Shared Flashcard Set

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BA 101 - Midterm #2 - Bauer
Chpt. 5 - 8
95
Business
Undergraduate 1
10/28/2012

Additional Business Flashcards

 


 

Cards

Term
Working capital cycle aka cash flow
Definition
The time between the payments of what a business owes (payables) and the collection of what a business is owed (receivables).
Term
Working capital cycle
Definition
Includes all the activity between the first cash spent producing a product to receiving a cash payment for its sale
Term
Production cycle
Definition
Refers to the length of time between the purchase of raw materials, production of the goods or service, and the sale of the finished product
Term
Accounts payable lag
Definition
The time between the purchase of raw materials on credit and the cash payments made for the resulting accounts payable
Term
Accounts receivable lag
Definition
The time between the sale of the final product on credit and cash receipts for the accounts receivable
Term
Speculative cash balances
Definition
Extra cash on hand to take advantage of special bargains, discounts, etc
Term
Treasury Bills (T-Bills)
Definition
Short-term loans to the US gov't with a smallest denomination of $10,000 and that mature in less than one year. r. Sold at a discount, the buyer pays an amount less than the face value of the T-Bill, but still receives the full amount when the bill matures.
Term
Commercial Paper
Definition
an unsecured loan to a large corporation with good and well established credit ratings. These loans usually mature between 15 and 45 days (but it can be anywhere from 1 to 270 days).
Term
Certificates of Deposit (CD's)
Definition
short-term instruments issued by commercial
banks. CDs are issued in denominations up to $100,000 and may be traded in the
secondary market. They are insured by the Federal Deposit Insurance Corporation(FDIC)
Term
Accounts Receivable
Definition
Credit sales per day x Length of collection period
Term
Inventory Turnover Rate
Definition
Cost of goods sold / Inventory
Term
Inventory Turnover Days
Definition
Number of days in a period / Inventory turnover rate
Term
Ideal Inventory
Definition
Cost of goods sold / Industry average turnover rate
Term
Short-term credit
Definition
Any liability with an original payment period of less than one year
Term
Line of credit
Definition
An informal understanding between a bank and a borrower that a specific amount of funds is available for future financing purposes
Term
Revolving credit account
Definition
a formal line of credit offered to larger businesses in exchange for up-front fees and standard interest payments
Term
The common rule regarding risk and return is...
Definition
The higher the risk, the greater the expected return
Term
Bonds
Definition
A form of long-term financing
Term
Common stock
Definition
Represents a simple share of ownership and each common stock share has one vote to cast when electing the corporation's board of directors
Term
Preferred stock
Definition
A form of stock that is traded at a far lower volume than common stock and has specific privileges
Term
Return on Sales: ROS = Net Income / Sales
Definition
Return on Sales is a measure of how much profit was created for every dollar of sales.
Term
Asset Turnover: Turnover = Sales / Total Assets
Definition
The total sales generated in a particular year divided by the value of total assets for the same
period is referred to as asset turnover, or in some cases, just as turnover . Asset turnover
measures the amount of “activity” taking place in a business, or how active the assets are in
regard to generating sales . The higher the use of these assets, such as the plant and equipment,
the higher the level of this activity reflected in the asset turnover ratio .
Term
Return on Assets: ROA = Net Income / Total Assets
Definition
Return on Assets is a measure of how much profit was created for the assets gathered.
Term
Return on Equity: ROE = Net Income / Owners' Equity
Definition
Return on Equity is a measure of how much profit was created with owners’ investments.
Term
Current Ratio
Definition
Current Assets/Current Liabilities
A company’s ability to meet
short‐term debt obligations
Term
Quick Ratio
Definition
(Current Assets-Inventory)/Current Liabilities
A company’s ability to meet
short‐term debt obligations
without including inventory.
Term
Debt-to-Total Assets Ratio
Definition
Total Debt/Total Assets
The percentage of funds that
represent debt provided by
creditors.
Term
Debt-to-Net Worth Ratio
Definition
Total Debt/Tangible Net Worth
What the business “owes”
compared to what it is worth.
Term
Times Interest Earned Ratio
Definition
EBIT/Total Interest Expense
The extent to which earnings
can decline before the
company is unable to meet its
annual interest costs
Term
Average Inventory Turnover Ratio
Definition
Cost of Goods Sold/Average Inventory
The number of times average
inventory is sold out, or
turned over, during the
accounting period.
Term
Average Collection Period Ratio
Definition
Credit Sales/Accounts Receivable
The average number of days it
takes to collect accounts
receivables.
Term
Average Payable Period Ratio
Definition
Purchases/Accounts Payable
The average number of days it
takes to pay its accounts
receivable.
Term
Net Sales to Total Assets
Definition
Net Sales/Total Assets
A company's ability to generate sales in relation to assets
Term
Return on Sales Ratio (ROS)
Definition
Net Income/Total Sales
A company's profit for each dollar of sales it makes
Term
Return on Assets (ROA)
Definition
Net Income/Total Assets
A company's profit for each dollar of assets it owns
Term
Return on Equity (ROE)
Definition
Net Income/Owners' Equity
A company's profit for each dollar of stockholder's investment in the firm
Term
Leverage
Definition
A concept that measures how "big" of a company the managers have created using the owners' investments.
Term
Leverage ratio according to Foundation
Definition
Leverage = Total Assets/Total Owners' Equity
Term
Earnings Per Share
Definition
EPS = Net Income/Number of Shares
Term
Current Ratio
Definition
Current Assets/Current Liabilities
Measures liquidity and reveals whether the firm can meet its debts for the coming year
Term
Quick or Acid Ratio
Definition
Quick/Acid Ratio = (Current Assets - Inventory)/Current Liabilites
Also measures liquidity and reveal whether the firm can meet its debts for the coming year
Term
Total Debt-to-Total Assets Ratio
Definition
D-to-A Ratio = Total Debt/Total Assets
Shows the degree of financial leverage
Term
Book Value
Definition
Defined as total owner's equity divided by the number of shares outstanding. Owner's equity is the value of the owner's claim against the company's assets
Term
Property Law
Definition
Establishes the rights of a person to own, use, transfer, and captures the economic value of different kinds of property. The right to private property and the right to keep profits are defined in a body of property law
Term
Real Property
Definition
Real estate and everything attached to it
Term
Personal Property
Definition
Property other than real property
Term
Intellectual Property
Definition
Property generated by a person's creative activities
Term
Fair Competition
Definition
Established in a wide variety of law and regulation; in general, fair competition is broadly established in laws that prevent business from:
restraining trade and monopolizing markets (Sherman Antitrust Act)
Price discrimination, tying, and exclusive agreements that substantially lessen competition (Clayton Act)
Term
Contract
Definition
A mutual agreement between two or more parties whose terms are enforceable in court; does not have to be written
Term
Contract Elements
Definition
Voluntary agreement; Consideration; Contractual Capacity
Term
Voluntary Agreement
Definition
The offer and acceptance have to be freely and knowingly made; it is not a contract if any party uses fraud or force to come to agreement
Term
Consideration
Definition
To be a contract, the agreement to exchange must involve something of economic value (money, goods, or services). Therefore, the word consideration is another term for money
Term
Contractual capacity
Definition
To be a contract, both parties must have a legal ability to enter into the contract. Individuals who are minors, mentally unstable, mentally incapable, insane, or intoxicated lack the capacity to enter into a legal contract
Term
Breach of Contract
Definition
The failure to live up to the terms agreed upon in a contract; unless mutually agreed to by all parties, a court can order the terms of the contract to be met and damages to be paid if the breach resulted in monetary damages
Term
Sources of Law
Definition
Statutory Law; Common Law; Administrative Law
Term
Statutory Law
Definition
Written laws established by federal, state, county, or city governments
Term
Common Law
Definition
Unwritten laws that are established by judicial decisions such law in the US was inherited from English law
Term
Administrative Law
Definition
Regulations established by administrative agencies
Term
Criminal Law
Definition
Dispute between the gov't and an individual over whether behavior meets the set standards; violation of criminal law is a crime and may be punished by fines &/or imprisonment; are resolved through the court system (trial courts & appellate court)
Term
Civil Law
Definition
A dispute between two individuals; violations of civil law may result in fines but no imprisonment; civil disputes are initiated and resolved through lawsuits
Term
Trial Courts
Definition
Determine the facts of a case, the laws that pertain, and apply the law to resolve the dispute. If either party feels the law was misinterpreted or misapplied, they can appeal the decision to an Appellate Court.
Court judgments are binding and enforced through the power of gov't
Term
Arbitration
Definition
A form of dispute resolution where the parties submit their case to a neutral third party; arbitrator decides how the dispute will be resolved and acts like a judge in the process; can be binding or non-binding;
Term
Mediation
Definition
A form of negotiated resolution using a third party mediator to help reach an agreement; non-binding; mediator acts like a counselor
Term
Agency law
Definition
Allows an individual to assign another person the power to act and to enter into agreements; the two parties (principal and agent) enter into an Agency Agreement
Term
Principal person
Definition
The person who wished to have a specific task accomplished
Term
Agent person
Definition
The person who acts on the principal's behalf
Term
Power of Attorney
Definition
Establishes a business partnership (form of organization) and creates mutual agency for the partners on behalf of the company
Term
Uniform Commercial Code (UCC)
Definition
Consistent set of statutory laws; addresses the rights of buyers and sellers, transfers of ownership, the legal assumption of risk, and warranties.
Term
Warranty
Definition
Defines the terms that the seller will honor
Term
Implied Warranty
Definition
Allows the buyer to assume that:
The seller has clear title to the product;
The product will perform the function for which it was produced and sold;
It will perform as advertised
Term
Expressed Warranty
Definition
Covers any additional terms the seller will honor
Term
Tort
Definition
A civil wrong and includes all "wrongs" (other than breach of contract) in which one party through action or inaction causes harm to another
Term
Fraud
Definition
A form of tort and specifically describes a criminal act in which one party in a transaction hurts another by purposefully deceiving or manipulating them.
Term
Product Liability
Definition
An important part of tort law which establishes a business' legal responsibility to be diligent (not negligent) in the design, production, sale, and consumption of products.
Term
Business Ethics
Definition
The application of ethical behavior in a business context
Term
Code of Conduct Violation
Definition
Acting in a way that is inconsistent with the organization's ethical standards
Term
Conflict of Interest
Definition
Choosing actions that promote your personal interest at the cost of others
Term
Falsification of Records
Definition
Altering records to present inaccurate information to managers, owners and/or potential investors
Term
Whistleblower Situations
Definition
Informing superiors or authorities of illegal or unethical organizational behavior
Term
Milton Friedman
Definition
Philosopher that suggested that the principal role of business is to maximize returns to its owners.
Term
Stakeholders
Definition
The people who have an interest in the conduct of the business including employees, customers, vendors, the local community, or even society as a whole
Term
Social Contracts Theory
Definition
Companies become quasi-democratic associations, and employees and other stakeholders are given voice over a company's operations
Term
Sarbanes-Oxley Act of 2002
Definition
Signed into US law on July 30, 2002 in response to a number of major corporate and accounting scandals; establishes new or enhanced standards for all US public company boards, management, and public accounting firms.
Aka the Public Company Accounting Reform and Investor Protection Act of 2002 and is commonly called SOX or Sarbox
Term
Whistleblower
Definition
Person who raises a concern about wrongdoing taking place in an organization and, in most cases, this person is from that organization.
Term
Sole Proprietorship
Definition
Simplest and most common form of business organization; reps +70% of US businesses;
Primary Advantages:
Ease of formation,
Least costly form of ownership to begin,
Total decision-making authority and control,
Minimal legal restrictions,
Ease of discontinuing.
Disadvantages:
Single owner status,
Unlimited liability,
Owner is responsible for all losses,
Limited skills &capabilites,
Limited access to capital,
Challenges in transitioning the biz
Term
Partnerships
Definition
Created when two or more individuals agree to create a business & jointly own the assets, be responsible for the liabilities, & to share both the profits/losses.
Advantages:
Acquisition of complementary skills &talents,
Flexibility of division of profits,
Larger pool of capital w/the ability to attract more partners,
Minimal gov't regulation
Disadvantages:
Unlimited liability of one partner,
Challenges in accumulating additional capital,
Difficulty in changing partners,
Potential lack of continuity,
Potential for personality &authority conflicts,
Bound by law of agency
Term
Mutual Agency
Definition
Partnership is held responsible for the decisions and behavior of each partner
Term
Corporation
Definition
Most complex business entity; separate legal entity that exists independently of its owners, referred to as stockholders, and may engage in business, make contracts, sue and be sued, own property, and pay taxes.
Term
Domestic Corporation
Definition
Operates in the state in which it was incorporated
Term
Foreign Corporation
Definition
Incorporated in one state but has operations in another, and therefore the other state considers it a foreign corporation
Term
Alien Corporation
Definition
Operates in a country in which it was not incorporated and so is considered an alien corporation in that country.
Term
Preferred Stock
Definition
Conveys special ownership rights; have first claim on profits; no say in how company is run and no voting rights
Term
Common Stock
Definition
Conveys no special privileges with respect to the profits of the company but does convey voting rights in the corporation
Term
S Corporation
Definition
"Sub-chapter Corporation", s means small; is only distinct for federal income tax purposes.
Advantages:
Limited liability of owners,
Avoids double taxation,
Continue in perpetuity,
Easy owner transfership.
Disadvantages:
100 shareholder limit,
Some legal & regulatory requirements,
Individual shareholders,
Control of organization can be lost to larger shareholders
Term
Limited Liability Company (LLC)
Definition
Offers the simplicity of a partnership with the legal protection of a corporation; owners referred to as members.
Advantages:
Limited Personal Liability,
No strict gov't reporting,
Avoids double taxation.
Disadvantages:
Cannot sell w/o consent of partners,
Control of organization can be lost to larger shareholders,
Limited life & dissolves at death of partner
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