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35 Cards in this Set

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  • Back
capital budgeting
the process of planning and managing a firm's long-term investments
capital structure
mixture of debt and equity maintained by a firm
working capital
firm's short-term assets and liabilities
agency problem
possibility of conflict of interest between the owners and management of a firm
sole proprietorship
a business owned by a single individual
partnership
a business formed by two or more individuals or entities
corporation
a business created as a distinct legal entity owned by one or more individuals or entities
stakeholder
someone other than a stockholder or creditor who potentially has a claim on the cash flows of the firm
balance sheet
financial statement showing a firm's accounting value on a particular date
net working capital
current assets less current liabilities
GAAP
common set of standards and procedures by which audited financial statements are prepared
income statement
financial statement summarizing a firm's performance over a period of time
non cash items
expenses charged against revenues that do not directly affect cash flow, such as depreciation
average tax rate
total taxes paid divided by total taxable income
marginal tax rate
amount of tax payed on the next dollar earned
cash flow from assets
total of cash flow to creditors and cash flow to stockholders,

consists of the following:
1. operating cash flow
2. capital spending
3. changes in net working capital
free cash flow
another name for cash flow from assets
cash flow to creditors
firm's interest payments to creditors less net new borrowings
cash flow to stockholders
dividends paid out by a firm less new equity raised
operating cash flow
cash generated from a firm's normal business activities
common-size statement
standardized financial statement presenting all items in percentage terms. balance sheet items are shown as percentage of assets and income statement items as percentage of sales
financial ratios
relationships determined from a firm's financial information and used for comparison purposed
Du Pont identity
popular expression breaking ROE into three parts:

1. operating efficiency
2. asset use efficiency
3. financial leverage
internal growth rate
maximum possible growth rate for a firm that relies only on internal financing
sustainable growth rate
maximum possible growth rate for a firm that maintains a constant debt ratio and doesn't sell new stock
Standard Industrial Classification (SIC) code
U.S. government code used to classify a firm by its type or business operations
future value (fv)
amount an investment is worth after one or more periods
compounding
process of accumulating interest in an investment over time to earn more interest
interest on interest
interest earned on the reinvestment of previous interest payments
compound interest
interest earned on both the initial principal and the interest reinvested from prior periods
simple interest
interest earned only on the original principal amount invested
present value (pv)
current value of future cash flows discounted at the appropriate discount rate
discount
calculate the present value of some future amount
discount rate
rate used to calculate the present value of future cash flows
discounted cash flow (DCF) valuation
valuation calculating the present value of a future cash flow to determine its value today