Chapter 1 - Fundamentals of Corporate Finance (Vocabulary)

Vocabulary flashcards covering key terms and concepts from Chapter 1 of Fundamentals of Corporate Finance as presented in the lecture notes.

Corporate finance

The area of finance focused on long-term funding, investment decisions, and managing a firm’s financial resources (business finance).

Investments

The area of finance dealing with asset allocation and the returns from investments.

International finance

Finance dealing with cross-border financial activity, exchange rates, and currency risk.

Fintech

The intersection of finance and technology, including tech-enabled financial services and platforms (e.g., PayPal, Venmo, Zelle).

Financial institutions

Entities regulated by government authorities that provide financial services (e.g., banks, insurers).

Capital expenditure (CapEx)

Funds spent to acquire or upgrade long-term physical assets or projects (e.g., campus buildings, equipment).

Capital budgeting

The process of planning and evaluating a firm’s long-term investments, focusing on size, timing, and risk of cash flows.

Capital structure

The mix of debt and equity financing used to fund a firm.

Debt financing

Raising funds by borrowing; cheaper for creditors, but creates fixed obligations for the firm and gets paid first in bankruptcy.

Equity financing

Raising funds by selling ownership stakes; investors bear residual risk and have potential upside.

Senior debt

Debt that has priority in repayment over other creditors and equity in bankruptcy.

Common stock

Ordinary ownership shares with potential voting rights and residual claim on assets and profits.

Preferred stock

Equity with priority in dividends and liquidation, typically without voting rights.

Working capital

Management of a firm’s short-term assets and liabilities to support day-to-day operations.

Assets

Resources with economic value; can be tangible (desks, equipment) or intangible (brand value).

Liabilities

Obligations or debts owed by the firm; financing of assets.

Balance sheet

Financial statement showing assets, liabilities, and shareholders’ equity at a point in time.

Cash flows

Inflows and outflows of cash; future cash flows are central to investment and financing decisions.

Blockchain

A distributed ledger consisting of blocks that record transactions.

Cryptocurrency

A digital asset designed to act like currency but not controlled by a centralized monetary authority.

Financial manager

The individual responsible for managing a firm’s finances, including long-term financing and daily financial activities.

Chief Financial Officer (CFO)

Senior executive in charge of the company’s financial functions and strategy.

Chief Executive Officer (CEO)

Top executive responsible for overall company direction and performance.

Treasurer

Role focusing on risk management, cash management, and capital decision-making.

Controller

Role focusing on accounting, reporting, and internal controls; often engages in investment-related decisions.

Board of Directors

Independent directors providing governance and strategic oversight; not involved in day-to-day operations.

Chairman of the Board

Leader of the board; not necessarily the CEO; ensures board effectiveness.

Five areas of finance

Corporate finance, investments, international finance, fintech, and financial institutions.

Going concern

Assumption that a company will continue operating in the foreseeable future.

Bankruptcy

Legal process when a firm cannot meet its financial obligations; creditors are paid according to seniority.

Collateral

An asset pledged to lenders to secure a loan.

Intangible asset

Non-physical asset with value (e.g., brand, goodwill).

Tangible asset

Physical asset (e.g., desks, equipment).

Risk-return trade-off

The principle that higher expected returns typically require accepting higher risk.

Future cash flows

Projected cash inflows and outflows used in evaluating investments and financing.