Introduction to Managerial Finance

Flashcards covering key concepts from the Introduction to Managerial Finance lecture notes.

What does finance primarily deal with?

It is about the management of money.

Who is responsible for managing the financial operations in an organization?

Chief Financial Officer (CFO) is responsible for managing financial operations.

What are the types of legal forms of business?

Sole Proprietorship, Partnership, Corporation, Limited Liability Company (LLC).

What is a sole proprietorship?

A business owned by a single individual who maintains title to the firm’s assets and has unlimited liability.

What distinguishes a corporation from other business entities?

A corporation legally functions separately from its owners, limiting their liability to the amount of their investment.

What is the goal of a firm in terms of finance?

Shareholder Wealth Maximization or maximizing stock price.

What occurs in an Initial Public Offering (IPO)?

It is the first time a firm’s stock is sold to the general public.

What does the capital allocation process involve?

It involves raising capital, where surplus funds expect to earn a return on their investments.

What are the primary markets?

Markets in which new issues of securities are sold to initial buyers.

What is the Money Market?

A market for short-term debt instruments with maturity periods of one year or less.

What is the relationship between risk and return in financial securities?

Generally, higher risk is associated with the potential for higher returns.

What type of financial asset allows for indirect transfer of funds?

Securities facilitate indirect transfer using intermediaries such as investment bankers.

What is a Financial Intermediary?

An entity that facilitates the channeling of funds between savers and borrowers.

What does the term 'Shareholder Value Maximization' refer to?

It refers to the financial goal of maximizing stock prices for shareholders.

What are organized exchanges?

Central locations where buyers and sellers meet to conduct trades.

What is a General Partnership?

A partnership where all partners have unlimited liability.

What is a Limited Partnership?

A partnership consisting of general partners with unlimited liability and limited partners whose liability is limited to their investment.

What is a Limited Liability Company (LLC)?

A business entity that combines the characteristics of a corporation and a partnership, providing limited liability to its owners.

What factors are considered in the goal of profit maximization?

Timing and uncertainty of returns.

What type of offering involves selling securities to a limited number of investors?

Private Placement.

What is the role of the Chief Executive Officer (CEO) in a firm?

The CEO is the highest-ranking individual responsible for financial and strategic planning.

What are the advantages of a corporation?

Unlimited life, easy transfer of ownership, limited liability, ease of raising capital.

What is meant by 'Secondary Market'?

A market in which previously issued securities are traded.

What tools do investors use to measure the performance of their investments?

They often evaluate them through stock price movements.

What is a Capital Market?

A market for long-term securities with maturities greater than one year.

What defines the movement of savings in financial markets?

It can occur through direct or indirect transfers using financial intermediaries.

What is a Treasury Bill?

A short-term government security with maturity of one year or less.