Term
| Who elects the Board of Directors? |
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Definition
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Term
| Who are the owners of a company? |
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Definition
| Stockholders and Board of Directors (also stockholders) |
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Term
| Who hires the CEO of a company? |
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Definition
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Term
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Definition
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Definition
| The Treasurer and Controller |
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Term
| What's another title for the Controller? |
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Definition
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Term
| What does the Controller do? |
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Definition
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Term
| What does the Treasurer do? |
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Definition
| Uses accounting reports to make financial decisions |
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Term
How do the following relate to money:
Financing
Investing
Managing |
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Definition
Financing: Where did the money come from?
Investing: What’s the best way to use the money?
Managing: What’s the best use of the money? |
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Term
| What does it mean to have funds raised internally? |
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Definition
| To have funds already from retained earnings |
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Term
| What does it mean to have funds raised externally? |
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Definition
| To have funds from the issuance of stocks/bonds or borrowing from financial intermediaries |
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Term
| Define "retained earnings" |
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Definition
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Term
| Revenue (sales) - expenses = what? |
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Definition
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Term
| What is it called when you spend profits? |
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Definition
| Dividends to shareholders |
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Term
| What is it called when you save profits? |
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Term
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Term
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Definition
| Physical assets that are used in the production of final goods. (Ex- Buildings, machinery, computers, trucks, etc.) Things used to produce other assets. |
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Term
| What are two other names for real assets? |
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Definition
| Economic Capital & Physical Assets |
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Term
| Define "Financial Assets" |
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Definition
| Paper assets that represent a claim to a firm’s future cash flows. (Ex- Stocks or bonds) |
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Term
| What are two other names for financial assets? |
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Definition
| Financial Capital/Paper Assets |
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Term
| Define "financial management decisions" |
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Definition
| The control and allocation of funds for the operation of the firm. |
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Term
| What is a "static analysis"? |
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Definition
| An analysis of the current situation only |
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Term
Profit maximization fails to account for:
1.
2.
3. |
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Definition
The amount of the cash flows
The timing of cash flows
The risk of cash flows |
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Term
| The goal of financial management is to ____? |
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Definition
| Maximize shareholder wealth |
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Term
| What is a "dynamic analysis"? |
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Definition
| An analysis that factors in changes |
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Term
| Shareholder wealth maximization requires what kind of analysis? |
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Definition
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Term
Shareholder wealth maximization involves:
1.
2. |
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Definition
1.Sharing in the profits of the firm through the receipt of annual dividends.
2. Experiencing capital gains through the increase in the market value (price) of the stock. |
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Term
| Why do people become shareholders? |
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Definition
1. Cash flow NOW (dividends)
2. Cash flow LATER (capital gain) |
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Term
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Definition
| When the selling price of an asset is greater than the purchase price of the asset |
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Term
| Stock value goes up when... ? |
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Definition
| More people want to buy it. |
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Term
| Dividends are usually paid ... ? |
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Definition
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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
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Definition
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Term
| Define a "Risk-return Tradeoff" |
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Definition
| The greater the risks involved, the greater the return required (and vice versa) |
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Term
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Definition
| The risk of not getting your money back |
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Term
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Definition
| A financial responsibility to make decisions about operating the firm that are in the best long-term interests of the shareholders. |
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Term
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Definition
| The amount borrowed by the company and the amount owed to the lender on the maturity date. (aka the face value or par value) |
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Term
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Definition
| The extra compensation that must be periodically paid to the lender by the borrower for bearing risk. (aka the coupon) Interest rate = coupon payment |
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Term
| What are two other names for principal? |
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Definition
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Term
| What's another name for interest? |
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Definition
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Term
| What's another name for interest rate? |
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Definition
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Term
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Definition
| The Borrower of funds and the Issuer/Seller of the debt instrument. |
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Term
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Definition
| The Lender of funds and the Holder/Buyer of the debt instrument. |
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Term
| Define "Term to Maturity" |
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Definition
| The life of a financial claim (ie, the length of time until which the debt must be repaid.) |
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Term
| When does a short term debt instrument mature? |
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Definition
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Term
| When does a intermediate term debt instrument mature? |
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Definition
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Term
| When does a long term debt instrument mature? |
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Definition
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Term
| What is a debt that matures in under a year? |
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Definition
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Term
| What is a debt that matures in 1-10 years? |
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Definition
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Term
| What is a debt that matures in more than 10 years? |
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Definition
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Term
| Why are treasury debt instruments considered "Default Risk Free"? |
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Definition
| Treasury bills, notes, bonds are considered to be immune to default risk because they can always just raise taxes to pay them off. |
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Term
| Define "Default Risk Free" |
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Definition
| A debt instrument that is free from risk of default. |
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Term
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Definition
| A debt that involves an asset that is pledged as collateral against the value of the loan. |
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Term
| What's an example of a secured debt? |
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Definition
| A mortgage loan or a car loan |
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Term
| Define an "unsecured debt" |
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Definition
| A debt that involves no collateral. The loan is granted based on the strong credit worthiness of the borrower. |
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Term
| What's an example of an unsecured debt? |
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Definition
| A student loan or commercial paper |
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Term
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Definition
| Unsecured debt issued only by the most credit worthy firms. |
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Term
| What are three bond features? |
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Definition
1. Indenture
2. Trustee
3. Restrictive Covenants |
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Term
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Definition
| The contract between the issuer of the bond and the bondholders |
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Term
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Definition
| An official who represents the interest of the bondholders and ensures that the terms of the indenture are maintained. |
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Term
| Define "Restrictive Covenants" |
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Definition
| The lender puts restrictions on the borrower’s financial activity. |
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Term
| Violations of restrictive covenants give bondholders the right to ...? |
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Definition
| Demand immediate repayment |
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Term
| Define "Minimum equity levels" as it relates to restrictive covenants |
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Definition
| Makes sure the owners have a certain (usually high) level of money on the line as well so the bank isn’t the only one on the line |
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Term
| Define "Constraints on subsequent borrowing" as it relates to restrictive covenants |
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Definition
| Senior position: The bank in the senior position gets paid back first |
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Term
| Define "Limitations on cash dividends" as it relates to restrictive covenants |
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Definition
| The creditor might say that no dividends can be issued until debt is paid off |
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Term
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Definition
A provision that provides for the orderly repayment of a bond issue.
Example: Putting a certain amount of money in a savings account to let it accrue interest until the bond comes to maturity. |
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Term
| What is another phrase for "pay off"? |
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Definition
| Retire (i.e.- to retire a debt) |
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Term
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Definition
| A provision that allows the firm to “call” (ie redeem) the bonds prior to their maturity date. |
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Term
| Give an example of why a company may call their bonds. |
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Definition
| If interests rates drop, a company may call their bonds so they can refinance and reissue bonds at a lower rate. |
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