Introduction to Corporate Finance Practice Flashcards

Vocabulary terms and definitions from the Introduction to Corporate Finance lecture, covering firm types, managerial roles, and financial market basics.

Finance

The science that describes the management, creation and study of money, banking, credit, investments, assets and liabilities.

Goal of the Finance Manager

To value assets and analyze decisions based on their risk level and expected rate of return to maximize the value of the firm and Shareholder value.

Capital Budgeting

The process of making investment decisions by weighing the costs and benefits of each project to decide if they are good uses of stockholders' money.

Capital Structure

The process of making financing decisions, specifically deciding whether to raise money from owners by selling shares (equity) or to borrow (debt).

Working Capital Management

The task of managing short-term cash needs to ensure the firm has enough cash on hand to meet its obligations at each point in time.

Agency Theory

The study of the potential conflict between Shareholders and managers, where the goal of maximizing shareholder wealth may conflict with management interests.

Sole Proprietorship

A business owned and run by one person where there is no separation between the firm and the owner, resulting in unlimited personal liability.

General Partnership

An unincorporated business owned by more than one owner where all partners have unlimited liability and the partnership ends upon the death or withdrawal of any partner.

Limited Partnership

A partnership with General Partners (personally liable) and Limited Partners (liability limited to their initial investment with no management authority).

Limited Liability Partnership (LLP)

A form used in Canada for law and accounting firms that provides partial limitation of a partner's liability for the negligent actions of other partners.

Corporation

A legally defined, artificial being separate from its owners that is solely responsible for its own obligations.

Stock

Shares into which the entire ownership stake of a corporation is divided.

Equity

The collection of all the outstanding shares of a corporation.

Dividend Payments

Payments made to shareholders, usually proportional to the amount of stock they own.

Liquidity

A function of Financial Markets providing holders of financial assets with a chance to resell or liquidate those assets.

Initial Public Offering (IPO)

The first offering of a firm's shares to the public.

Primary Market

A market in which newly issued securities are traded.

Secondary Market

A market which facilitates the trading of existing securities.

Price per Share (Formula)

$$\text{Price per Share} = \frac{\text{Market Value of Firm}}{\text{Number of Shares Outstanding}}$$

Common Stock

A type of stock that typically offers investors the right to vote and elect the Board of Directors in exchange for partial ownership.

Preferred Stock

A type of stock that entitles investors to first priority for dividends and liquidation payments, generally resulting in less price volatility than common stock.

Bonds

Long term debt securities issued by firms and government agencies (Federal, Provincial, and Municipal) to raise funds.