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an incorporated business owned by one individual |
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An unincorporated business owned by two or more persons. |
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A legal entity created by a state, separate and distinct from its owners and managers, having unlimited life, easy transferability of ownership, and limited liability. |
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A document filed with the secretary of the state in which a business is incorporated that provides information about the company, including its name, address, directors, and amount of capital stock. |
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A set of rules drawn up by the founders of the corporation that indicates how the company is to be governed; includes procedures for electing directors, rights of stockholders, and how to change the bylaws when necessary. |
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limited liability partnership (llp) |
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A partnership wherein at least one partner is designated as a general partner with unlimited personal financial liability, and the other partners are limited partners whose liability is limited to amounts they invest in the firm. |
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limited liability company (llc) |
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Offers the limited personal liability associated with a corporation; however the company's income is taxed like that of a partnership. |
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A corporation with no more than 100 stockholders that elects to be taxed in the same way as proprietorships and partnerships, so that business income is only taxed once. |
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stockholder wealth maximization |
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The appropriate goal for management decisions; considers the risk and timing associated with expected cash flows to maximize the price of the firm's common stock. |
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The present, or current, value of the cash flows that an asset is expected to generate in the future. |
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A potential conflict of interest between outside shareholders and managers who make decisions about how to operate the firm. |
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The acquisition of a company over the opposition of its management. |
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A company's attitude and conduct toward its stakeholders (employees, customers, stockholders, and community). Ethical behavior requires fair and honest treatment of all parties. |
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Deals with the set of rules that a firm follows when conducting business; these rules identify who is accountable for major financial decisions. |
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Those who are associated with a business; stakeholders include managers, employees, customers, suppliers, creditors, stockholders, and other parties with an interest in the firm's well-being. |
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Voting power that is assigned to another party, such as another stockholder or institution. |
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Organizations comprised of companies in different industries with common ownership interests, which include firms necessary to manufacture and sell products—a network of manufacturers, suppliers, marketing organizations, distributors, retailers, and creditors. |
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Firms that operate in two or more countries. |
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The prices at which the currency from one country can be converted into the currencies of other countries. |
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A report issued by a corporation to its stockholders that contains basic financial statements, as well as the opinions of management about the past year's operations and the firm's future prospects. |
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A statement that shows the firm's financial position—assets and liabilities and equity—at a specific point in time. |
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common stockholders' equity |
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The funds provided by common stockholders—common stock, paid-in capital, and retained earnings. |
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common size balance sheet |
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Dollar amounts on the balance sheet are stated as a percent of total assets. |
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The portion of the firm's earnings that has been reinvested in the firm rather than paid out as dividends. |
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Amounts reported in financial statements—accounting numbers. |
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Values of items—asset, liability, and equity—in the marketplace outside the firm. |
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A statement summarizing the firm's revenues and expenses over an accounting period, generally a quarter or a year. |
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Those cash flows that arise from normal operations; the difference between cash collections and cash expenses associated with the manufacture and sale of inventory. |
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A firm's net income as reported on its income statement. |
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A statement that reports the effects of a firm's operating, investing, and financing activities on cash flows over an accounting period. |
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statement of retained earnings |
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A statement reporting the change in the firm's retained earnings as a result of the income generated and retained during the year. The balance sheet figure for retained earnings is the sum of the earnings retained for each year that the firm has been in business. |
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An asset that can be easily converted into cash without significant loss of the amount originally invested. |
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Ratios that show the relationship of a firm's cash and other current assets to its current liabilities; they provide an indication of the firm's ability to meet its current obligations. |
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A set of ratios that measures how effectively a firm is managing its assets. |
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the use of debt financing |
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Ratios that provide an indication of how much debt the firm has and whether the firm can take on more debt. |
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A group of ratios showing the effect of liquidity, asset management, and debt management on operating results. |
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A set of ratios that relate the firm's stock price to its earnings and book value per share. |
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comparative ratio analysis |
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An analysis based on a comparison of a firm's ratios with those of other firms in the same industry. |
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An evaluation of changes (trends) in a firm's financial position over a period of time, perhaps years. |
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"window dressing" techniques |
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Techniques employed by firms to make their financial statements look better than they actually are. |
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A system consisting of individuals and institutions, instruments, and procedures that bring together borrowers and savers. |
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Funds are allocated to their optimal use at the lowest costs in the financial markets. |
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The prices of investments reflect existing information and adjust quickly when new information enters the markets. |
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Return that exceeds what is justified by the risk associated with the investment. |
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The segments of the financial markets where the instruments that are traded have maturities equal to one year or less. |
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The segments of the financial markets where the instruments that are traded have maturities greater than one year. |
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Financial markets where loans are traded. |
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Financial markets where corporate stocks are traded. |
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Markets in which various organizations raise funds by issuing new securities. |
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Markets where financial assets that have previously been issued by various organizations are traded among investors. |
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Financial markets where options and futures are traded. |
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initial public offering (ipo) market |
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Market consisting of stocks of privately held companies that have recently gone public for the first time. |
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Formal organizations with physical locations that facilitate trading in designated (“listed”) securities. The major U.S. stock exchange is the New York Stock Exchange (NYSE). |
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characteristics a firm must possess to be listed on a stock exchange. |
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over-the-counter (otc) market |
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A collection of brokers and dealers, connected electronically by telephones and computers, that provides for trading in securities not listed on the physical stock exchanges. |
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securities and exchange commission (sec) |
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The U.S. government agency that regulates the issuance and trading of stocks and bonds. |
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When stocks are listed for trading in more than one stock market. |
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An organization that underwrites and distributes new issues of securities; it helps businesses and other entities obtain needed financing. |
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Agreement for the sale of securities in which the investment bank guarantees the sale by purchasing the securities from the issuer, thus agreeing to bear any risks involved in the transaction. |
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Agreement for the sale of securities in which the investment bank handling the transaction gives no guarantee that the securities will be sold. |
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The costs associated with issuing new stocks or bonds. |
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A statement of facts filed with the SEC about a company that plans to issue securities. |
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A document describing a new security issue and the issuing company. |
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A group of investment banking firms formed to spread the risk associated with the purchase and distribution of a new issue of securities. |
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Registration of securities with the SEC for sale at a later date. The securities are held “on the shelf” until the sale. |
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Organizations that create various loans and investments from funds provided by depositors. |
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time value of money (tvm) |
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The principles and computations used to revalue cash payoffs from different times so they are stated in dollars of the same time period. |
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The rate of return on the best available alternative investment of equal risk. |
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A single payment (received or made) that occurs either today or at some date in the future. |
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A series of payments of an equal amount at fixed, equal intervals for a specified number of periods. |
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An annuity with payments that occur at the end of each period. |
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An annuity with payments that occur at the beginning of each period. |
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Multiple payments of different amounts over a period of time. |
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The amount to which a cash flow or series of cash flows will grow over a given period of time when compounded at a given interest rate. |
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The process of determining to what value an amount or a series of cash flows will grow in the future when compound interest is applied. |
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This term designates constant cash flows—that is, the amount of an annuity payment. |
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This term designates cash flows in general, including uneven cash flows. |
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The future value of a cash flow stream. |
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today—that is, the current value—of a future cash flow or series of cash flows. |
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The process of determining the present value of a cash flow or a series of cash flows received (paid) in the future; the reverse of compounding. |
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Streams of equal payments that are expected to continue forever. |
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The process of determining the future (or present) value of a cash flow or series of cash flows when interest is paid once per year. |
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The process of determining the future (or present) value of a cash flow or series of cash flows when interest is paid twice per year. |
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simple (quoted) interest rate |
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Definition
The rate, quoted by borrowers and lenders, that is used to determine the rate earned per compounding period (periodic rate, rPER). |
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annual percentage rate (apr) |
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Definition
Another name for the simple interest rate, rSIMPLE; does not consider the effect of interest compounding. |
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Definition
The annual rate of interest actually being earned, as opposed to the quoted rate; considers the compounding of interest. |
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A loan that requires equal payments over its life; the payments include both interest and repayment of the debt. |
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A schedule showing precisely how a loan will be repaid. It gives the payment required on each payment date and a breakdown of the payment, showing how much is interest and how much is repayment of principal. |
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