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Business Finance I

by: Mireya Wintheiser

Business Finance I FINC 3131

Mireya Wintheiser
GPA 3.8

Lakshmi Narain

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Lakshmi Narain
Class Notes
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This 3 page Class Notes was uploaded by Mireya Wintheiser on Monday October 12, 2015. The Class Notes belongs to FINC 3131 at Georgia College & State University taught by Lakshmi Narain in Fall. Since its upload, it has received 55 views. For similar materials see /class/221925/finc-3131-georgia-college-state-university in Finance at Georgia College & State University.


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Date Created: 10/12/15
Finance I Chapter 2 Key Terms 1 Spot Markets Markets in which assets are bought or sold for quoton the spotquot delivery within a few days 2 Futures Market Markets in which participants agree today to buy or sell an asset at some future date can reduce risks 3 Money Markets Financial markets in which funds are borrowed or loaned for short periods of time lt1 yr short term highly liquid debt securities 4 Capital Markets Financial markets for stocks and for intermediate or long term debt gt1 yr 5 Primary Markets Market in which corporations raise capital by issuing new securities 6 Secondary Markets Markets in which securities and other financial assets are traded among investors after they have been issued by corporations 7 Private Markets Markets in which transactions are worked out directly between 2 parties 8 Public Markets Markets in which standardized contracts are traded on organized exchanges 9 Derivative Any financial asset whose value is derived from the value of some other quotunderlyingquot asset 10 Investment Bank An organization that underwrites and distributes new investment securities and helps businesses obtain financing ibanks 11 Commercial Bank The traditional quotdepartment storequot of finance serving a variety of savers and borrowers 12 Financial Securities Corporation A firm that offers a wide range offinancial services including investment banking brokerage operations insurance and commercial banking 13 Mutual Funds Organizations that pool investor funds to purchase financial instruments and thus reduce risks through diversification 14 Money Market Funds Mutual funds that invest in short term low risk securities and allow investors to write checks against their accounts 15 OTC Market Over the Counter Organizations that have tangible locations that conduct auction markets in designated listed securities Finance I Chapter 3 Key Terms 1 Annual Report A report issued annually by a corporation to its stockholders It contains basic financial statements as well as management s analysis of the firm s past operations and future prospects 2 Balance Sheet A statement ofa firm s financial position at a specific point in time 3 Working Capital Current assets 4 Net Working Capital Current assets minus accounts payable and accruals 5 Income Statement A report summarizing a firm s revenues expenses and profits during a reporting period generally a quarter or a year 6 Operating Income Earnings from operations before interest and taxes ex EBIT 7 Depreciation The charge to reflect the cost of assets used up in the production process Depreciation is not a cash outlay 8 Amortization A noncash charge similar to depreciation except that it is used to write off the costs of intangible assets 9 EBITDA Earnings before interest taxes depreciation and amortization 10 Statement of Cash Flows A report that shows how things that affect the balance sheet and income statement affect the firm s cash flows 11 Statement of Stockholders Eguity A statement that shows by how much a firm s equity changed during the year and why this change occurred 12 Free Cash Flow lFCFl The amount of cash that could be withdrawn from a firm without harming its ability to operate and to produce future cash flows 13 Progressive Tax A tax system where the tax rate is higher on higher incomes 14 Marginal Tax Rate The tax rate applicable to the last unit of a person s income 15 Average Tax Rate Taxes paid divided by taxable income 16 Capital Gain or Loss The profit loss from the sale of a capital asset for more less than its purchase price Finance I Chapter 1 Key Terms 1 Sarbanes Oxley Act A law passed by Congress that requires the CEO and CFO to certify that their firm s financial statements are accurate 2 Proprietorship An unincorporated business owned by one individual Three advantages 1 Easily and inexpensively formed 2 Subject to few government regulations 3 Subject to lower income taxes than corporations Three limitations 1 Unlimited personal liability for business debts 2 Life of the business is limited to the life of ownercreator 3 Difficulty obtaining large sums of capital Proprietorships are used primarily for small businesses 3 Partnership An unincorporated business owned by two or more persons Can be established relatively easy and inexpensively Income is allocated on a pro rata basis to partners and taxed on an individual basis avoiding corporate income tax Partners subject to unlimited personal liability have trouble raising large amounts of capital 4 Corporation A legal entity created by a state separate and distinct from its owners and managers having unlimited life easy transferability of ownership and limited liability Corporation can lose all its money but owners can lose only what they invested Unlimited lives easy to raise necessary capital 5 S Capital A special designation that allows small businesses that meet qualifications to be taxes as if they were a proprietorship or a partnership rather than a corporation 6 Limited Liability Corporation LLC A relatively new type of organization that is a hybrid between a partnership and a corporation 7 Limited Liability Partnership jLLPj Similar to an LLC but used for professional firms in the fields of accounting law and architecture It has limited liability like corporations but is taxed like partnerships 8 Shareholder Wealth Maximization The primary goal for managers of publicly owned companies implies that decisions should be made to maximize the long run value ofthe firm s common stock 9 Intrinsic Value An estimate ofa stock s true value based on accurate risk and return data The intrinsic value can be estimated but not measured precisely 10 Market Price The stock value based on perceived but possibly incorrect information as seen by the marginal investor 11 Marginal Investor An investor whose views determine the actual stock price


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