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Finance
The science and art of managing money TERM 2
Financial services
DEFINITION 2 The area of finance concerned with the design and delivery of advice, and financial products to individuals, businesses, and governments. TERM 3
Managerial finance
DEFINITION 3 Concerns the duties of the financial manager in business TERM 4
Financial manager
DEFINITION 4 Actively manages the financial affairs of all types of businesses, whether private or public, larger or small, profit seeking or not for profit. TERM 5
Sole proprietorship
DEFINITION 5 A business owned by one person and operated for his or her own profit.
Unlimited liability
The condition of a sole proprietorship (or general partnership) giving, creditors the right to make claims against the wonders personal assets to recovers debts owed by businesses. TERM 7
Partnership
DEFINITION 7 A businesses owned by two or more people and operated for profit. TERM 8
Articles of
partnership
DEFINITION 8 The written contract sued to formally establish a business partnership. TERM 9
Corporation
DEFINITION 9 An entity created by law TERM 10
Stockholders
DEFINITION 10 The owners of a corporation whose ownership, or equity, takes the form of either common stock or preferred stock.
EPS
Earnings divided by shares. TERM 17
Risk
DEFINITION 17 The chance that actual outcomes may differ from those expected TERM 18
Stakeholders
DEFINITION 18 Groups such as employees, customers, suppliers, creditors, owners, and other who have a direct economic link to the firm. TERM 19
Business ethics
DEFINITION 19 Standards of conduct or moral judgment that apply to persons engaged in commerce TERM 20
Treasurer
DEFINITION 20 The firms chief financial manager, who manages the firms cash oversees its pension plans, and manages key risks.
Controller
The firms chief accountant, who is responsible for the firms accounting, tax management, financial accounting, and cost accounting. TERM 22
Foreign exchange manager
DEFINITION 22 The manager responsible for managing and monitoring the firms exposure to loss from currency fluctuations. TERM 23
Marginal cost-benefit analysis
DEFINITION 23 Economic principle that stats that financial decisions should be made and actions taken only when the added benefits exceed the added costs. TERM 24
Accrual basis
DEFINITION 24 In preparation of financial statements, recognizes revenue at the time of sale and recognizes expense when they are incurred. TERM 25
Cash basis
DEFINITION 25 recognizes revenues and expenses only with respect to actual inflows and outflows of cash.
Agency problems
Problems that arise when managers place personal goals ahead of the goals of shareholders. TERM 32
Agency costs
DEFINITION 32 Costs arising from agency problems that are borne by shareholders and represent a loss of shareholder wealth. TERM 33
Incentive plans
DEFINITION 33 Management compensation plans that tie management compensation to share price; one example involves the granting of stock options. TERM 34
Stock options
DEFINITION 34 Options extended by the firm that allow management to benefit from increases in stock prices over time. TERM 35
Performance plans
DEFINITION 35 Plans that tie management compensation to measures such as EPS or growth in EPS. Performance shares and/or cash bonuses are used as compensation under these plans.
Cash bonuses
Cash paid to management for achieving certain performance goals. TERM 37
Time line
DEFINITION 37 A horizontal line on which time zero appears at the leftmost end and a future periods are marked from left to right; can be used to depict investment cash flows. TERM 38
Future value
DEFINITION 38 he value at a given future date of an amount placed on deposit today and earning interest at a specified rate. Found by applying compound interest over a specified period of time. TERM 39
Compound interest
DEFINITION 39 Interest that is earned on a given deposit and has become part of the principal at the end of a specified period. TERM 40
Principal
DEFINITION 40 The amount of money on which interest is paid.
Perpetuity
An annuity with an infinite life, providing continual annual cash flow. TERM 47
Mixed stream
DEFINITION 47 A stream of unequal periodic cash flows that reflect no particular pattern. TERM 48
Semiannual compounding
DEFINITION 48 Compounding of interest over two periods within the year. TERM 49
Quarterly compounding
DEFINITION 49 Compounding of interest four periods within the year. TERM 50
Continuous compounding
DEFINITION 50 Compounding of interest an infinite number of times per year at intervals if microseconds.
Nominal (stated) annual
rate
Contractual annual rate of interest charged by a lender or promised by a borrower. TERM 52
Effective (true) annual
rate-
DEFINITION 52 The annual rate of interest actually paid or earned. TERM 53
Annual percentage rate
(APR)
DEFINITION 53 The nominal rate of interest, found by multiplying the periodic rate by the number of periods of in one year that must be disclosed to consumers on credit cards and loans as a result of truth-in-lending laws TERM 54
Annual percentage yield
(APY)
DEFINITION 54 Annual percentage yield (APY)-The effective annual rate of interest that must be disclosed to consumers by banks on their savings products as a result of Truth-in-savings laws. TERM 55
Loan amortization
DEFINITION 55 The determination of the equal periodic loan payments necessary to provide a lender with a specified interest return and to pray the loan principal over a specified period.
