Financing
What are the two main types of long-term financing a company can use?
Debt and Equity
What is the main goal of financial management?
To create wealth for the owners
What is the difference between primary and secondary markets?
Primary = first sale of new securities; Secondary = trading of existing securities
What is the formula for the Current Ratio?
Current Assets ÷ Current Liabilities
What are the 5 standards for useful money?
Portability, Divisibility, Stability, Durability, Uniqueness
Borrowing money from a bank or selling bonds are examples of what type of financing?
Debt financing
Financial management begins by identifying what in the market?
Opportunity for profit
What two major stock exchanges exist in the U.S.?
NYSE and Nasdaq
What is the Quick (Acid-Test) Ratio formula?
(Current Assets – Inventories) ÷ Current Liabilities
Define Barter
The direct trading of goods and services without money
Selling stock to new owners is an example of what type of financing?
Equity financing
After identifying an opportunity, what must a firm develop to serve customers?
Business strategy
What is the formula for Earnings Per Share (EPS)?
Net income ÷ number of shares
A leverage ratio compares what two things?
A firm’s debt to its equity
Inflation occurs when there is too much money chasing what?
Too few goods
What is one major risk of equity financing for existing shareholders?
It dilutes ownership
What are the three broad steps in financial management?
Identify opportunity, develop strategy, acquire resources
What is the formula for Dividend Yield?
Dividend ÷ price per share
What is the formula for Debt-to-Equity Ratio?
Total Debt ÷ Total Owners’ Equity
What are the two parts of the Federal Reserve’s Dual Mandate?
Maintain maximum employment and stable prices
What are the three main sources of funding a business can use?
Debt, equity, and retained earnings
Which three questions summarize financial management?
Where do we get the money? What do we do with it? How do we use it effectively?
What is book value per share?
Owners’ equity ÷ number of shares
If a company’s current ratio is below 1, what does that indicate?
It may have trouble paying short-term obligations
What are the three main tools the Fed uses to influence the money supply?
Reserve requirement, open-market operations, and the discount rate