Chapter 1 (1)

finance

the science & art of how individuals and firms raise, allocate & invest money

managerial finance

concerns the duties of the financial manager in a business

firm

a business organization that sells goods or services

stakeholder

it includes employees, suppliers, customers & inhabitants of the local community where a firm is located

investment decisions

decisions that focus on how a company will spend its financial resources on long-term projects that ultimately determine whether the firm successfully creates value for its owners

capital budgeting

a technique that helps managers decide which projects create the most value for shareholders

financing decisions

decisions that determine how companies raise the money they need to pursue investment opportunities

capital

the money that firms raise to finance their activities

working capital decisions

decisions that refer to the management of a firm’s short-term resources

accrual basis

in preparation of financial statements, recognizes revenue at the time of sale and recognizes expenses when they are incurred

cash basis

recognizes revenues and expenses only with respect to actual inflows and outflows of cash

sole proprietorship

a business owned by one person & operated for his or her own profit

unlimited liability

the condition of a sole proprietorship (or general partnership), giving creditors the right to make claims against the owner’s personal assets to recover debts owned by the business

partnership

a business owned by two or more people and operated for profit

articles of partnership

the written contract used to formally establish a business partnership

corporation

a legal business entity with rights and duties similar to those of individuals but with a legal identity distinct from its owners

stockholders

the owners of a corporation whose ownership, or equity, takes the form of common stock or, less frequently, preferred stock

limited liability

a legal provision that limits stockholders’ liability for a corporation’s debt to the amount they initially invested in the firm by purchasing the stock

stock or share

a security that represents an ownership interest in a corporation

dividends

periodic distributions of cash to the stockholders of a firm