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D076 FINANCE SKILLS FOR MANAGERS
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D076 FINANCE SKILLS FOR MANAGERS
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D076 FINANCESKILLS FOR
MANAGERS
Accounting - answer- The system of recording, reporting, and summarizing past
financial information and transactions.
Accounts Receivable Turnover (AR Turnover) - answer- An activity ratio found by credit
sales divided by accounts receivable.
Activity Ratios - answer- A category of ratios that measure how well a company uses its
assets to generate sales or cash, showing the firm's operational efficiency and
profitability.
Additional Funds Needed (AFN) - answer- Another name for the discretionary financing
needed or external financing needed. It represents the additional financing needed
given a firm's expectations for future growth.
Affirmative Covenants - answer- A bond covenant that describes things the company
pledges itself to do in order to protect bondholders.
Agency Costs - answer- Costs that are incurred when management does not act in the
best interest of shareholders.
Agency Problem - answer- When the agent (the management) does not act in the best
interest of the principal (the owners).
Aggressive Assets - answer- Companies or securities with beta greater than 1.
, Annual Percentage Rate - answer- The annual interest rate that is charged for
borrowing money or that is earned through investment.
Fixed Expenditures - answer- An expense that you do not have direct control over and
that remains constant from period to period.
Fixed-income Securities - answer- Another name for bonds; a financial security in which
the borrower pays a fixed interest payment to investors each year.
Future Value - answer- The worth of cash flows in terms of the dollar amount in the
relative future.
Gordon Growth Model - answer- A formula used to value common stock based on the
assumptions that dividends are paid every year and grow at constant rate forever.
Gross Margin - answer- A profitability ratio found by gross profit divided by sales.
Harvest - answer- Generating cash or stock from the sales or IPO of companies in the
portfolio of investments.
Holding Period Return - answer- The return over the entire period that an investor owns
a financial security.
Hurdle Rate - answer- The required rate of return that a company expects to earn in
order to consider a project.
Hybrid Security - answer- A security that has some elements that resemble equity and
others that resemble debt.
Idiosyncratic Risk Risk - answer- Risk that results from factors at a particular firm and
can be reduced through diversification; also called firm-specific risk or nonsystematic
risk.
Incremental Cash Flows - answer- Cash flows that result from accepting a project.
Inflation - answer- The rate at which the average price level of a basket of chosen
goods and services in an economy increases over a period of time.
Initial Public Offering (IPO) - answer- When a privately held company first offers shares
of stock to outside investors to raise capital, therefore becoming a publicly owned
company.
Insurance Companies - answer- Charge premiums to invest in bonds and stocks to pay
claims.
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