Term
| Forms of Business Organizations |
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Definition
Sole Proprietorship
Partnership
Corporation |
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Term
| Sole Proprietorship (Positives) |
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Definition
| Positives: Min. regulation - easy to start, low capital needed, skills are within ones grasp, taxes are based on owners rate, ALL PROFITS GO TO OWNER |
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Term
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Definition
| Skills are more varied amongst owners, capital is more available, P/L is split by contract, and it's entity has a contractural existence |
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Term
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Definition
| It is an entity created under state law, more intensive capital, wider range of skills, ownership can easily be transferred, and the liability is limited to corporate assets |
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Term
| What is the ultimate goal for a company to achieve? |
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Definition
| Value Maximization = Profit Maximization |
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Term
| The differences between stocks and bonds? |
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Definition
| Bonds traded in bond market - Equities (or stocks) traded in stock market, stock market has central trading location - bonds traded through dealer network, stock market is risky and volatile - bond market is not as volatile |
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Term
| Three representative trends in recent financial markets? |
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Definition
Lower interest rate implies lower financial costs for borrowers.
Typical borrowers are the firms and consumers
Hence they can increase their expenditures (investments and consumptions)
All these will lead to higher earnings (or profits) for firms
Hence, the value of firms could rise. And we say the lower interest rate policy has a positive effect on the equity market |
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Term
| Name of top organization for typical corporations? (Name three top managers |
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Definition
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Term
| Empirical Issue (expansionary MP and it's effects) |
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Definition
| An expansionary policy is a macroeconomic policy that seeks to expand the money supply to encourage economic growth or combat inflationary price increases (normally through the central bank)Effects: too much stimulation will cause inflation |
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Term
| Sole Proprietorship (Negatives) |
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Definition
| Capital is difficult to raise, liability is unlimited, ownership is hard to transfer, it's entity is limited to life, all losses go to owner |
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Term
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Definition
| Capital is difficult to raise, liability is unlimited, ownership is hard to transfer, it's entity is limited to life, all losses go to owner |
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Term
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Definition
| Profit/Loss split amongst all owners, regulations are high, and double taxation |
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Term
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Definition
| Requires that the borrower go directly to investors, which lengthens the time needed to raise the desired funds. The methods used for direct financing include offering shares of the company for sale to investors or floating bonds. When shares are sold, instead of paying interest a company may provide dividend payments. |
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Term
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Definition
| Occurs when a company borrows money from a financial intermediary, such as a bank |
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Term
| Spot Market v Future Market |
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Definition
Spot Market - Where financial assets are traded for "on-the-spot" delivery (normally within a few days.
Futures markets - an agreement on the assets is made today, whereas the delivery of the assets is made in the future |
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Term
| Primary v secondary Market |
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Definition
Primary markets - Where the company itself sells its own new securities and raises capital to finance its own investment. EX: IPO
Secondary market - already existing securities are being traded among investors.
EX: NYSE and NASDAQ |
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Term
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Definition
Money markets - Where short term assets (less than a year) such as highly liquid debt securities are traded. Funds are borrowed and loaned for short periods of time. (3 biggest money markets are located in NY, London, Tokyo)
Capital markets - where stocks and intermediate - or long-term securities (up to 30/40 years) are traded. (Biggest Capital Market is the NYSE) |
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Term
| Futures v Options Contract |
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Definition
Futures - an agreement that specifies the delivery of a commodity or financial instrument at an agreed upon future date at a currently agreed upon price
Options contract - confers the rights to buy or sell an asset at a predetermined time |
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Term
| Examples of derivative markets |
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Definition
Chicago Board Options Exchange (CBOE)
Chicago/NY Mercantile Exchange (CMEgroup.com) |
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Term
| Investment Banking Houses |
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Definition
| An organization that underwrites and distributes new investment securities (stocks and bonds) to let borrowers (companies finance their investments. BIG NAMES: Goldman Sachs and Morgan Stanley |
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Term
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Definition
Traditional "department stores of finance" by providing various financial services for savers and borrowers.
BIG NAMES: JP Morgan, Bank of America, Citi Bank |
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Term
| Mutual Funds v Hedge Funds and ETF |
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Definition
Mutual Funds: an organization that pools funds from public to buy stocks, bonds and other financial instruments issues by companies and government. (funds regulated by SEC)
ADV - can diversify their investment, and there are numerous different types of these funds
Hedge funds: similar to mutual funds, but not regulated by SEC. Also require bigger minimum investments (normally exceeding 1 Mill) and take riskier investments
ETF: Exchange traded funds (closed end mutual fund) ETF's are traded like regular stocks In the market
ADV - easy to buy and sell the funds
Diversified risks
Lower transaction costs |
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Term
| Stock Markets: Characteristics and index used |
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Definition
Dow Jones Industrial Average is used for the NYSE
NASDAQ Composite index is used for NASDAQ |
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Term
| Current Status of Financial Markets and economy: Unemployment rate |
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Definition
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Term
| Current Status of Financial Markets and economy: Interest Rate |
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Definition
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Term
| Current Status of Financial Markets and economy: Why does the FED maintain a low interest rate policy? |
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Definition
| The Fed is trying to maintain a "healthy" economy. If the economy is "very slow" the Fed might decide to lower interest rates that will in turn make money more available to businesses, home buyers, and consumers |
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Term
| Balance Sheet: Definition |
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Definition
| Shows a statement of a company's financial status at a specific point in time |
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Term
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Definition
(left hand side) All those what a company owns. The total assets can be divided into current assets and fixed assets
Current Assets (Short-term financial assets) - Cash, AR, Inventory
Fixed Assets (Long term financial assets |
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Term
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Definition
(first on the right hand side) All those what a firm owes. The liabilities are further divided into:
Current Liabilities - debts that a company needs to pay off within a year (wages, taxes, and other accounts and notes payable)
Long term debt - debts that a company needs to pay off after one year (ex: all corporate bonds whose lives are longer than a year) |
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Term
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Definition
| (last on the right hand side) The difference between assets and liabilities. |
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Term
| Total common equity for shareholders |
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Definition
sum of book value, paid-in capital, and retained earnings
Book favlue of a company's common stock is the amount of cash that stockholders paid to the company when it initially issued the stocks to raise capitals.
Capital surplus - any additional income for the company from original sale of common stocks |
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Term
| Net Working Capital & NOWC |
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Definition
The difference between Current Assets and Current Liabilities, and it shows a short-term financial status or liquidity
Positive number implies that you are doing financially WELL
NWC = Current Assets - Current Liabilities
NOWC = Current Assets - (current liabilities - notes payable)= Current assets - accounts payable - accruals = Current assets - (Free current liabilities that bear no interest)
All the current assets except for the amount of Accounts payable and Accruals are called the NOWC (larger than the NWC) |
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Term
| Income Statement: Definition |
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Definition
A report summarizing the firm's revenues, expenses and profits during an accounting period (quarterly or annually for investors, and monthly for internal purposes and planning)
Statement provides a financial summary of the firm's operation results during a specific time period |
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Term
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Definition
Net sales (total rev)
Operating Costs
Depreciation & Amortization
EBIT (Operating Income)
Interest (to creditors)
EBT (taxable income)
Taxes
Net Income
Dividends
Retained earnings |
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Term
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Definition
Operating Income: Earnings before interest and Taxes(Operating profit or recurring profit
(Interest to creditors) |
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Term
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Definition
Net Profit or earnings
(Dividends and Retained Earnings) |
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Term
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Definition
Earnings Per Share = Net Income/Total Shares Outstanding
Shows how much the firm has earned per each share during last quarter/year |
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Term
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Definition
| Dividends Per Share = Total Dividend/Total Shares Outstanding |
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Term
| Two key factors that affect the value of a firm: |
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Definition
Net income, EPS
Higher EPS = Higher net income (or net profit)
Higher value of a firm (due to bigger share size)
Higher stock prices for owners |
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Term
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Definition
| Current Assets / Current Liabilities |
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Term
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Definition
(Current Assets-Inventory)/ Total Current Liabilities
= Quick Assets / Total Current Liabilities |
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Term
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Definition
| Total Debt / Total Assets |
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Term
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Definition
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Term
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Definition
| Net Income / Total Assets |
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Term
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Definition
| Net Income / Total shareholders common Equity |
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Term
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Definition
| Price Per share / Earnings per share |
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Term
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Definition
BVPS: Total Shareholders Common Equity / Total Shares Outstanding
Market/Book Ratio = Market Price Per Share / Book Value Per Share |
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Term
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Definition
| The value of financial assets (such as cash, stocks, bonds, etc.) as of today or present time |
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Term
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Definition
| The Value of financial assets as of future time. Normally, the present value will grow over time due to numerous factors such as interest rates and inflation |
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Term
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Definition
| A financial reward for postponing one's consumptions of present money until the future time |
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Term
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Definition
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Term
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Definition
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Term
| Positive and negative relationships between PV(FV)and I |
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Definition
If PV rises, so does FV.
If I/Y rises, so does the FV.
If I/Y rises, the PV of FV will decrease. FV will be discounted more. If N rises, the PV of FV will decline |
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Term
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Definition
Ordinary annuity (end mode): an annuity whose payments are made at the end of each term or period. This is a typical form of annuity in the market.
Annuity Due (Begin Mode): An annuity whose payments are made at the beginning of each period |
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Term
| Future Value of an ordinary annuity |
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Definition
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