Professional Documents
Culture Documents
Annual Fee
a credit card.
An amount that credit card companies can charge for the use of
Break-even point
The point at which the money from product sales equals
the costs of making and distributing the product.
Budget
A formal, written statement of expected revenue and expected
revenue and expenses for a future period.
Bank a financial institution that accepts deposits and channels the money into
lending activities
Bank Reserves
Federal Reserve
the currency banks hold in their vaults plus their deposits at the
Blue Chip Stocks stocks of large, well-established corporations with a solid record
of profitability
Board of Governors
Reserve System
bearer form
the form of bond issue in which the bond is issued without
record of the owners name; payment is made to whomever holds the bond
bid-ask spread
the difference between the bid price and the asked price
Bid price
stock
the amount by which the call price exceeds the par value of the
Call provision
An agreement giving the corporation the option to repurchase
the bond at a specific price prior to maturity
Collateral
Capital Gain
the difference between a higher selling price and a lower
purchase price, resulting in a financial gain for the seller
Capital Loss
Loss from the sale of an asset. (Capital loss can result when
stock is sold for a lower price than was paid for it).
Credit
An arrangement to receive cash, goods, or services now and
pay for them in the future.
call premium
bond
the amount by which the call price exceeds the par value of the
Call provision
An agreement giving the corporation the option to
repurchase the bond at a specific price prior to maturity
Collateral
convertible bond
can be swapped for a fixed number of shares of stock
anytime before maturity at the bond holder's option
Coupon rate
Coupon Rate
= 7% $1000 X 7% = $70
Coupons
current yield
Characteristics of Money
Durability, portability, divisibility, uniformity,
limited supply, and acceptability
Collateral
Commodities Market
The market for the purchase and sale of commodity (a
basic product, usually, but not always, agricultural or mineral) futures, contracts for
the sale and delivery of commodities at some future time.
Compound Interest
interest already earned.
Compounding
the accumulation of a sum of money in, say, a bank
account, where the interest earned remains in the account to earn additional
interest in the future
Credit
An arrangement to receive cash, goods, or services now and pay
for them in the future.
Credit Card A plastic card used to make purchases now and pay for them later.
Credit Rating
business
Credit Union
a nonprofit financial institution that is owned by its members
and organized for their benefit
Crowding-Out
occurs when a government deficit drives up the interest rate and
leads to reduced investment spending
Currency
Debit
A bookkeeping entry on the left side of an account. It records the
increase to an asset or an expense, OR the decrease of a liability or item of equity
or revenue.
Debenture An unsecured debt usually with a maturity of 10 years or more
Deferred Call Provision a call provision prohibiting the company from redeeming
the bond prior to a certain date
dirty price
Discount Bond
Discounting Future Amount the process of figuring out what that future value is
in present-day money
Dividend Yield
current share price.
Debit Card a bank card that automatically deducts the amount of a purchase from
the checking account of the cardholder
Deflation
Demand
Discount Rate
the rate of interest set by the Federal Reserve that member
banks are charged when they borrow money through the Federal Reserve System
Dividend
that part of the earnings of a corporation that is distributed to its
shareholders
Easy-Money Policy
monetary policy resulting in lower interest rates and
greater access to credit; associated with an expansion of the money supply
Equity
Equity
Equity
Equity
is the ownership interest of shareholders in a coporation in the
form of common or preferred stock.
Equity
Equity
Excess Reserves
requirement
Fisher Effect
and inflation
(1+R)=(1+r)X(1+h)
Fixed expense
rent or insurance.
Federal Deposit Insurance Corporation (FDIC) A federal agency which insures
bank deposits, created by the Glass-Strengall Banking Reform Act of 1933.
Federal Reserve
Finance Charge
card bill.
Fiscal Policy
a government policy for dealing with the budget (especially with
taxation and borrowing)
Income statement
A financial report of the revenue, expenses, and net
profit/loss for an accounting period.
Also know as the P&L statement for "profit and loss".
Initial Public Offering (IPO) the first time a company issues stock that may be
bought by the general public
Invoice
An itemized statement of money owed for goods shipped or
services rendered.
Interest
Interest Rate
if YTM>coupon rate
income bonds
Indenture the written agreement between the corporation and the lender
detailing the terms of the debt issue
inflation premium
the portion of a nominal interest rate that represents
conpensation for expected future inflation
inside quotes
Investment Return
The additional income earned from saving or investing
money, often expressed as an annual percentage of the amount invested.
Liability
Liquid Investment
s assets that flow easily since they can be converted into
other investments or cash without much time or difficulty
Liquidity
being in cash or easily convertible to cash, the ease with which an
asset can be converted into the economy's medium of exchange
liquidity premium
the portion of a nominal interest rate or bond yield that
represents compensation for lack of liquidity, or ability to sell bond quickly and
receive actual value
Markup
ensure a profit.
Monetary Policy
bank
Money
Money Supply
maturity
municipal securities
Net profit
revenue.
NASDAQ
a nationwide electronic system that links dealers across the nation so
that they can buy and sell securities electronically
New York Stock Exchange (NYSE) The largest securities exchange in the United
States. After its 2007 merger with a large European exchange, it is formally known
as NYSE Euronext.
Required Reserves
Reserves that a bank is legally required to hold, based on
its checking account deposits
Rule of 72 The number of years it takes for a certain amount to double in value is
equal to 72 divided by its annual rate of interest.
Stock
corporation
Stock Market
Three Cs of Credit
Price skimming
a technique of charging high prices on a new product to
recover costs, then dropped when the product is no longer unique.
Bundle pricing
A technique in which several complimentary products are
sold for a single price, which is lower than the price would have been if each item
was bought separately.
liquidity premium
the portion of a nominal interest rate or bond yield that
represents compensation for lack of liquidity, or ability to sell bond quickly and
receive actual value
maturity
municipal securities
Nominal rates
NYSE broker
positive covenant
Preferred Stock
Preferred stock
Preferred Stockholders
common stockholders
Premium bond
protective covenant
a part of the indenture limiting certain actions that might
be taken during the term of the loan, usually to protect the lender
proxy
grant of authority by a shareholder allowing another individual to vot
that shareholder's shares
put bond
price
allows the holder to force the issuer to buy the bond back at a stated
Rate of Return
is the return obtained on an investment for a specific
period of time, which is expressed as a percentage
registered form
the form of bond issue in which the registrar of the
company records ownership of each bond; payment is made directly to the owner of
record
Securities Dealer
a person who maintains an inventory of stock and ready
to buy and sell that stock at any time
Seniority of a bond
seniority of a bond means that if there is a default, the
senior bond will get a preference over other bonds and creditors.
An account
taxability premium
the portion of a nominal interest rate or bond yield that
represents compensation for unfavorable tax status
Term Structure relationship between time to maturity and yields, does not
include default risk premium
Total Return
Value of Stock
Value of Stock
Yield Curve
YTM<coupon rate
liquidity Objective: the cash-flow position of a business - if a business can pay it's
debts when they are due
growth Objective: growing involves taking risks and can cause cash flow issues
return on investment Objective: maximising the investor's return, so that they don't
withdraw
owner's equity Internal Source: funds provided by the owner, cash from savings,
sale of assets and borrowings which the owner is responsible for paying
leasing External/Long-Term: the business pays for the right to use an asset but does
not own it
term loans External/Long-Term: are for 3-5 years with fixed payments and are
secured with specific assets
ordinary shares Equity Source: the most common type of shares held by part
owners of the company up to the value of their shares. Can be brought when the
company floats on the stock exchange
rights issues Equity Source: allow current/existing shareholders the first opportunity
to purchase a new issue of ordinary shares in proportion to their existing shares
companies Financial Institutions: have the ability to raise finance themselves and
can issue debentures and promissory notes and certain types of bonds
availability of funds Global Market Influences: Australia is seen as a low risk country
for investment and so has attracted high levels of foreign investment
interest rates Global Market Influences: changes in interest rates can increase the
costs of funds for a business who borrows from overseas, and can impact
willingness and ability to purchase
budgeting Planning and Implementing: developing financial forecasts and budgets
that allow the business to budget for production, employment of human resources,
raising appropriate funds from appropriate sources and budgeting for other
operations
short-term finance Bank overdrafts, short-term loans, bills of exchange and acquired
trade credit -> grants trade credit and helps purchase inventories
long-term finance Share capital, mortgage loan, long-term loan, debentures -> land,
buildings, machinery and motor-vehicles
cash-flow statement Shows how much cash came into the business, how much cash
was paid out, a cash flow forecast, can determine a businesses solvency
income statement Shows how much the business sold, how much it cost to sell and
what profit was made. Also called a profit and loss or revenue statement. Indicates
the level of profit and the operations that caused this
balance sheet Shows the assets owned and the liabilities owed, the contributions
made by owners and how much the business is worth.
current ration Shows the liquidity (ability to pay current debts) of the business, and
so the ratio should be more than one.
Current Assets/Current Liabilities
debt to equity ratio Shows the gearing (level of debt to equity) of a business. Should
be about 1:1
Total Liabilities/Equity Funds
gross profit ratio Indicates what percentage of each sales dollar is gross profit,
should be looked at in a trend and compared to competitors
Gross Profit/Sales
net profit ratio Measures the percentage of each dollar of sales that is left over to
pay tax and returns to lenders and owners - the return on sales. Should never be
negative.
Net Profit/Sales
return on equity ratio Measures the net profit before tax and compares that to the
equity of a business, reflects asset and financial structure, measuring the owner's
reward for the risks involved in keeping the business running
Net Profit/ Total Equity
expense ratio The proportion of expenses to sales, should be balanced.
Total Expenses / Revenue(Sales)
accounts receivable turnover ratio Measures how long a business takes to collect
money from its creditors, should be a low number or equal to or less than the
industry average
365/(Sales/Accounts Receivable)
time comparisons Comparing information from the current period with previous
periods to reveal a trend
capitalising expenses Turns expenses into assets and may not represent the true
financial condition of the business. This understates expenses and overstates profits
and assets
valuing assets Overstating the value of assets to improve the appearance of their
balance sheet
debt repayments A high level of gearing can represent a point of concern, however,
higher levels of borrowed money can also bring future economic benefit when
invested properly. Making comparisons between companies can therefore be
difficult as some businesses and industries can safely carry high debt repayments
while others can't
ethical issues related to financial reports Disclosure, best practice and following
conventions and principles is important in the preparation of financial reports and is
governed by ASX rules and managed by ASIC and CPA
expenses minimisation and discounts for early payment Cash Flow Management:
Most businesses purchase their supply needs on credit and pay by cheque on the
due date, some obtain discounts for early payments - a reward for paying with cash
or within a shorter timeframe
working capital Refers to the business's ability to meet its day to day financial
needs. Aims to increase the efficiency with which a business uses its current assets
and meets its current liabilities, there needs to be a balance between profitability
and liquidity
lease-back Selling assets and then leasing them back from the purchaser helps to
liquidate assets and raises finance without debt
fixed costs Remain the same no matter what the level of output
marketing objectives The marketing team works to generate revenue to fulfil the
needs of the expenditures of a business, plus make a profit
pricing policy May be allowed to fluctuate, must take into account the costs of
production, 'trade price' gives discounts to tradespeople and incentives include
discounts and sales promotions
exchange rates Impact businesses that trade internationally, on where they produce
and purchase and the price of their raw materials
clean payment The buyer remits payment for the goods through a bank when the
goods are received. The exporter loses control of the goods and relies on the credit
standing of the buyer to make payment
letters of credit The irrevocable documentary credit of any overseas bank confirmed
by an Australian bank. LC = Letter of Credit, ILC = Irrevocable Letter of Credit, and
Confirmed ILC
bill of exchange Documentary Sight, the exporter retains control of the goods until
the payment is received
Documentary Term, the bill is accepted by the buyer and the documents are
released to them. Exporter loses control, relies on buyer's credit standing and
integrity
hedging Entering into a contract to buy/sell foreign exchange at a set date and a
specified rate to reduce financial risk
derivatives Investment instruments that derive their value from a potential further
return, e.g. the futures market. Based on the sales of securities, valued by tangible
securities such as shares, bonds and commodities