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Finance Definitions
Money
Finance Formulas
Things to Know
Conflicting Terms
100
Agency Problem
What is a possible conflict of interest between the owners and management of a firm.
100
Free Cash Flow
What is another name for cash flow from assets.
100
Current ratio
What is Current assets / Current liabilities
100
Cost of Equity
What is the return that equity investors require on their investment in the firm.
100
Corporation
What is a business created by a distinct legal entity owned by one or more individuals or entities.
200
Average Tax Rate
What is the total taxes paid divided by total taxable income.
200
Discount
What is calculating the net present value of some future amount.
200
Quick Ratio
What is (Current assets – Inventory) / Current liabilities
200
Sunk Cost
What is a cost that has already been incurred and cannot be recouped and therefore should not be considered in an investment decision.
200
Sole Proprietorship
What is a business owned by a single individual.
300
Balance Sheet
What is a financial statement showing a firm's accounting value on a particular date.
300
Dividend
What is a payment made out of a firm's earnings to its owners, in the form of either cash or stock
300
ROA = Return on Assets
What is Net income / Total assets
300
Working Capital
What is a firm's short term assets and liabilities.
300
Total Asset Turnover
What is the item taht "measures how much in sales is generated by each dollar of firm assets."
400
Cash Flow from Assets
What is the total of cash flow to creditors and cash flow to stockholders, consisting of the following: operating cash flow, capital spending, and changes in net working capital.
400
Cost of Equity
What is the return that equity investors require on their investment in the firm.
400
ROE - Return of Equity
What is Net income / (Total assets – Total debt)
400
Venture Capital
What is financing for new, often high risk ventures.
400
Internal Growth Rate
What is the maximum possible growth rate a firm can achieve without external financing of any kind.
500
Compounding
What is the process of accumulating interest in an investment over time in order to earn more interest.
500
DuPont Identity
What is popular expression breaking ROE into three parts; operating efficiency, asset use efficiency, and financial leverage. The Du Pont identity emphasizes the role of a firm’s profitability, asset utilization efficiency, and financial leverage in achieving a ROE figure.
500
Working Capital
What is Owners Equity + Long Term Debt - Net Fixed Assets
500
Sustainable Growth
What is the maximum possible growth rate a firm can achieve without external equity financing while maintaining a constant debt equity ratio.
500
Unique Risk
What is a risk that affects at most a small number of assets, unsystematic or asset specific risk.