of a security TERM 34 syndicate DEFINITION 34 a group of investment bankers who contractually assist in the buying and selling of a new security issue TERM 35 privileged subscription DEFINITION 35 the process of marketing a new security issue to a select group of investors TERM 46 term structure of interest rates DEFINITION 46 the relationship between interest rates and the term to maturity, where the risk of default is held constant TERM 47 yield to maturity DEFINITION 47 the rate of return a bondholder will receive if the bond is held to maturity TERM 48 unbiased expectations theory DEFINITION 48 the theory that the shape of the term structure of interest rates is determined by an investor's expectations about future interest rates TERM 49 liquidity preference theory DEFINITION 49 the theory that the shape of the term structure of interest rates is determined by an investor's additional required interest rate in compensation of additional risks TERM 50 market segmentation theory DEFINITION 50 the theory that the shape of the term structure of interest rates implies that the rate of interest for a particular maturity is determined solely by demand supple for a given maturity. This rate is independent of the demand and supply for securities having different maturities. TERM 51 income statement (profit and loss statement) DEFINITION 51 a basic accounting statement that measures the results of a firm's operations over a specified period, commonly 1 year. Also known as the profit and loss statement. The bottom line of the income statement shows the firm's profit or loss for the period TERM 52 cost of goods sold DEFINITION 52 the cost of producing or acquiring a product or service to be sold in the ordinary course of business TERM 53 gross profit DEFINITION 53 sales or revenue minus the cost of goods sold TERM 54 operating expenses DEFINITION 54 marketing and selling expenses, general and administrative expenses, and depreciation expense TERM 55 operating income (earnings before interest and taxes) DEFINITION 55 sales less the cost of goods sold less operating expenses TERM 56 earnings before taxes (taxable income) DEFINITION 56 operating income minus interest expense TERM 57 financing cost DEFINITION 57 cost incurred by a company that often includes interest expenses and preferred dividends TERM 58 net income (earnings available to common stockholders) DEFINITION 58 a figure representing a firm's profit or loss for the period. it also represents the earnings available to the firm's common and preferred stockholders TERM 59 earnings per share DEFINITION 59 net income on a per share basis TERM 60 dividends per share DEFINITION 60 the amount of dividends a firm pays for each share outstanding TERM 71 inventories DEFINITION 71 raw materials, work in progress, and finished goods held by the firm for eventual sale TERM 72 fixed assets DEFINITION 72 assets such as equipment, buildings, and land. TERM 73 depreciation expense DEFINITION 73 a non-cash expense to allocate the cost of depreciable assets, such as plant and equipment, over the life of the asset TERM 74 accumulated depreciation DEFINITION 74 the sum of all depcreiation taken over the entire life of a depreciable asset TERM 75 gross fixed assets DEFINITION 75 the original cost of a firm's fixed assets TERM 76 net fixed assets DEFINITION 76 gross fixed assets minus the accumulated depreciation taken over the life of the assets TERM 77 debt DEFINITION 77 liabilities consisting of such sources as credit extended by suppliers or a loan from a bank TERM 78 equity DEFINITION 78 stockholders' investment in the firm and the cumulative profits retained in the business up to the date of the balance sheet TERM 79 current debt (short-term liabilities) DEFINITION 79 due to be paid withing 12 months TERM 80 accounts payable DEFINITION 80 money owed to suppliers for goods or services purchased in the ordinary course of business TERM 81 trade credit DEFINITION 81 credit made available by a firm's suppliers in conjunction with the acquisition of materials. Trade credit appears in the accounts payable section of the balance sheet TERM 82 accrued expenses DEFINITION 82 expenses that have been incurred but not yet paid in cash TERM 83 short-term notes (debt) DEFINITION 83 amounts borrowed from lenders, mostly financial institution such as banks, where the loan is to be repaid within 12 months TERM 84 mortgage DEFINITION 84 a loan to finance real estate where the lender has first claim on the property in the event the borrower is unable to repay the loan TERM 85 preferred stockholders DEFINITION 85 stockholders who have claims on the firm's income and assets after creditors, but before common stockholders TERM 96 free cash flows DEFINITION 96 the amount of cash available from operations after the firm pays for the investments it has made in operating working capital and fixed assets. This cash is available to distribute to the firm's creditors and owners TERM 97 taxable income DEFINITION 97 gross income from all sources, except for allowable exclusions, less any tax-deductible expenses TERM 98 capital gains DEFINITION 98 gains from selling any asset that is not part of the ordinary operations TERM 99 marginal tax rate DEFINITION 99 the tax that would be applied to the next dollar of income TERM 100 financial ratios DEFINITION 100 accounting data restated in relative terms in order to help people identify, some of the financial strengths and weaknesses of a company TERM 101 liquidity DEFINITION 101 a firm's ability to pay its bills on time. Liquidity is related to the ease and quickness with which a firm can convert its non- cash assets into cash, as well as the size of the firm's investment in non-cash assets relative to its short-term liabilities TERM 102 current ratio DEFINITION 102 a firm's current assets divided by its current liabilities. This ratio indicates the firm's degree of liquidity by comparing its current assets to its current liabilities TERM 103 acid-test (quick) ratio DEFINITION 103 a firm's cash and accounts receivable divided by its current liabilities. this ratio is a more stringent measure of liquidity than the current ratio in that it excludes inventories and other current assets (those that are lease liquid) from current assets. TERM 104 average collection period DEFINITION 104 a firm's accounts receivable divided by the company's average daily credit sales (annual credit sales/365). This ratio expresses how rapidly the firm is collecting its credit accounts. TERM 105 accounts receivable turnover ratio DEFINITION 105 a firm's credit sales divided by its accounts receivable. This ratio expresses how often accounts receivable are "rolled over" during a year TERM 106 inventory turnover DEFINITION 106 a firm's cost of goods sold divided by its inventory. This ratio measures the number of times a firm's inventories are sold and replaced during the year, that is, the relative liquidity of the inventories TERM 107 operating return on assets (OROA) DEFINITION 107 the ratio of a firm's operating income divided by its total assets. This ratio indicates the rate of return being earned on the firm's assets TERM 108 operating profit margin DEFINITION 108 a firm's operating income (earnings before interest and taxes) divided by sales. This ratio serves as an overall measures of operating effectiveness. TERM 109 total asset turnover DEFINITION 109 a firm's sales divided by its total assets. This ratio is an overall measure of asset efficiency based on the relation between a firm's sales and the total assets TERM 110 asset efficinecy DEFINITION 110 how well a firm is managing its assets