Summary Principles of Managerial Finance

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This is the summary of the book "Principles of Managerial Finance". The author(s) of the book is/are Gitman. This summary is written by students who study efficient with the Study Tool of Study Smart With Chris.

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Summary - Principles of Managerial Finance

  • 1.1 Finance and Business

  • Def. finance
    the science and art of managing money
  • def. managerial finance
    Concerns the duties of the financial manager in a business
  • Financial services
    The area of finance concerned with the design and delivery of advice and financial products to individuals, businesses, and governments.
  • Financial manager
    Actively manages the financial affairs of all types of businesses, whether private or public, large or small, profit seeking or not for profit.
  • 3 most common legal forms

    1. sole proprietorship

    2. partnership

    3. corporation

  • Sole proprietorship
    a business owned by one person and operated for his or her own profit. They have unlimited liability.
  • What is unlimited liability
    Giving creditors the right to make claims against the owner's personal assets to recover debts owed by the business.
  • Partnership
    A business owned by two or more people and operated for profit. They have unlimited liability
  • Corporation
     an entity created by law. they have limited liability
  • Who are the owners of a corporation?
    The stockholders
  • What is common stock?
    The purest and most basic form of corporate ownership.
  • What are dividends?
    Periodic distributions of cash to the stockholders of a firm.
  • 1.2 Goal of the Firm

  • What are earning per share?
    The amount earned during the period on behalf of each outstanding share of common stock.
  • How do you calculate EPS?
    period's total earnings available for the firm's CS / shares of common stock outstanding.
  • Def. risk
    The chance that actual outcomes may differ from those expected
  • Def. risk averse
    Requiring compensation to bear risk
  • What are stakeholders?
    Groups such as employees, customers, suppliers, creditors, owners, and others who have a direct economic link to the firm.
  • What are business ethics?
    Standards of conduct or moral judgment that apply to persons engaged in commerce.
  • 1.3 Managerial Finance Function

  • The treasurer and the controller are reporting to the CFO. What is a treasurer?
    The firms Chief financial manager, who manages the firm's cash, oversees its pension plans, and manages key risks.
  • What does the controller?
    the firms chief accountant, who is responsible for the firms accounting activities, such as corporate accounting, tax management, financial accounting, and cost accounting.
  • The foreign exchange managers typically report to the firm's treasurer, what are they doing exactly?
    The manager responsible for managing and monitoring the firm's exposure to loss from currency fluctuations.
  • Two basic differences between finance and accounting;
    one is related to the emphasis on cash flows and the other to decision making.
  • Accountant uses accrual basis, what is accrual basis
    In preparation of financial statements, recognizes revenue at the time of sale and recognizes expenses when they are incurred.
  • Financial manager uses the cash basis, what is that?
    Recognizes revenues and expenses only with respect to actual inflows and outflows of cash.
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Latest added flashcards

What is a flat yield curve?
A yield curve that indicates that interest rates do not vary much at different maturities.
What is a normal yield curve?
an upward-sloping yield curve indicates that long-term interest rates are generally higher than short-term interest rates.
What is an inverted yield curve?
A downward-sloping yield curve indicates that short-term interest rates are generally higher than long-term interest rates.
What is a reverse stock split?
a method used to raise the market price of a firm's stock by exchanging a certain number of outstanding shares for one new share.
What is a stock split?
A method commonly used to lower the market price of a firm's stock by increasing the number of shares belonging to each shareholder
Small ordinary stock dividend?
a stock dividend representing less than 20 % to 25% of the common stock outstanding when the dividend is declared
What is stock dividend?
the payment of a dividend in the form of stock.
What is extra dividend?
an additional dividend optionally paid by the firm when earnings are higher than normal in a given period.
What is the regular dividend policy?
a dividend policy based on the payment of a fixed-dollar dividend in each period.
What is the constant payout ratio dividend policy?
A dividend policy based on the payment of a certain percentage of earnings to owners in each dividend period.