#Comment size income statement-- an income statement in which each item is expressed as a percentage of sales. #Gross profit margin-- measures the percentage of each sales dollar remaining after the firm has paid for its goods. #Operating profit margin-- measures the percentage of each sales dollar remaining after all costs and expenses other than interest, taxes, and preferred stock dividends are deducted; the pure profits earned on each sales dollar. #Net profit margin-- measures the percentage of each sales dollar remaining after all costs and expenses, including interest, taxes, and preferred stock dividends, have been deducted. #Return on total assets (ROA)-- measures the overall effectiveness of management in generating profits with its available assets; also called the return on investment (ROI). #Return on common equity (ROE)-- measures the return earned on the common stockholders investment in the firm. #Market ratios-- relate a firm's market value, as measured by its current share price, to certain accounting values. #Price/earnings (P/E) ratio-- measures the amount that investors are willing to pay for each dollar of a firm's earnings; the higher the P/E ratio, the greater the investor confidence. #Market/book (M/B) ratio-- provides an assessment of how investors view the firm's performance. Firms expected to earn high returns relative to their risk typically sell at higher M/B multiples. #DuPont system of analysis-- system used to dissect the firm's financial statements and to assess its financial condition. #DuPont formula-- multiplies the firms net profit margin by its total asset turnover to calculate the firm's return on total assets (R0A). #Modified DuPont formula-- relates the firm's return on total assets (R0A) to its return on common equity (ROE) using the financial leverage multiplier (FLM). #Financial leverage multiplier (FLM)-- the ratio of the firm's total assets to its common stock equity.

#Financial Accounting Standards Board (FASB) Standard No. 52-- mandates that US-based companies translate their foreign-currency denominated assets and liabilities into dollars, for consolidation with the parent company's financial statements. This is done by using the current rate (translation) method. #Current rate (translation) method-- technique used by US-based companies to translate their foreign-currency denominated assets and liabilities into dollars, for consolidation with the parent company's financial statements, using the year end (current) exchange. #Rate ratio analysis-- involves methods of calculating and interpreting financial ratios to analyze and monitor the firm's performance. #Cross sectional analysis-- comparison of different firms financial ratios at the same point in time; involves comparing the firm's ratios to those of other firms in the same industry or to industry averages. #Benchmarking-- a type of cross-sectional analysis in which the firm's ratio now use are compared to those of a key competitor or group of competitors that it wishes to emulate. #Timeseries analysis-- evaluation of the firm's financial performance over time using financial ratio analysis. #Liquidity-- a firm's ability to satisfy its short-term obligations as they come due. #Current ratio-- a measure of liquidity calculated by dividing the firm's current assets by its current. #Liabilities quick (acid test) ratio-- a measure of liquidity calculated by dividing the firm's current assets minus inventory by its current liabilities. #Activity ratios-- measure the speed with which various accounts are converted into sales or cash, inflows or outflows. #Inventory turnover -- measures the activity, or liquidity, of a firm's inventory average age of inventory-- average number of days sales in inventory. #Average collection period-- the average of amount of time needed to collect accounts receivable. #Average payment period-- the average amount of time needed to pay accounts payable. #Total asset turnover -- indicates the efficiency with which the firm uses its assets to generate sales. #Financial leverage-- the magnification of risk and return introduced through the use of fixed cost financing, such as debt and preferred. #Stock degree of indebtedness-- measures the amount of debt relative to other significant balance sheet amounts ability to service debt-- the ability of a firm to make the payments required on a scheduled basis over the life of a debt. #Coverage ratios-- ratios that measure the firm's ability to pay certain fixed charges. #Debt ratio-- measures the proportion of total assets financed by the firm's creditors. #Times interest earned ratio-- measures the firm's ability to make contractual interest payments; sometimes called the interest coverage ratio. #Fixed payment coverage ratio-- measures the firms ability to meet all fixed payment obligations.

@managerial finance@ -- Chapter 2 #Generally accepted accounting principles (GAAP)-- the practice and procedure guidelines used to prepare and maintain financial records and reports; authorized by the Financial Accounting Standards Board (FASB). #Financial Accounting Standards Board (FASB)-- the accounting profession's rule setting body, which authorizes generally accepted accounting principles (GAAP). #Public Company Accounting Oversight Board (PCAOB)-- a nonprofit corporation established by the Sarbanes-Oxley Act of 2002 to protect the interests of investors and further the public interest in the preparation of informative, fair, and independent audit reports. #Securities and Exchange Commission (SEC)-- the federal regulatory body that governs the sale and listing of securities stockholders report-- annual report that publicly owned corporations must provide the stock orders; it summarizes and documents the firm's financial activities during the past year letter to stockholders-- typically, the first element of the annual stockholders report and the primary communication for management. #Income statement-- provides a financial summary of the firm's operating results during a specified period. #Dividend per share (DPS)-- the dollar amount of cash distributed during the period on behalf of each outstanding share of common stock. #Balance sheet-- summary statement of the firm's financial position at a given point in time. #Current assets-- short-term assets, expected to be converted into cash within one year or less. #Current liabilities-- short-term liabilities, expected to be paid within one year or less. #Long-term debt-- debts for which payment is not do in the current year paid in capital in excess of par-- the amount of proceeds in excess of the par value received from the original sale of common stock. #Retained earnings-- the cumulative total of all earnings, net of dividends, that have been retained and reinvested in the firm since its inception. #Statement of stockholders equity-- shows all equity account transactions that occurred during a given year. #Statement of retained earnings-- reconciles the net income earned during a given year, and any cash dividends paid, with the change in retained earnings between the start and the end of that year ( an abbreviated form of the statement of stockholders equity). #Statement of Cash flows-- provides a summary of the firms operating, investment, and financing cash flows and reconciles them with changes in its cash and marketable securities during the period Notes to the financial statements-- footnotes detailing information on the accounting policies, procedures, calculations, and transactions underlying entries in the financial statements.

#Efficient market-- a market that allocates funds to their most productive uses as a result of competition among wealth maximizing investors that determines and publicize his prices that are believed to be close to their true value. #Business taxes ordinary income-- income earned through the sale of the firms goods or services. #Average tax rate-- a firm's taxes divided by its taxable income. #Marginal tax rate-- the rate at which additional income is taxed. #Double taxation-- occurs when the already once taxed earnings of a corporation are distributed as cash dividends to stockholders, who must pay taxes of up to a maximum rate of 15% on them intercorporate. #Dividends-- dividends received by one corporation on common and preferred stock held in other corporations. #Capital gain-- the amount by which the sale price of an asset exceeds the assets of initial purchase price.

#Major financial institutions in the US economy-- commercial banks, savings and loans, credit unions, savings banks, insurance companies, mutual funds, and pension funds. #Financial markets-- forums in which suppliers of funds and demanders of funds can transact business directly. #Private placement-- the sale of a new security issue, typically bonds or preferred stock, directly to an investor or group of investors. #Public offering-- the nonexclusive sale of either bonds or stocks to the general public. #Primary market-- financial market in which securities are initially issued; the only market in which the issuer is directly involved in the transaction. #Secondary market-- financial market in which pre-and securities (those that are not new issues) are traded. #Money market-- a financial relationship created between suppliers and demanders of short-term funds marketable securities-- short-term debt instruments, such as U.S. Treasury bills, commercial paper, and negotiable certificates of deposit issued by government, business, and financial institutions, respectively. #Federal funds-- led transactions between commercial banks in which the Federal Reserve banks become involved. #Euro currency market-- international equivalent of the domestic money market. #London Interbank Offered Rate (LIBOR)-- the best rate that is used to price all Eurocurrency loans. #Capital market-- a market that enable suppliers and demanders of long-term funds to make transactions. #Bond-- long-term debt instrument used by businesses and government to raise large sums of money, generally from a diverse group of lenders. #Preferred stock-- a special form of ownership having a fixed periodic dividend that must be paid prior to payment of any dividends to common stockholders. #Securities exchanges-- organizations that provide the marketplace in which firms can raise funds through the sale of new securities and purchasers can resell securities (often miss labeled stock markets). #Organized securities exchanges-- tangible organizations that act as secondary markets were outstanding securities are resold. #(New York Stock Exchange (NYSE), American Stock Exchange (AMEX) -- regional exchanges Chicago Stock exchange and Pacific exchange). #Over-the-counter (OTC) exchange-- an intangible market for the purchase and sale of securities not listed by the organized exchanges. #Eurobond market-- the market in which corporations and governments typically issue bonds denominated in dollars and sell them to investors located outside the United States. #Foreign bond-- bond that is issued by a foreign corporation or government and is denominated in the investors from currency and sold in the investors how market. #International equity market-- a market that allows corporations to sell blocks of shares to investors in a number of different countries simultaneously.

Sarbanes-Oxley act of 2002 (SOX)-- an act aimed at eliminating corporate disclosure and conflict of interest problems. Contains provisions about corporate financial disclosures in the relationships among corporations, analysts, auditors, attorneys, directors, officers, and shareholders. #SOX focus: *.establish an oversight board to monitor the accounting industry *.tightened audit regulations and controls *.toughened penalties against executives who commit corporate fraud *.strengthend the accounting disclosure requirements and ethical guidelines for corporate officers *.established corporate board structure and membership guidelines *.established guidelines with regard to analyst conflicts of interest *.mandated instant disclosure of stock sales by corporate executives *.increased securities regulation Authority and budgets for auditors and investigators. #Ethics-- standard of conduct or moral judgment. #Considering ethics -- *.is the action arbitrary or capricious? Does it unfairly single out one individual or group? *.Does the action violate the moral or legal rights of any individual or group? *.Does the action conform to accepted moral standards? *.are there alternative courses of action that are less likely to cause actual or potential harm? *.Are the rights of any stakeholder being violated? *.Does the firm have any overwriting duties to any stakeholder? *.Will the decision benefit any stakeholder to the detriment of another stakeholder? *.If there is detriment to any stakeholder, how should it be remedied, if at all? *.What is the relationship between stockholders and other stakeholders? An ethics program can produce a number of positive benefits: *.reduce potential litigation and judgment costs *.maintain a positive corporate image *.build shareholder confidence *.gain the loyalty, commitment in respect of the firm's stakeholders *.provide employment integrity. #Agency problem-- the likelihood that managers may place personal goals ahead of corporate goals. #Agency costs-- the costs borne by stockholders to maintain a governance structure that minimizes agency problems and contributes to the maximization of owner wealth. #Incentive plans-- management compensation plans that tend to time management compensation to share price; the most popular incentive plan involves the grant of stock options. #Stock options-- an incentive allowing managers to purchase stock at the market price at the time of the grant. #performance plans-- plans the time management compensation to measures such as EPS, growth in EPS, and other ratios of return. Performance shares and/or cash bonuses are used as compensation under these plans. #Cash bonuses-- Cash paid to management for achieving certain performance goals. #Financial institution– an intermediary that channels the savings of individuals, businesses, and governments into loans or investments.

#Credit analyst/manager-- administers the firm's credit policy by a value waiting credit applications, extending credit, and monitoring and collecting accounts receivable. Pension fund managers-- and large companies, oversees or manages the assets and liabilities of the employees pension funds. Foreign exchange manager-- manages specific foreign operations and the firm's exposure to fluctuations in exchange rates. Treasurer-- the firm's chief financial manager, who is responsible for the firm's financial activities, such as financial planning and fundraising, making capital expenditure decisions, and managing cash, credit, the pension fund, and foreign exchange. Controller-- the firm's chief accountant, who is responsible for the firm's accounting activities, such as corporate accounting, tax management, financial accounting, and cost accounting. *note*the treasurer's focus tends to be more external, the comptroller's focus more internal. Foreign exchange manager-- the manager responsible for monitoring and managing the firm's exposure to loss from currency fluctuations. Marginal cost benefit analysis-- economic principle that states that financial decisions should be made and actions taken only when the added benefits exceed the added costs. Accrual basis-- in preparation of financial statements, recognizes revenue at the time of sale and recognizes expenses when they are incurred. Cash basis-- recognizes revenues and expenses only with respect to actual inflows and outflows of cash. Earnings per share (EPS)-- the amount earned during the period on behalf of each outstanding share of common stock, calculated by dividing the period's total earnings available for the firm's common stockholders by the number of shares of common stock outstanding. Risk-- the chance that actual outcomes may differ from those excepted risk-averse-- seeking to avoid risk stakeholders-- groups such as employees, customers, suppliers, creditors, owners, and others who have a direct economic link to the firm. Corporate governance-- the system used to direct and control Corporation. Defines the rights and responsibilities of key corporate participants, decisions he procedures, and monitor its objectives. Individual investors-- investors to buy relatively small quantities of shares so as to meet personal investment goals. Institutional investors-- investment professionals, such as insurance companies, mutual funds, and pension funds, that are paid to manage other People's Money and that trade large quantities of securities.

#Stockholders-- the owners of a corporation, whose ownership, or equity, is evidenced by either common stock or preferred stock. Common stock-- the purest and most basic form of corporate ownership. Dividends-- periodic distributions of earnings to the stockholders of a firm. Board of Directors-- group elected by the firm's stockholders and typically responsible for developing strategic goals and plants, setting general policy, guiding corporate affairs, approving major expenditures, and hiring/firing, compensating, and monitoring key officers and executives. President or chief executive officer (CEO)-- corporate official responsible for managing the firm's day-to-day operations and tearing out policies established by the board of directors. Limited partnership (LP)-- a partnership in which one or more partners have limited liability as long as at least one partner (the General partner) has unlimited liability. The limited partners cannot take an active role in the firm's management; they are passive investors. S Corporation (S. Corp.)-- a tax reporting entity that (under subchapter S. of the Internal Revenue Code) allow certain corporations with 100 or fewer stockholders to choose to be taxed as partnerships. It's stockholders receive the organizational benefits of a corporation and the tax advantages of a partnership. But S corps lose certain tax advantages related to pension plans. Limited liability corporation (LLC)-- permitted in most states, the LLC gives its owners, like those of S corps, limited liability and taxation as a partnership. But unlike an S. Corp.,the LLC can end more than 80% of another corporation, and corporations, partnerships, or non-US residents can own LLC shares. LLC’s work well for corporate joint ventures or projects developed through a subsidiary. Limited liability partnership (LLP)-- a partnership permitted in many states; governing statutes vary by state. All LLP partners have limited liability. They are liable for their own ask of malpractice, but not for those of other partners. The LLP is taxed as a partnership. LLP's are frequently used by legal and accounting professionals. Career opportunities in managerial finance (examples). Financial analyst-- primarily prepares the firm's financial plans and budgets. Other duties include financial forecasting, performing financial comparisons, and working closely with accounting. Capital expenditures manager-- a value weights and recommends proposed asset investments. Maybe involved in the financial aspects of implementing approved investments. Project finance manager-- in large firms, arranges financing for proved asset investments. Coordinates consultants, investment bankers, and legal counsel. Cash managers-- maintains and controls the firm's daily cash balances. Frequently manages the firm's cash collection and disbursement activities and short-term investments; coordinates short-term borrowing and banking relationships.

@Managerial finance@ -- Chapter 1 Finance-- the art and science of managing money. Financial services-- the area of finance concerned with the design and delivery of advice and financial products to individuals, business, and government. Managerial finance-- concerns the duties of the financial manager in the business firm. Financial manager-- actively manages the financial affairs of any type of business, whether financial or non financial, private or public, large or small, profit seeking or not-for-profit. Sole proprietorship-- a business and by one person and operated for his or her own profit. Unlimited liability-- the condition of a sole proprietorship (or general partnership) allowing the owner's total wealth to be taken to satisfy creditors. Partnership-- a business and by two or more people and operated for profit. Articles of partnership-- the written contract used to formally establish a business. Partnership Corp.-- an artificial being created by law (often called a legal entity). #Strengths and weaknesses of the common legal forms of business organization. *Sole proprietorship Strengths: *.The owner receives all profits (and sustains all losses) low organizational costs *.income included and taxed on proprietors personal tax return *.Independence *.secrecy *.ease of dissolutionWeaknesses *.Owner has unlimited liability -- total wealth can be taken to satisfy debts *.limited fundraising power tends to inhibit growth *.proprietor must be Jack of all trades *.difficult to give employees long-run career opportunities *.lacks continuity when proprietor dies Partnership Strengths *.Can raise more funds than the sole proprietorship borrowing power enhanced by more owners *.more available brainpower and managerial skill *.income included and taxed on partners personal tax return *.Owners have limited liability, which guarantees that they cannot lose more than they invest... Weaknesses: *.Owners have unlimited liability and may have to cover debts of other partners *.partnership is dissolved when a partner dies *.difficult to liquidate or transfer partnership Corp. Strengths: *.can achieve large size via a sale of ownership (stocks) ownership is readily transferable *.Long life of firm *.can hire professional managers *.has better access to financing *.can offer a tract of retirement plans Weaknesses: *.Taxes generally higher, because corporate income is taxed, and dividends paid to owners are also taxed at a maximum 15% rate *.more expensive to organize than other business forms *.subject to greater government regulation *.lacks secrecy, because stockholders must receive financial reports.