Business Finance Flashcards

Flashcards covering key vocabulary terms from the Introduction to Business Finance, Financial Statements, and Working with Financial Statements lectures.

Capital budgeting (Capital investment)

Financial Management Decisions related to long-term investments or projects the business should take on.

Capital structure (Finance structure)

Financial Management Decisions on how a firm should pay for its assets, including the use of debt or equity.

Working capital management

Financial Management Decisions focused on the day-to-day finances of the firm.

Sole Proprietorship

A business owned by one person

Partnership

A business owned by two or more people.

General Partnership

Partners share legal and financial liability equally

Limited Partnership

At least one partner with full personal liability

Corporation

Legal entity separate from its owners

Agency problem

Conflict of interest between principal and agent

Primary markets

Markets where investors purchase securities directly from the issuer

Secondary markets

Markets where investors buy and sell from one another.

Balance Sheet

Snapshot of a firm's assets and liabilities at a given point in time.

Net Working Capital

A firm's short-term assets minus its short-term liabilities.

Liquidity

The ability to convert assets to cash quickly without significant loss of value.

Market value

The price at which assets, liabilities, or equity can be bought or sold.

Income Statement

A report of a firm’s operations over a specified period of time

Non-cash items

Expenses charged against revenues that do not directly affect cash flow.

Marginal tax rate

The percentage paid on the next dollar earned

Average tax rate

The tax bill divided by taxable income.

Cash flow

Cash flow is generated from utilizing assets and how it is paid to those that finance the purchase of the assets.

Statement of Cash Flows

Summarizes the sources and uses of cash.

Categories of Financial Ratios

Financial ratios categorize as Short-term solvency, Long-term solvency, Asset management, Profitability, and Market value.

Liquidity ratios

A firm's ability to meet short-term obligations with short-term assets

Long-term solvency

The level of indebtedness and the ability to service debt.

Turnover ratios

Efficiency with which a firm uses its assets to generate sales.

Profitability Measures

Management’s ability to efficiently use the firm’s assets to generate sales and manage the firm’s operations.

Market Value Measures

How the market is valuing the firm’s equity

DuPont Identity

Breaks down ROE into profit margin, total asset turnover, and equity multiplier to analyze a company’s financial performance.

Present Value

Earlier money on a timeline

Future Value

Later money on a timeline

Interest rate

The 'exchange rate' between earlier money and later money