Term
| Primary goal of the corporation |
|
Definition
| Maximizing stockholder wealth |
|
|
Term
|
Definition
| conflict between two parties - the principals (outisde shareholders) and the agents (managers) |
|
|
Term
| This type of business organization is relatively easy to start, and is subjecct to a much lighter regulatory and paperwork burden than other business forms |
|
Definition
|
|
Term
| This type of business organization is legally independent entirely from its owners |
|
Definition
|
|
Term
| Double taxation is due to |
|
Definition
| corporate incomes being taxed at the corporate level, then again at the shareholder level when corporate profits are paid out as dividends |
|
|
Term
| A proprietorship is an unincorporated business owned by one individual who is subject to ______ liability |
|
Definition
|
|
Term
| EVerything else equal, including firm size, dollar sales, type of product sold, and so forth, the primary difference between the propietorship and partnership business forms is that |
|
Definition
| a partnership has more owners than a proprietorship |
|
|
Term
| In the US the most common form of business is the |
|
Definition
|
|
Term
| In the US, the form of business that generates most of the sales and profits is the |
|
Definition
|
|
Term
| On which of the four major financial statements would you find net plant and equipmen? |
|
Definition
|
|
Term
| One expect the book value of these assets to differ widely from their market values |
|
Definition
|
|
Term
| These ratios measure the relationship between a firm's liquid (or current) assets and its current liabilities |
|
Definition
|
|
Term
| This ratio measures a firm's ability to pay off short-term obligations without relying on inventory sales |
|
Definition
|
|
Term
| This measures the number of days accounts receivable are held before the firm collects cash from the sale |
|
Definition
| average collection period or days sales outstanding |
|
|
Term
| This measures the number of dollars of sales produced per dollar of fixed assets |
|
Definition
| fixed asset turnover ratio |
|
|
Term
| These ratios show the combined effects of liquidity, asset management, and debt management on the overall operation results of the firm |
|
Definition
|
|
Term
| The information contained in the ______ ______ is used by investors to form expectations about future earnings and dividends |
|
Definition
|
|
Term
|
Definition
income statement
statement of cashflows
balance sheet
statement of retained earnings |
|
|
Term
| Statement that shows the portion of the firm's earnings that has been saved rather than paid out as dividends |
|
Definition
| statement of retained earnings |
|
|
Term
| measure the extent to which operating income can decline before the firm is unable to meet its annual interest costs |
|
Definition
| times-interest-earned ratio |
|
|
Term
|
Definition
Liquidity
Asset management
Debt management
Profitability
Market value |
|
|
Term
|
Definition
|
|
Term
|
Definition
| total liabilities / total assets |
|
|
Term
|
Definition
| Net income / total assets |
|
|
Term
|
Definition
Current assets / current liabilities
Higher is better |
|
|
Term
| These provide a forum in which demanders of funds raise funds by issuing new financial instruments, such as stocks and bonds |
|
Definition
|
|
Term
| In the US, these financial institutions arrange most primary market transactions for businesses |
|
Definition
|
|
Term
| Once firms issue financial instruments in primary markets, these same stocks and bonds are then traded in |
|
Definition
|
|
Term
| These feature debt securities or instruments with maturities of one year or less |
|
Definition
|
|
Term
| Examples of capital market instruments: |
|
Definition
US treasury notes and bonds (NOT Tbills)
US government agency bonds
corporate stocks and bonds |
|
|
Term
| Capital markets are markets for |
|
Definition
| long-term debt securities |
|
|
Term
| Four factors that affect the cost of money |
|
Definition
production opportunity
time preference for consumption
risk
inflation |
|
|
Term
|
Definition
| Rate of return = r = (risk-free rate) + (Risk premium) |
|
|
Term
|
Definition
RP =
Default risk premium
+
Liquidity premium
+
Maturity risk premium
|
|
|
Term
| nominal/quoted risk-free interest rate |
|
Definition
| R(rf) = r* (real rate) + IP (inflation premium) |
|
|
Term
|
Definition
DRP = r - r (RF)
(corporate rate - US treasury rate) |
|
|
Term
|
Definition
| average inflation rate expected over the life of a security |
|
|
Term
|
Definition
states that the shape of the yield curve depends on expectations concerning future inflation rates
|
|
|
Term
| Find standard deviation on financial calculator |
|
Definition
press E+ after each entry
shift >> 8 |
|
|
Term
|
Definition
| Standard deviation / average (expected) return |
|
|
Term
|
Definition
| cash inflows followed by cash outflows |
|
|
