finance exam2

Start Studying!

Terms

undefined, object

copy deck

working capital management: management of short-term assets and liabilities
operating cycle: from the time a company purchases raw material and provides labor for production to the time it collects payment for its final products
cash conversion cycle: the length of time between the payment of cash for inventory and the receipt of cash from accounts receivable
CCC=DSI+DSO-DPO
carrying costs: capital costs, warehousing, insurance, bad credit
*increase w/ higher levels of current assets-easy to measure
shortage costs: stock outs, sales
*decrease with higher levels of current assets, tough to measure
old paradigm: working capital is good excess inventory adds value to customers
new paradigm: working capital is bad, reflects poor planning and use of funds, reduce inventory by changing processes and working with suppliers
capital budgeting: the process of planning and managing a firm's long-term investments
cost of capital: cost of obtaining financing for the company's capital expenditures
payback period: amount of time required for an investment to generate enough cash flow to recover its initial cost
capital structure: the mix of long-term debt and equity issued by the firm
sec: main regulator of all primary and secondary market activity in the us
venture capital: equity investments by investors in private companies
seed financing: first money provide by centure capitalists and involves an initial investment of up to several mil dollars
first round funding: investment in private companies that have tangible products that are nearly developed and will soon be marketed
intermediate funding: maturing company where a future leveraged buyout, merger, or acquisition and/or initial public offering is a viable option
later stage funding: mature company where fund are needed to support major expansion or new product development, company is profitable or breakeven
equity loan: offer of an ownership position to induce the loan or can be a note that has an option to convert from debt to equity
mezzanine funding: company's progress makes positioning for an IPO viable
initial public offering: exit stage of financing when a firm goes from private ownership to public ownership, initial public sale of common stock to investors
primary securities market: involves the sale of newly issued securities to investors
seasoned offerings (secondary): subsequent sales of common stock to investors
underpricing effect: abnormal one-day return for IPOs, offering price is below the level where supply meets short-term demand
underwriting: when an investment bank purchases newly issued securities from a company and guarantees a fixed price
merger: when two or more firms agree to combine the separate companies into a single entity
consolidation: when two or more firms combine and form a new firm separate from the previous firms
takeover: when an attempt to acquire a company is resisted by the target
secondary securities market: markets where the funds flow from the buyer of a security to the seller-not to the issuer of the security
stock exchanges: organizations where stocks are traded by the members of the exchange
nyse: new york stock exchange, largest stock exchange in the world due to market cap, auction market, specialists act as dealers or brokers, most liquid
specialists: members of the exchange who are selected to specialize in the buying and selling of shares of one or more specific stocks
broker: specialist acts as an agent for another member and executes transactions for other floor brokers in exchange for a commission
dealer: specialist acts on his own behalf and will buy and sell out of his own account
over the counter market: no physical trading floor and no specialists, over telephones and computers
nasdaq: national association of securities dealers automated quotation system, provides market participants with price quotations for securities traded in the otc market
market makers: individual dealers who commit capital and openly compete with one another for investors' buy and sell orders
electronic communication networks: ecn, trading systems which bring additional customer orders into nasdaq
ask: price a dealer is willing to accept to sell a security
price-weighted index: adding all of the prices of the stocks in the index and divide that sum by a divisor
Dow Jones industrial average: most popular price-weighted index, thirty stocks
market value-weighted index: percentage weight of each firm is dependent on the relative market value of the firm's stock divided by the stock market value of all the firms in the index
standard and poor's 500 index: market value-weighted index, 500 stocks from all major sectors across the three major us stock markets (nyse, amex, nasdaq)
financial intermediation: involves the creation and sale of secondary securities by financial institutions
secondary securities: include saving and checking accounts, annuities, insurance policies and pension plans, and mutual funds,
primary securities: stocks, bonds, loans, mortgages,
the interest, dividneds, principal, and gains pay the cash flows associated w/ secondary securities
maturity intermediation: FI pools and transforms the longer-term assets that it owns into the shorter-term ones that are owned by the FIs depositors
diversification intermediation and default risk: when investors pool their funds with a financial intermediary, the FI is able to take advantage of economies of scale and its expertise in analyzing default risk, and the individual investors pay much less for the same amount of diversification
economies of scale in information and costs: FIs are able to pool investment assets and provide the necessary information at a considerably lower cost than what would be available to an individual investor
depository financial intermediaries: commercial banks, savings and loan associations, savings banks, credit unions
contractual financial intermediaries: pension funds, life insurance companies, property and casualtiy insurance companies
transactional financial intermediaries: brokerage firms and investment banks, mutual funds and investment companies
compounding: process of going from a value today to an expected but unknown value in the future
future value: the amount of money that an investment will grow to at some future date by earning interest at a certain rate
compound interest: when an investment earns interest on both the original principal and the accumulated interest
simple interest: when an investment pays interest only on the original principal
present value: current value of future expected cash flows discounted at the appropriate discount rate
discount rate: rate used to calculate the present value of a future cash payment

Start Studying!

Deck Info

Number of cards 57