Financial_Management_Principles_and_Applications_----. __Part_1_Introduction_to_financial_management___1_

Capital Budgeting

The area of finance that involves deciding what long-term investments a firm should undertake.

Capital Structure

The decisions regarding how a firm raises money to fund its long-term investments.

Working Capital Management

The area of finance that deals with managing cash flows in day-to-day operations.

Sole Proprietorship

A business owned and managed by a single individual, responsible for all profits and debts.

General Partnership

An association of two or more individuals who come together to operate a business for profit, with unlimited liability.

Limited Partnership

A type of partnership where at least one partner has unlimited liability, while other partners have limited liability.

Corporation

A legal business entity that separates the owners from the business, providing limited liability to its shareholders.

Agency Problem

Conflicts of interest that arise between the management of a firm and its shareholders.

Principal-Agent Problem

The conflict that exists when managers (agents) do not act in the best interest of the shareholders (principals).

Opportunity Cost

The value of the next best alternative that is foregone as a result of making a decision.

Profit vs. Cash Flow

Profit is an accounting measure of performance, while cash flow represents actual cash available for spending.

Financial Manager

An individual responsible for managing a firm's finances, including investment decisions, financing decisions, and cash management.

Market Prices Reflect Information

Investors respond to new information by buying and selling, thus prices adjust to reflect what is known.

Double Taxation

The taxation of corporate earnings at both the corporate level and again at the individual level when dividends are paid.

Incentives

Motivators that affect the actions of managers, which can conflict with the interests of the firm's owners.

Ethics in Finance

Trust and fairness are fundamental to doing business, and ethical lapses can lead to significant consequences.

CFO (Chief Financial Officer)

The executive responsible for overseeing the financial activities of a firm.

Treasurer

The officer responsible for managing a firm's financing activities and cash management.

Financial Controller

The officer responsible for corporate reporting and general accounting within the firm.