Test 1-FIN MGT | FIN 3123 - Financial Management, Quizzes of Finance

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TERM 1 domestic areas of finance DEFINITION 1 corporate financefinancial institutionsinvestments TERM 2 cash flow between the firm and the financial markets DEFINITION 2 a. firm issues securities to raise cashb. firm invests in assetsc. firm's operations generate cash flowd. cash is paid to government as taxes; other stakeholders may receive cashe. reinvested cash flows are plowed back into firmf. cash is paid out to investors in the form of interest and dividends TERM 3 finance DEFINITION 3 study of how people allocate scarce resources over time TERM 4 financial decisions DEFINITION 4 costs and benefits of financial decisions are spread out over timecosts and benefits are not known in advance TERM 5 finance and failure DEFINITION 5 learning to solve problems is hardone need to practice (and fail) at problem solving before one is good at solving problems TERM 6 corporate finance DEFINITION 6 the study of the answers to the following questions:1- what long term investments should we make2- where will we get the funds to pay for our investments3- how will we collect from customers and pay our bills TERM 7 corporate finance DEFINITION 7 in other words, the answers to the capital budgeting question, the capital structure question, and the net working capital question are all part of corporate finance TERM 8 capital budgeting DEFINITION 8 process of planning and managing a firm's investments in fixed assetsthe key concerns are the size, timing and riskiness of cash flows TERM 9 capital structure DEFINITION 9 mix of debt and equity used by a firmwhat at the least expensive sources of funds? is there a best mix?when and where to raise funds? TERM 10 working capital management DEFINITION 10 managing short term assets and liabilitieshow much cash and inventory to keep around?what is our credit policy? where will we obtain short term loans?1 TERM 21 disadv to corp DEFINITION 21 separation of ownership and management (agency problem)double taxation (income taxed at the corporate rate and then dividends taxed at personal rate, while dividends paid are not tax deductible) TERM 22 internal corporate forms DEFINITION 22 joint stock companiespublic limited companieslimited liability companiesall share:public ownershiplimited liability TERM 23 goal of financial management DEFINITION 23 MAXIMIZE SHAREHOLDER'S WEALTH TERM 24 goal of financial management DEFINITION 24 maximize the current value per share of the company's existing stockmaximize the market value of the existing owners' equity TERM 25 agency relationship DEFINITION 25 principal hires an agent to represent its interestsstockholders (principals) hire managers (agents) to run the company TERM 26 agency problem DEFINITION 26 conflict of interest between principal and agentmanagement goals and agency costs TERM 27 managerial compensation DEFINITION 27 incentives can be used to align management and stockholder interestsincentives need to be carefully structured to insure that they achieve their goal TERM 28 corporate control DEFINITION 28 threat of a takeover may result in better management TERM 29 financial markets DEFINITION 29 cash flows to the firmprimary vs secondary markets-dealer vs auction markets-listed vs over the counter securitiesNYSENASDAQ TERM 30 balance sheet DEFINITION 30 snapshot of the firm's assets and liabilities at a given moment in time (as of...) TERM 31 balance sheet DEFINITION 31 assets-left hand side (or upper portion)-in order of decreasing liquidityliabilities and owner's equity-right hand side (or upper portion)-in ascending order of when due to be paidassets=liabilities + stockholder's equity TERM 32 balance sheet DEFINITION 32 net working capitalliquiditydebt versus equity TERM 33 net working capital DEFINITION 33 current assets minus current liabilitiesusually positive for a healthy firm TERM 34 liquidity DEFINITION 34 speed and ease of conversion to cash without significant loss of valuevaluable in avoiding financial distress TERM 35 debt versus equity DEFINITION 35 shareholders equity = assets - liabilities TERM 46 cash flow from assets DEFINITION 46 =operating cash flow-net capital spending-changes in NWC TERM 47 cash flow from assets DEFINITION 47 cash flow to creditors+cash flow to stockholders TERM 48 common size balance sheets DEFINITION 48 all accounts= percent of total assets TERM 49 common size income statements DEFINITION 49 all line items= percent of sales or revenues TERM 50 standardized statements DEFINITION 50 are useful for:comparing financial information year to yearcomparing companies of dif sizes, particularly within the same industry TERM 51 ratio analysis DEFINITION 51 allow for better comparison through time or between companiesused both internally and externally TERM 52 for each ratio DEFINITION 52 ask yourself:how are we calculating this ratio vs the way other people might calculate itwhat are we trying to measure with this ratiowhy is the info in this ratio important TERM 53 categories of financial ratios DEFINITION 53 liquidity ratios or short term solvencyfinancial leverage ratios or long term solvency ratiosasset management or turnover ratiosprofitability ratiosmarket value ratios TERM 54 current ratio DEFINITION 54 current assets/ current liabilitlies TERM 55 quick ratio DEFINITION 55 (current assets-inventory)/ current liabilities TERM 56 cash ratio DEFINITION 56 cash/ current liabilities TERM 57 total debt ratio DEFINITION 57 (total assets- total equity)/ total assets TERM 58 debt/equity DEFINITION 58 total debt/ total equity TERM 59 equity multiplier DEFINITION 59 total assets/ total equity= 1+debt/ equity TERM 60 times interest earned DEFINITION 60 EBIT/interest TERM 71 earnings per share DEFINITION 71 net income/ shares outstanding TERM 72 PE ratio DEFINITION 72 price per share/ EPS TERM 73 price/sales ratio DEFINITION 73 price per share/sales per share TERM 74 market to book ratio DEFINITION 74 price per share/ book value per share TERM 75 the dupont identity DEFINITION 75 ROE= net income/ total equityROE= PM * TAT *EMpm: profit margin= net income/salestat: total asset turnover= sales/ total assetsem: equity multiplier= total assets/total equity TERM 76 external uses of financial statements DEFINITION 76 creditorssupplierscustomersstockholders TERM 77 benchmarking DEFINITION 77 ratios need to be compared to somethingtime trend analysispeer group analysis TERM 78 time trend analysis DEFINITION 78 how the firm's performance is changing through timeinternal and external uses TERM 79 peer group analysis DEFINITION 79 compare to similar companies or within industriesSIC and NAICS codes TERM 80 problems with financial analysis DEFINITION 80 no readily available comparableglobal competitorsdifferent accounting proceduresdifferent fiscal year endsdifferences in capital structureseasonal variation and one time events TERM 81 elements in financial planning DEFINITION 81 investment in new assetsdegree of financial leveragecash paid to shareholdersliquidity requirements TERM 82 investment in new assets DEFINITION 82 determined by capital budgeting decisions TERM 83 degree of financial leverage DEFINITION 83 determined by capital structure decisions TERM 84 cash paid to shareholders DEFINITION 84 determined by dividend policy decisions TERM 85 liquidity requirements DEFINITION 85 determined by net working capital decisions