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Terms in this set (33)
What is a current asset that represents sales made on credit?
which current asset is LEAST liquid
Who is the primary regulator of the financial market?
securities and exchanges commission
What means can the company do to fund itself?
borrow, issue stock, retain earnings
Benefits of a corporation
when you buy stock you have limited liability
Who does the board of directors appoint to manage the company?
senior level executives: managers (CFO, CEO)
cumulative earnings retained not paid out through dividends
-if company pays dividends then RE is lower, if they don't pay then RE is higher
characteristics of current assets
very liquid (convert to cash within 1 year)
-no depreciation because they don't last more than a year (long live assets have this)
accounts payable is owed to?
how are stock prices determined in the secondary market
-supply & demand
- more sellers than buyers, stock price goes down
-more buyers than seller, stock price goes up
what gets deducted BEFORE operating profit?
What gets deducted AFTER operating profit?
if a company wants to fund an expansion, would they be paying more or less of their retained earnings as dividends?
LESS-wants to fund expansion, save some money
A corporation can list on an exchange if it meets certain requirements. Those requirements are:
-a large number of shareholders
-a profitable history
-market value of the stock must be large
Which assets are fixed assets (long live assets)?
building (plant) and equipment
inventory, factory building
P/E ratio high vs. low
high p.e. ratio- Sometimes the P/E is higher because earnings are anticipated to grow at a fast clip in the near future
low p.e ratio- individual problems at the company, macro issues or temporary circumstances or because investors have become skittish about the company's prospects in the face of macro headwinds
A company can fund itself through
borrowing and equity
primary financial goal of the firm is to
maximize stock price
If you were starting a company, what activity would you do first?
investing equity (your own money)
owners of a corporation can be described as
In an IPO, an investment banker feels that the shares of a company are worth $50 each to investors. The company should expect_______ from the investment banker.
Less than $50 per share
Agency theory examines the relationship between the
shareholders (owners) of the firm and managers of the firm
Financial markets exsists to transfer funds from those that have them to those that need them. Sometimes that transfer occurs through an intermediary. An example of a certain type of intermediation that includes UNDERWRITING is
an investment bank
when a corporation uses the financial markets to raise new funds, the sale of securities is made in the___________
when an investor wishes to buy/sell a security already issued in the financial market the buy/sell of securities is made in the_______________
what is the LEAST liquid of the following assets
-is due to the firms suppliers
-is due within a year
-it is a current liability
income statement tells you
periodic report that tells us if we were profitable and had net income or not (net loss)
a balance sheet tells you
-a snapshot in time of all assets accumulated with all the liabilities they've incurred
-a reflection of everything a company owns and owes
High inventory turnover means
implies either strong sales and/or large discounts, ineffective buying (the company buys too often in small quantities, therefore the buying price is higher).
-can indicate better liquidity, but it can also indicate a shortage or inadequate inventory levels, which may lead to a loss in business
in arriving at operating profit (operating income) all expenses are deducted from the revenue except____
non operating expenses
a firm with a current ratio of 2.6 has
$2.60 of current assets for every dollar of current liabilities
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