Term
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Definition
| decisions about cash flows; how money is raised and used by business, govs, and individuals |
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Term
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Definition
| an unincorporated business owned by one individual |
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Term
| Proprietorship Advantages |
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Definition
easily and inexpensively formed.
subject to few government regulations.
taxed as an individual rather than a corporation; earnings are taxed only once. |
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Term
| Proprietorship Disadvantages |
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Definition
-unlimited personal liability for business debts, because any debts of the business are considered obligations of the sole owner; can lose everything
-life is limited to the time the individual who created it owns the business.
-Transferring ownership is somewhat difficult. Disposing of the business is similar to selling a house in that the proprietor must seek out and negotiate with a potential buyer, which generally takes weeks or months to complete.
-difficult to obtain large sums of capital because the firm's financial strength generally is based only on the financial strength of the sole owner; derived from the owner's sources of credit; cannot raise funds by issuing stocks and bonds to investors |
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Term
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Definition
| has two or more owners; Most legal experts recommend that their agreements be put in writing. same ads and disads as proprietorship |
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Term
| Partnership advantages/disadvantages |
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Definition
| have more sources available for raising funds because there are more owners but still have difficulty in attracting substantial amounts of funds; Each is liable for the debts of the business; if not, they go bankrupt |
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Term
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Definition
| legal entity created by a state. It is separate and distinct from its owners and managers |
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Term
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Definition
limited liability
easy transferability of ownership is easier
unlimited life
easy to raise money; can issue stock and bonds |
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Term
| corporation disadvantages |
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Definition
complex and time consuming to set up (requires corporate charter and bylaws)
double taxation |
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Term
| Limited Liability Partnership |
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Definition
partnership where at least one partner is fully
liable—the general partner—for the firms debts, but the liability of the other partners’
generally is limited to the amount they invest in the business |
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Term
| Limited Liability Company |
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Definition
business that offers limited liability to its owners
like a regular corporation, but its income is taxed like a partnership; the structure of an LLC is very flexible with regard to ownership, governance, and so forth; unlike an S corporation, an LLC can have more than 100 stockholders and still be taxed like a partnership. In some states, only certain types of businesses can be formed as LLCs |
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Term
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Definition
| a corporation that has fewer than 100 stockholders can elect to be taxed as a partnership such that the income “passes through” to the stockholders and is not taxed at the corporate level. |
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Term
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Definition
| indicate what actually happened to the firm's financial position and to its earnings and dividends over the past few years |
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Term
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Definition
| represents a picture taken at a specific point in time (date) that shows a firm's assets and how those assets are financed (debt or equity) |
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Term
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Definition
| also referred to as the profit and loss statement, presents the results of business operations during a specified period of time such as a quarter or a year; summarizes the revenues generated and the expenses incurred by the firm during the accounting period |
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Term
| net operating income (NOI) |
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Definition
| earnings before interest and taxes (EBIT); figure represents the result of normal operations before considering the effects of the firm's financing choices (financial structure) |
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Term
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Definition
| Net Income & Depreciation |
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Term
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Definition
| designed to show how the firm's operations have affected its cash position by examining the firm's investment decisions (uses of cash) and financing decisions (sources of cash) |
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Term
| Statement of retained earnings |
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Definition
| Changes in the common equity accounts between balance sheet dates are reported |
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Term
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Definition
should be the primary goal of the financial manager. Unlike profit (earnings
per share, EPS) maximization, it considers the impact of current decisions
on the long-term financial health of the firm |
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Term
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Definition
| firms should be socially responsible at the same time they earn “normal” profits; otherwise they probably will go out of business |
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Term
| Wealth Maximization and Social Responsibility |
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Definition
actions that maximize the value of the firm
also are beneficial to society; wealth maximization improves the standard of living |
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Term
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Definition
| are generally more closed than U.S. businesses; generally owned by fewer stockholders than U.S. businesses; ownership is more closely held |
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Term
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Definition
have common ownership; often the
businesses complement each other |
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Term
| Factors that differentiate managerial finance in purely domestic firms and in multinational organizations |
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Definition
different currency denominations
economic and legal ramifications
language differences
cultural differences
government involvement
political risk |
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Term
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Definition
| give an indication of how well the firm can meet its current obligations (too little: firm will have problems paying its current obligations in the future, too much: firm is not investing its funds wisely |
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Term
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Definition
| give an indication of how well the firm manages its assets; shows how often the firm is turning over its assets to generate funds; when assets are not turned over too quickly, firm is not producing enough |
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Term
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Definition
| indicate how the amount of debt the firm has affects its financial position; financial leverage refers to the use of debt; leverage helps magnify returns |
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Term
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Definition
| shows how the firm's management of its liquidity position, assets, and debt has affected normal operating activities |
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Term
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Definition
| measures that consider the value of the firms stock in the financial markets -- how well investors perceive the firm is creating value |
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Term
| trend and comparative analysis |
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Definition
| ratios should be evaluate at a particular pt in time in comparison to some norm to determine the current financial position of the firm and over time to determine whether the current financial position is improving or deteriorating |
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Term
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Definition
| systems/mechanisms where those who have excess funds (investors/lenders) are brought together with those who need funds (borrowers) |
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Term
| money markets vs. capital markets |
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Definition
| securities with maturities equal to one yr or less are traded in the money markets, whereas securities with maturities greater than one year are traded in the capital markets |
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Term
| debt makers vs. equity markets |
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Definition
| loans are traded in debt markets, whereas stocks are traded in equity markets. Debt associated with real estate is traded in mortgage markets, whereas such consumer debt as automobile loans, loans for appliances and education, and so forth traded in consumer credit markets |
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Term
| primary markets vs secondary markets |
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Definition
| new issues of stock and bonds are sold in the primary markets, whereas previously issued (outstanding) securities are traded in the secondary markets |
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Term
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Definition
| where options, futures, swaps, and other derivative financial instruments are traded; derivative are securities whose values are determined from the values of other assets |
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Term
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Definition
| facilitate the transfer of funds from lenders to borrowers |
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Term
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Definition
| historically provided services to commerce |
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Term
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Definition
| cooperative associations in which members have a common bond,such as the same type of employment; traditionally have serviced consumer needs |
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Term
| saving and loans (thrifts) |
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Definition
| traditionally served individual savers and reinvest the funds in financial assets, such as stocks and bonds; money market mutual funds include short term investments only |
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Term
| whole life insurance companies |
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Definition
| includes a small savings function; invest in long term securities; some offer tax-deferred savings plans |
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Term
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Definition
| retirement plans; invest in long term securities |
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Term
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Definition
| specialize in helping corporations, governments, and other orgs issue stocks and bonds to raise capital |
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