Term
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Definition
| Shareholder Wealth Maximization |
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Term
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Definition
| business owned by a single individual |
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Term
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Definition
| an association of 2+ people joining as co-owners to operate a business for profit. Each partner is fully responsible for liabilities incurred. |
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Term
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Definition
| 1+ partners has limited liability, restricted to amount of capital he/she invests |
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Term
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Definition
| an entity that legally functions separate and distinct from its owners |
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Term
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Definition
a firm's dollar sales
minus
cost of goods sold |
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Term
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Definition
Gross Profit
minus
Total Operating Expenses |
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Term
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Definition
| gross income from all sources, except for allowable exclusions, less any tax-deductible expenses |
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Term
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Definition
| a corporation can normally exclude 70% of any dividends it receives from another corporation |
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Term
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Definition
| the means by which an asset's value is expensed over its useful life for federal income tax purposes |
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Term
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Definition
| a gain resulting from sale/exchange of a capital asset |
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Term
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Definition
| a loss resulting from sale/exchange of a capital asset |
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Term
Net Capital Loss
carryback/carryforward |
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Definition
may be carried back 3 years
and forward up to 5 years
(applied against net capital gains) |
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Term
Operating Loss
carryback/carryforward |
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Definition
may be carried back 2 years
and forward up to 20 years |
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Term
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Definition
| Markets that allow people to easily buy and sell (trade) financial securities (stocks and bonds), commodities (metals and agricultural goods) and other items of value at low transaction costs. |
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Term
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Definition
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Assets that are tangible or physical in nature such as land, machinery, and livestock.
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Term
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Definition
| An asset that derives value because of a contractual claim. Stocks, bonds, bank deposits are all examples of financial assets. |
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Term
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Definition
The process of acting as an intermediary between an issuer of a security and the investing public.*The purchase and subsequent resale of a new security issue. The risk of selling the new issue at a satisfactory (profitable) price is assumed (underwritten) by the investment banker.
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Term
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Definition
| A market where current outstanding securities are traded. |
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Term
3 Ways to Transfer
Savings to Businesses |
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Definition
1) Direct transfer of funds
2) Indirect transfer using investment banker
3) Indirect transfer using a financial intermediary |
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Term
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Definition
| A offering of securities where all investors have the opportunity to acquire a portion of the financial claims being sold. |
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Term
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Definition
| A security offering limited to a small number of potential investors. |
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Term
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Definition
| A market where securities are being offered for the first time for sale to potential investors. |
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Term
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Definition
| All institutions and procedures that facilitate transactions for short-term instruments issued by borrowers with very high credit ratings. |
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Term
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Definition
| All institutions and procedures that facilitate transactions for long-term financial instruments. |
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Term
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Definition
| To provide goods or services and receive goods or services of approximately equal value in return. |
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Term
| Organized Security Exchanges |
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Definition
| formal organizations that facilitate the trading of securities. *Physical entities (ex. Building) where financial instruments are traded. |
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Term
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Definition
all security markets except organized exchanges. *Most corporate bonds are traded in this market.
Ex. money market |
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Term
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Definition
| A financial investor who underwrites and distributes new securities and advices corporate clients about raising new funds. |
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Term
| Investment Banker Functions |
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Definition
1. Underwriting
2. Distributing
3. Advising |
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Term
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Definition
| Underwriting in which the purchase price and the public offering price are determined through negotiations between the issuer and a single syndicate, as opposed to through multiple competitive bidding. Most underwriting is negotiated. |
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Term
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Definition
| Several underwriting groups bid for the right to purchase the new issue from the firm that is raising funds. The firm does not directly select the investment banker, he/she is chosen by an auction process. The one willing to pay the greatest dollar amount per new security wins! |
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Term
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Definition
| The investment banker attempts to sell the issue in return for a fixed commission on each security actually sold. He/she acts as an agent, the securities are not underwritten. Unsold securities are returned to the corporation. *Less costly to issuer, the risk is not selling all the securities. |
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Term
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Definition
| The process of marketing a new security issue to a select group of investors. |
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Term
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Definition
| The sale of securities by a corporation to the investing public without the services of an investment-banking firm. |
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Term
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Definition
| The transaction cost incurred when a firm raises funds by issuing a particular type of security. |
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Term
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Definition
| First Congressional law regulating the securities industry. Required registration and disclosure and included measures to discourage fraud and deception. |
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Term
| Securities Exchange Act of 1934 |
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Definition
The act which created the SEC, outlawed manipulative and abusive practices in the issuance of securities, required registration of stock exchanges, brokers, dealers, and listed securities, and required disclosure of certain financial information and insider trading.
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Term
| Securities Acts Amendments of 1975 |
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Definition
| Congressional law amending the Securities Act of 1933 to enable the establishment of a National Market System, and to encourage fair and efficient handling of securities transactions. |
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Term
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Definition
A registration of a new issue which can be prepared up to two years in advance, so that the issue can be offered quickly as soon as funds are needed or market conditions are favorable.
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Term
| Opportunity Cost of Funds |
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Definition
| the next best rate of return available to the investor for a given level of risk |
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Term
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Definition
| The additional return required by investors in long-term securities to compensate them for the greater risk of price fluctuations on those securities caused by interest rate changes. |
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Term
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Definition
The additional return required by investors for securities that cannot be quickly converted into cash at a reasonably predictable price.
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Term
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Definition
| The interest rate paid on debt securities without an adjustment for any loss in purchasing power. |
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Term
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Definition
| The nominal (quoted) rate of interest less any loss in purchasing power of the dollar during the time of investment. |
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Term
| Term Structure of Interest Rates |
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Definition
| The relationship between interest rates ad he term to maturity, where the risk of default is held constant. |
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Term
| Unbiased Expectations Theory |
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Definition
| The theory that the shape of the term structure of interest rates is determined by an investor’s expectations about future interest rates. |
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Term
| Liquidity Preference Theory |
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Definition
| The theory that the shape of the term structure of interest rates is determined by an investor’s additional required interest rate in compensation of additional risks. |
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Term
| Market Segmentation Theory |
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Definition
| The theory that the shape of the term structure of interest rates implies that the rate of interest for a particular maturity is determined solely by demand and supply for a given maturity. This rate is independent of the demand and supply for securities having different maturities. |
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Term
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Definition
| The rate of return a bondholder will receive if the bond is held to maturity. |
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Term
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Definition
Gross Profit
-
Operating Expenses
(EBIT) |
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Term
Earnings Before Taxes
(EBT) |
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Definition
Operating Income
-
Interest Expense |
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Term
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Definition
Earnings Before Taxes (EBT)
-
Income Taxes |
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Term
Net Income Available
to Common Stockholders |
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Definition
Net Income
-
Preferred Stock Dividends |
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Term
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Definition
| Outstanding Debt + Shareholders' Equity |
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Term
| What are two things companies can do with net income? |
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Definition
1. Pay out as dividends.
2. Keep as Retained Earnings. |
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Term
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Definition
Cash
Marketable Securities
Accounts Receivable
Inventories
Prepaid Expenses |
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Term
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Definition
Machinery & Equipment
Buildings & Land |
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Term
| List examples of the "Other Assets" category of Assets |
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Definition
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Term
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Definition
Accounts Payable
Accrued Expenses
Short-term notes |
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Term
| List Long-Term Liabilities |
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Definition
Long-term Notes
Mortgages |
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Term
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Definition
Preferred Stock
Common Stock (Par value)
Paid In Capital
Retained Earnings |
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Term
| What is another term for sales? |
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Definition
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Term
| What is another name for the Quick Ratio? |
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Definition
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Term
Income Statement
(Profit & Loss Statement) |
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Definition
A basic accounting statement that measures the results of a firm’s operations over a specified period, commonly 1 year. The bottom line shows the firm's profit or loss for the period.
Sales - Expenses = Profit |
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Term
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Definition
| A statement that shows a firm’s assets, liabilities, and shareholder equity at a given point in time. It is a snap shot of the firm’s financial position on a particular date. |
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Term
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Definition
| Liabilities consisting of such sources as credit extended by suppliers or a loan from a bank. |
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Term
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Definition
| Stockholders investment in the firm and the cumulative profits retained in the business up to the date of the balance sheet. |
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Term
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Definition
| Cumulative profits retained in a business up to the date of the balance sheet. |
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Term
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Definition
| A firm’s ability to pay its bills on time. It is related to the ease and quickness with which a firm can convert its noncash assets in to cash, as well as the size of the firm’s investment in noncash assets relative to its short-term liabilities. |
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