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D076 Finance Skills for Managers
D076 Finance Skills for Managers (WGU)
Terms in this set (200)
The system of recording, reporting, and summarizing past financial information and transactions.
Accounts Receivable Turnover (AR Turnover)
An activity ratio found by credit sales divided by accounts receivable.
A category of ratios that measure how well a company uses its assets to generate sales or cash, showing the firm's operational efficiency and profitability.
Additional Funds Needed (AFN)
Another name for the discretionary financing needed or external financing needed. It represents the additional financing needed given a firm's expectations for future growth.
A bond covenant that describes things the company pledges itself to do in order to protect bondholders.
Costs that are incurred when management does not act in the best interest of shareholders.
When the agent (the management) does not act in the best interest of the principal (the owners).
Companies or securities with beta greater than 1.
Annual Percentage Rate
The annual interest rate that is charged for borrowing money or that is earned through investment.
A stream of cash flows of an equal amount paid every consecutive period.
A series of equal payments made at the beginning of consecutive periods.
The process of valuing assets.
A secondary market with a physical location and where prices are determined by investors' willingness to pay.
Average Collection Period (ACP)
An activity ratio found by the number of days in a year (365) divided by AR turnover.
Balance Sheet Forecasting
Using sales growth and the profit forecast to construct a pro forma balance sheet to understand the future implications of the sources and uses of finances.
Banks and Credit Unions
Receive deposits and extend loans to individuals and businesses.
The process of completing a financial analysis to compare a firm's financial performance to that of other similar firms.
A variable that describes how the price of a security varies with the market.
The difference between the bid and ask prices that compensate the specialist for the risk that he or she bears for willingness to provide liquidity.
Board of Directors
A group of people who jointly supervise the activities of an organization.
A legal contract that governs the relationship between a firm and its bondholders.
A person who loans a corporation money by buying debt securities.
An area of finance that deals with sources of funding, the capital structure of corporations, the actions that managers take to increase the value of the firm to its owners, and the tools and analysis used to allocate financial resources.
The reduction in sales of a company's own products due to introduction of another similar product.
A financial asset that can be used by a firm or individual. Examples of capital may be machinery or cash held by a firm.
Capital Asset Pricing Model (CAPM)
A model used to determine the risk-return relationship for an asset.
The process of evaluation and planning for purchases of long-term assets.
Capital Budgeting Criteria
Metrics and calculations used to determine whether a project or asset will add value and be a worthwhile investment.
The sum of money invested in a business to purchase long-term assets to further its objective of maximizing owner wealth.
A type of financial market used for long-term assets that are held for greater than one year.
The mixture of debt and equity used to finance a firm.
When a limited amount of funds are available.
A plan for controlling cash inflows and outflows business to balance income with expenditures.
Managing the day-to-day finance operations of a firm.
Ensure that a nation's economy remains healthy by controlling the amount of money circulating in the economy.
A type of stock that represents equity in a firm and confers the right to vote at shareholder meetings.
Finding a future value given a present value.
The interest on the principal plus the interest on earned interest.
A debt instrument that is issued by a corporation in order to raise capital.
The system of rules, practices, and processes by which a firm is directed and controlled.
The measure of the relationship between two variables that move in relation to each other.
Cost of Capital
The cost to a firm to use an investor's capital; see interest rate.
The stated interest rate of a bond; also known as coupon yield.
The stated interest rate of a bond; also known as coupon rate.
Statements in a bond indenture that outline things the company will obligate itself to do or not do in order to protect bondholders.
A commercial bank position with the responsibility to assess the riskiness of lending to borrowers and determining whether or not loans should be extended to potential bank clients.
Comparing a firm's financial ratios to other firms' ratios or industry averages.
A feature of preferred stock specifying that if a company skips payment of a preferred stock dividend one year, it is still required to pay that dividend sometime in the future before paying any common dividends.
Current Market Value
What someone would pay right now for an asset.
A liquidity ratio found by current assets divided by current liabilities.
A secondary market made up of multiple dealers that hold an inventory of securities and quote prices.
A financing ratio found by total liabilities divided by total assets.
A financing ratios found by total liabilities divided by total equity.
Failure to meet a debt obligation.
The probability of a loss resulting from a borrower's failure to repay a contractual obligation; also called credit risk.
Companies or securities with beta less than 1.
A bond whose price is below its par value.
The name for interest rate when used in time value of money calculations.
Finding a present value given a future value.
Accounts that do not vary automatically with sales but are left to the discretion of management.
Discretionary Financing Needed (DFN)
The additional financing needed given a firm's expectations for future growth.
The process of "spreading" your money over many different assets.
Dividend Discount Model
A model used to evaluate common stock that calculates the value of a share of common stock today by taking the present value of future dividend cash flows.
Dividends in Arrears
A feature of preferred stock specifying that if a company ignores preferred stock dividends, it cannot pay anything to its common stockholders.
An expanded formula of the return of equity, net margin times total asset turnover times leverage multiplier, which represent the components of profitability, activity (efficiency), and financing.
A market in which prices fully reflect all the available information about a specific security.
Everything that a person owns or controls, especially at death.
An issue in the process of deciding between multiple options where no option is completely acceptable from an ethical standpoint.
Following accepted standards of moral conduct.
A hypothesized estimate of future prices or returns under different scenarios based on expectational data.
External Financing Needed (EFN)
Another name for the discretionary financing needed or additional funds needed. It represents the additional financing needed given a firm's expectations for future growth.
The sum of money that a corporation promises to pay at the expiration of a bond; also called par value.
The study of managing and allocating funds at the personal or business level.
An area of finance that includes firms or organizations that exist to accept a wide variety of deposits, to offer investment products to individuals and businesses, to provide loans, or to broker financial transactions.
A person who makes strategic financial decisions in a corporation.
Financial Policy Implementation
Incorporating new finance ideas within a firm.
Increased volatility in earnings as a result of using debt.
Risk that results from factors at a particular firm and can be reduced through diversification; also called nonsystematic risk or idiosyncratic risk.
An economic theory developed by Irving Fisher holding that the real interest rate is equivalent to the nominal interest rate minus the expected inflation rate.
Fixed Asset Turnover (FAT)
An activity ratio found by sales divided by fixed assets.
An expense that you do not have direct control over and that remains constant from period to period.
Another name for bonds; a financial security in which the borrower pays a fixed interest payment to investors each year.
The worth of cash flows in terms of the dollar amount in the relative future.
Gordon Growth Model
A formula used to value common stock based on the assumptions that dividends are paid every year and grow at constant rate forever.
A profitability ratio found by gross profit divided by sales.
Generating cash or stock from the sales or IPO of companies in the portfolio of investments.
Holding Period Return
The return over the entire period that an investor owns a financial security.
The required rate of return that a company expects to earn in order to consider a project.
A security that has some elements that resemble equity and others that resemble debt.
Risk that results from factors at a particular firm and can be reduced through diversification; also called firm-specific risk or nonsystematic risk.
Incremental Cash Flows
Cash flows that result from accepting a project.
The rate at which the average price level of a basket of chosen goods and services in an economy increases over a period of time.
Initial Public Offering (IPO)
When a privately held company first offers shares of stock to outside investors to raise capital, therefore becoming a publicly owned company.
Charge premiums to invest in bonds and stocks to pay claims.
The percentage of the principal that a lender charges a borrower for the use of assets.
Interest Rate Risk
The probability that changes in interest rates will impact the value of a bond.
Internal Rate of Return (IRR)
The rate of return that a firm earns on its capital projects.
The value of an asset as determined through fundamental analysis without referring to the asset's market value.
An activity ratio found by COGS divided by inventory.
A financial intermediary that offers complex financial transactions such as underwriting, facilitating mergers, and buying and selling financial securities on behalf of large institutions.
An area of finance that involves deciding which assets to invest in to create wealth in the future.
Following the laws and rules set by an authority.
Another name for debt or liability.
A category of ratios that consider how a firm is financed.
An asset that can be converted into cash quickly without the loss of significant value.
The ability to turn financial securities into cash easily without losing significant value.
A category of ratios that measure a firm's ability to meet short-term obligations.
The current market value of a publicly traded company's total outstanding shares, indicating the size of a company.
A category of ratios that are used to evaluate the current share price of a public firm's stock.
Risk that is inherent in the economy as a whole and cannot be diversified away; also called systematic risk or nondiversifiable risk.
Market-to-book Ratio (M/B Ratio)
A market ratio found by market value of equity divided by book value of equity.
The business function responsible for generating sales.
The date at which a bond expires.
A type of financial market used for short-term assets that are held for less than one year.
Following one's standards of right and wrong behavior.
An investment company that continually offers investments and buys financial securities and instruments on behalf of investors.
When two or more events do not coincide.
A computer network where stocks are bought and sold. It is the second-largest stock exchange in the world. Typically, technology-related companies will go public through this exchange.
A bond covenant that describes things the company pledges itself not to do in order to protect bondholders.
The percentage of sales remaining after all costs have been deducted from a company's total sales. Also known as net profit margin; indicates the profit earned by the firm.
New York Stock Exchange (NYSE)
A physical trading floor and a computer network where stocks are bought and sold. It is the largest stock exchange in the world.
The rate at which invested money grows for a certain period of time.
Risk that is inherent in the economy as a whole and cannot be diversified away; also called market risk or systematic risk.
Risk that results from factors at a particular firm and can be reduced through diversification; also called firm-specific risk or idiosyncratic risk.
Operating Income Return On Investment (OIROI)
An activity ratio found by operating income divided by total assets.
A profitability ratio found by EBIT profit divided by sales.
The loss of potential gain from other alternatives when one alternative is chosen.
A series of equal payments made at the end of consecutive periods over a fixed length of time.
A bond whose price is exactly equal to its par value.
The sum of money that a corporation promises to pay at the expiration of a bond; also called face value.
The percent of net income distributed to the shareholders.
A financial institution that specializes in managing and administering retirement funds.
A constant stream of identical cash flows that continues forever.
A formula used to value preferred stock that is based on the calculation of a perpetuity.
A commercial bank position with the responsibility to find and attract new clients.
The percent of net income retained in the firm; also called the retention ratio.
A hybrid security that has no fixed maturity, has fixed payments, and does not confer voting rights on bondholders.
A bond whose price is above its par value.
The worth of cash flows in terms of the dollar amount in the relative past.
The potential for the decline in the price of a financial security or an asset relative to the market.
Price-to-earnings Ratio (P/E Ratio)
A market ratio found by price per share divided by earnings per share.
The financial market where securities (stocks and/or bonds) are first sold.
A financial institution that invests in an entity that is not publicly listed or traded using money received from institutional investors and wealthy individuals.
Privately Held Companies
Firms that have not issued shares to the public where the ownership rights are privately held.
Pro Forma Statements
A financial statement that projects an estimate for future periods "as if" sales grew as predicted.
The projection of future earnings after all projected costs are subtracted from projected sales.
Profitability Index (PI)
The ratio of payoff to investment for a proposed project.
A category of ratios that are commonly used to directly judge how well management is doing as they strive to maximize owner wealth.
Publicly Traded Firms
Firms that have issued shares to the public.
A liquidity ratios found by current assets less inventory, divided by current liabilities; also called the acid-test ratio.
An interest rate that is adjusted to remove the effects of inflation.
Required Rate of Return
The minimum return or compensation an investor requires in order to invest; see interest rate.
Research and Development
The business function responsible for improving and developing services and products.
The percent of net income retained in the firm; also called the plowback ratio.
The money gained or lost on an investment over a certain period of time.
Return On Assets (ROA)
A profitability ratio found by net income divided by total assets.
Return On Equity (ROE)
A profitability ratio found by net income divided by owners' equity.
The top line of the income statement. The total amount of money a business brings in (before subtracting any costs).
The possibility that the realized or actual return will differ from the expected return.
A way to manage risk by not performing an activity that may carry risk.
The compensation for the amount of risk taken on by investors.
A series of techniques that help reduce the amount of risk a person is exposed to by taking a particular action.
A decision to take responsibility for a particular risk.
A risk management technique that involves dispersing assets geographically instead of concentrating them in one location.
A risk management technique that involves reducing the amount of risk you are exposed to by transferring that risk to another entity.
The rate of return on an investment with no risk.
The top line of the income statement. The total amount of money a business brings in (before subtracting out any costs).
Firms whose performance varies according to the season.
The financial market where securities are traded after the initial issuance.
The process of combining several types of contractual debt (such as mortgages) and reselling them as a package to investors.
A person who owns shares of a company's stock.
The interest earned only on the principal.
A market maker on the NYSE that holds an inventory of securities and acts as a liquidity provider to those that wish to buy and sell.
Accounts that vary naturally with sales.
Anyone who may be affected by actions taken or a decision made.
A measure of dispersion of possible outcomes about the mean.
Steady State Growth
The level of growth where four key financial ratios—profitability, asset utilization, leverage, and payout—are constant and where the firm does not need to issue any new equity to fund the growth.
A share of ownership in a company.
A cost that has already been incurred and cannot be recovered.
Sustainable Growth Rate (SGR)
The growth rate that allows a firm to maintain its present financial ratios without issuing new equity.
A group of intermediaries that is used to oversee the issuance of stocks and/or bonds.
Risk that is inherent in the economy as a whole and cannot be diversified away; also called market risk or nondiversifiable risk.
Methods used to minimize the amount of taxes a business pays.
An entry-level commercial bank position with the reponsibility to interact with customers at the bank's front desk or drive-through window.
Time Value of Money (TVM)
The idea that money that is available at the present time is worth more than the same amount in the future.
Times Interest Earned (TIE)
A financing ratio found by EBIT divided by interest expenses.
Total Asset Turnover (TAT)
An activity ratio found by sales divided by total assets.
A bill issued by the U.S. government as a financial security with no interest and a maturity of less than one year; abbreviated T-bill.
A note issued by the U.S. government as a financial security with a fixed interest rate and a short maturity between 1 and 10 years; abbreviated T-note.
A debt instrument (bond) that is issued by the United States government in order to raise capital.
Comparing a firm's ratios across time.
An arrangement that allows a third party to hold assets on behalf of a beneficiary or beneficiaries.
U.S Securities and Exchange Commission (SEC)
An independent federal government agency that (1) protects investors, (2) maintains fair, orderly, and efficient markets, and (3) facilitates capital formation.
Bonds, bills, and notes issued by the U.S. government; considered to be the highest-quality securities available.
The unlimited earnings potential of equity ownership.
The total satisfaction received from consuming goods and services.
An expense that you have direct control over and that can change from period to period.
Venture Capitalists (VCs)
Professional managers of investment capital that typically invest in very young new ventures.
A legal expression of an individual's wishes concerning the desposition of his or her property after death.
Yield to Maturity (YTM)
The rate of return that investors receive on a bond if they purchase a bond today at the market price and hold it until it matures; the required rate of return given the maturity and risk of the bond.
Recommended textbook explanations
Principles of Economics
N. Gregory Mankiw
Solutions Manual for Use with Essentials of Investments
Alan J. Marcus, Alex Kane, Bruce Swensen, Zvi Bodie
Operations and Supply Chain Management
F Jacobs, Richard Chase
Krugman's Macroeconomics for AP*
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