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Business Test 6
| Term | Definition |
|---|---|
| Accounting | The recording, classifying, summarizing, and interpreting of financial events and transactions to provide management and other interesting information they need to make good decisions. |
| Alexander Hamilton | played a pivotal role in establishing the early financial system of the United States, influencing the development of banking systems, fiscal policies, and taxation mechanisms that would shape the nation’s economy for years to come |
| Balance sheet | Financial statement that reports a firm’s financial condition at a specific time and is composed of three major accounts: assets, liabilities, and owners’ equity. |
| Barter | The direct trading of goods or services for other goods or services. |
| Basic earnings per share (basic EPS) | tells investors how much of a firm's net income was allotted to each share of common stock. Basic EPS = (Net income - preferred dividends) ÷ weighted average of common shares outstanding during the period. |
| Bond | A corporate certificate indicating that a person has lent money to a firm. |
| Bond discount | amount by which the market price of a bond is lower than its principal amount due at maturity. |
| Bond premium | a bond trading above its face value. |
| Capital budget | Highlights a firm’s spending plans for major asset purchases that often require large sums of money. |
| Capital gain | The positive difference between purchase price of a stock and its sale price. |
| Commercial bank | A profit-seeking organization that receives deposits from individuals and corporations in the form of checking and savings accounts and uses those funds to make loans. |
| Commercial paper | Unsecured promissory notes, in amounts of $100,000+ that come due in 270 days or less. |
| Common stock | The most basic form of ownership in a firm; it confers voting rights and the right to share in the firm’s profits through dividends. |
| Convertible bond | allow bondholders to convert their bonds into shares of common stock. |
| Debt financing | Funds raised through various forms of borrowing that must be repaid. |
| Depreciation | The systematic write-off of the cost of a tangible asset over its estimated useful life. |
| Diversification | Buying several different investment alternatives to spread the risk of investing. |
| Equity financing | Money raised from within the firm, from operations or through the sale of ownership in the firm (stock or venture capital). |
| Fed Chairman (responsibilities) | Jerome Powell is the current chairman. the responsibilities include analysis of domestic and international financial and economic developments, supervises and regulates the Federal Reserve Banks, exercises responsibility in the nation's payments system. |
| Federal Deposit Insurance Corporation | An independent agency of the U.S. government that insures bank deposits up to $250,000. |
| Federal Reserve System | is the central bank of the United States. |
| Financial control | A process in which a firm periodically compares its actual revenues, costs, and expenses with its budget. |
| Financial manager | Examine financial data and recommend strategies for improving financial performance. |
| Fundamental accounting equation (definition, calculation) | The basis for the balance sheet. Assets = Liabilities + Owners’ Equity. |
| How did banks/Federal Reserve contribute to the recent financial crisis? | provided liquidity and credit support to stabilize conditions and reduce volatility, and introducing new liquidity and credit market facilities to support the flow of credit during peak stresses. |
| Income statement | The financial statement that shows a firm’s profit after costs, expenses, and taxes; it summarizes all of the resources that have come into the firm (revenue), all the resources that have left the firm, expenses, and the resulting net income or net loss. |
| Independent audit | An evaluation and unbiased opinion about the accuracy of a company’s financial statements. |
| Initial Public Offering (IPO) | The first public offering of a corporation’s stock. |
| Insider trading | the illegal practice of buying or selling a company's securities based on material, nonpublic information. |
| Interest | The payment the issuer makes to the bondholders for use of the borrowed money. |
| Interest rate | percentage of principal a lender charges for using its funds. |
| International Monetary Fund | Fosters cooperative monetary policies that stabilize the exchange of one national currency for another. |
| Inventory turnover ratio (definition) | measures how efficiently a company uses its inventory by dividing the cost of goods sold by the average inventory value during a set period. |
| Ledger | A specialized accounting book or computer program in which information from accounting journals is accumulated into specific categories and posted so that managers can find all the information about one account in the same place. |
| Leverage ratios (definition) | Leverage ratios measure the degree to which a firm relies on borrowed funds in its operations. |
| Liabilities | What the business owes to others (debts). |
| Liquidity (definition, ratios) | The ease with which an asset can be converted into cash. Key liquidity ratios include: • Current ratio. • Acid-test ratio. |
| Long-term forecast | predicts revenues, costs, and expenses for a period longer than one year and sometimes as long as five or ten years. |
| Managerial accounting | Accounting used to provide information and analyses to managers inside the organization to assist them in decision making. |
| Maturity date | The exact date the issuer of a bond must pay the principal to the bondholder. |
| Money | Anything people generally accept as payment for goods and services. |
| Mutual fund | An organization that buys stocks and bonds and then sells shares in those securities to the public. |
| Open-market operations | Buying and selling of U.S. government bonds by the Fed with the goal of regulating the money supply. |
| Owner’s equity | The amount of the business that belongs to the owners minus any liabilities owed by the business. |
| Preferred stock | Stock that gives its owners preference in the payment of dividends and an earlier claim on assets than common stockholders. |
| Principal | The face value of the bond. |
| Private accountant | An accountant who works for a single firm, government agency, or nonprofit organization. |
| Profitability ratios (examples) | Profitability ratios measure how effectively a firm’s managers are using the firm’s various resources to achieve profits. Key profitability ratios include: • Earnings per share (EPS): basic or diluted. • Return on sales. • Return on equity. |
| Public accountant | An accountant who provides accounting services to individuals or businesses on a fee basis |
| Risk/return tradeoff (definition, effect on interest rates) | The principle that the greater the risk a lender takes in making a loan, the higher the interest rate required. |
| Secondary market | handle the trading of securities between investors, with the proceeds of the sale going to the seller. |
| Secured loan | Backed by collateral. |
| *Essay Q: Short term financing (identify and describe four types) | business financing from short-term sources, which are for less than one year. Types: credit union, credit cards, bank, and trade credit |
| Short-term forecast | predicts revenues, costs, and expenses for a period of one year or less. |
| Stock | Shares of ownership in a company. |
| Stock exchange | An organization whose members can buy and sell (exchange) securities for companies and investors. |
| Stockholders | such as employees, owners, creditors, unions, investors, and the government—make use of a firm’s accounting information. |
| Trade credit (2/10, net 30) | The practice of buying goods and services now and paying for them later. • Businesses often get terms such as 2/10, net 30 when receiving trade credit. |
| US money supply | The amount of money the Federal Reserve Bank makes available for people to buy goods and services. |
| Venture capital | Money that is invested in new or emerging companies that are perceived as having great profit potential |
| Why are US government bonds secure? | they are considered secure since they are backed up by the U.S. government, which has the most powerful economy in the world. |
| World Bank | Lends most of its money to less-developed nations to improve their productivity and help raise standards of living and quality of life. |
| *Essay Q: Assets (current/fixed – define and explain) | Current assets -Items that can or will be converted into cash within one year. Fixed assets - Assets that are relatively permanent, such as land, buildings, and equipment. |
| *Essay Q: Assets (intangible – define and explain) | Intangible assets - Long-term assets (e.g., patents, trademarks, copyrights) that have no physical form but do have value. |
| *Essay Q: Assets | Economic resources (things of value) owned by a firm; items can be tangible or intangible. |
| **Bonus Q: Long-term financing (advantages and disadvantages of issuing stock as a source) | Funds needed for more than a year. Adv: afford bigger expenses, better repayment terms, and financial flexibility. Dis: higher interest rates, risk losing major collateral, and high eligibility criteria. |
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