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Terms in this set (24)
What are the three main decisions of a financial manager?
Capital budgeting, capital structure, working capital management
The process of planning and managing the term's long term investments
The mixture of debt and equity maintained by a firm
Working Capital Management
a firm's short-term assets and liabilities
What are the three main forms of a business organization?
Sole Proprietorship, Partnership, and Corporation
What is the goal of financial management?
maximize the current value per share of the existing stock
An act passed into law to establish strict accounting and reporting rules in order to make senior managers more accountable and to improve and maintain investor confidence. meant to avoid fraud by corporations
conflict of interest
Differences between primary and secondary market
Primary - investor buys shares directly from the company
Secondary - investors buy and sell stocks among themselves
Generally Accepted Accounting Principles (GAAP)
The common set of standards and procedures by which audited financial statements are prepared
The Cost Principle
Transactions are recorded at the cost at which they occurred
The Realization Principle
revenue is recognized when a transaction is completed
The Matching Principle
revenue is matches with the expense incurred in order to generate revenue
What is a balance sheet?
Financial statement that shows a firm's accounting value on a particular date.
Net working capital
Current Assets - Current Liabilities
Positive when the cash that will be received over the next 12 months exceeds the cash that will be paid out
Usually positive in a healthy firm
the ease with which an asset can be converted into the economy's medium of exchange
Two dimensions: ease of conversion versus loss of value
the use of debt in a firm's capital structure
Difference between market value and book value
Market - The price at which the assets, liabilities, or equity can actually be brought up or sold
Book - The value of an asset according to it's balance sheet account balance
What is an Income Statement?
Financial statement summarizing the firm's performance over a period of time.
Two options a firm has when it comes to their net income
Reinvest it or
annual financial report
Cash flow identity
cash flow from assets = cash flow to creditors + cash flow to stockholders
A standardized financial statement presenting all items in percentage terms. Used for comparing companies of different sizes.
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