Comprehensive Guide to Finance: Terms, Concepts, and Functions, Exams of Finance

Download Comprehensive Guide to Finance: Terms, Concepts, and Functions and more Exams Finance in PDF only on Docsity! BUS M 201 Midterm 1 FE 401K - Retirement plan- A tax-sheltered retirement plan offered by some employers. Accounting - the business function responsible for creating the historical financial statements, the language of business Asset manager - someone who invests funds in an attempt to earn positive returns asset pricing - Process of estimating potential market value of a financial asset or liability. business finance - Corp Finance, dealing with financial decisions. The goal is to maximize owner (shareholder) wealth. capital budgeting analysis - The process of deciding what assets to buy. cash management - Managing the day-to-day finance operations of a firm certified financial planner (CFP) - A professional who has passed the CFP examination. Chief financial officer (CFO) - the right hand man to the CEO--the main consultant on all financial concerns Commercial bank - Deals with large firms only Company/industry analysts - Professionals who produce reports on specific firms and industries. Consumer bank - the bank that most of us think of when we think of a "bank". Your local Wells Fargo, US Bank, Bank of America etc. Those that deal with semi-normal people like us. Corporate insurance - types of insurance sold to the consumer (rather than a business. ex. car insurance, life insurance, etc.); AKA Risk management. Helps protect companies from unforeseen risks Corporate finance - The finance function within a business. One of the three main subspecialties of finance. The goal is to maximize owner (shareholder) wealth. Cost of capital - how much it costs the firm (in % terms) to finance its operations through debt and/or equity. Pretty much the same thing as interest CPA: Certified Public Accountant - Certified Public Accountant Credit Analyst - A person who determines if loans should be granted to loan-seeking people Current Market Value - what someone would pay right now for an asset Debt - An obligation to pay and/or liability or money lent by a creditor to provide financing for the borrower. Discounted cash flow - the process of using time value of money skills and forecasting to value assets Dollar cost averaging - automatically investing a fixed % or amount every certain period, such as a month Equity - Ownership in an asset such as a company. Often another name for stock. Estates - Legal structures used in estate planning. Fair return - an acceptable return for a passive investor Fields - Specific areas within finance such as insurance, personal finance, financial planning, asset management, etc. Financial derivatives - financial assets that derive their value based on an underlying asset (ex: options, futures) Finance (verb) - To pay for something financial management - works to achieve the goal of "maximizing owner wealth" selling an asset Specialties/fields - specific areas w/in finance such as insurance, personal finance, financial planning, asset manager, etc. strategic management - the business function of managing the strategies and tactics of the business supply chain management - a subset of operations responsible for managing the value chain tax strategies - minimizing the taxes a business pays tax-sheltered plan - an investment plan that either defers or eliminates income tax teller - The person at the desk that we often deal with when we go to our bank for simple transactions. These people do not need extensive financial knowledge trusts - Legal structures used in estate planning. value chain - The chain of suppliers and customers the business relies on. venture capital - Professionally managed investment capital that typically invests in very young new ventures. wills - Legal documents used in estate planning. Accounts payable - An account that details all the purchases a firm has made on credit and must be paid within a certain amount of time accrual accounting - Accounting system based on recording accounts based on historical prices and the matching principle. accruals - Building up/adding upon one another, non cash accounting accounts representing money either owed or due, typically in the short term balance sheet - financial statement that contains assets, liabilities, and equity book value - historical cost of asset-accumulated depreciation of that asset Cash flow from financing (CFF) - All cash transferred from financing activities; loans, stock, dividends paid to investors. cash flow from investing (CFI) - All cash transferred from investing activities; Long term investments, PP&E. Cash flow from operations (CFO) - All cash transferred from operating activities; interest, taxes, common stock - $ invested in the company, par value x number of shares contra-asset account - An account on the asset side of the balance sheet that reduces the value of the asset, such as accumulated depreciation. earnings management - "income smoothing", a practice of recognizing revenue in a specified pattern in order to smooth the line of profitability within a firm in order to attract investors FASB - Financial Accounting Standards Board financial statement analysis - The process of examining the three financial statements using financial skills. fixed assets - FIXED ASSETS FOR THIS CLASS IS PP&E. OR It WILL JUST SAY FIXED ASSETS GAAP - Generally Accepted Accounting Principles are standards that are set to keep financial statements in consistency between different companies gross profit - sales (-) cost of goods sold historical cost principle - The price that was originally paid for an asset (Usually land, equipment, or something else that can depreciate). income statement - Financial statement that contains revenues and expenses interest tax shield - The savings a firm gets by using debt to write off the interest expense liquidity - How easily an asset can be turned into cash without losing significant value marketable securities - bonds matching principle - revenues and expenses get matched in an accrual accounting system net income - Revenues (-) Expenses notes payable - A current liability that represents money borrowed for the short term, typically under 5 years. operating accounts - Financial statement accounts which generate operating expenses. operating expenses - The expenses incurred from normal operations and business, e.g., rent, electricity, supplies, etc. percentage of completion method - A type of revenue recognition system where the firm books sales as they complete certain milestones of the service rendered. PP&E - Property, plant, and equipment—a fixed asset revenue recognition - The revenues are to be recorded when the revenue is earned, not necessarily when the cash is collected sales leaseback - When a company sells a long-term asset (such as a building) and immediately buys it back and leases it for a long period of time. Raises the value of the asset, one way to manage earnings. Usually done before an IPO to attract investors. source of cash - a decrease of an asset or an increase in a liability statement of cash flows - tracks the incoming and outgoing flow of cash. 3 types: from operations, from investing, from financing use of cash - An increase of an asset (including cash) or the decrease of a liability. accounting profit -