Financial Management Terms

Operating Income Return On Investment (OIROI) = Found by operating income divided by total assets Operating Margin = Found by EBIT profit divided by sales Preferred Stock = A hybrid security with no fixed maturity and fixed payments Perpetuity Model = A formula used to value preferred stock

Par Bond = A bond whose price is exactly equal to its par value Premium Bond = A bond whose price is above its par value Preferred Stock = A hybrid security with no fixed maturity and fixed payments Pension Fund = A financial institution managing and administering retirement funds

Opportunity Cost = The loss of potential gain from other alternatives when one alternative is chosen Present Value = The worth of cash flows in terms of the dollar amount in the relative past Nonsystematic Risk = Risk that results from factors at a particular firm and can be reduced through diversification Perpetuity = A constant stream of identical cash flows that continues forever

Personal Bankers = Commercial bank position responsible for finding and attracting new clients Portfolio Managers = Responsible for managing and diversifying investment portfolios Financial Analysts = Responsible for analyzing financial data and making recommendations Risk Managers = Responsible for identifying and mitigating credit risk

Ordinary Annuity = A series of equal payments made at the end of consecutive periods over a fixed length of time Perpetuity Model = A formula used to value preferred stock Pension Fund = A financial institution managing and administering retirement funds Par Value = The sum of money that a corporation promises to pay at the expiration of a bond

Nonsystematic Risk = Risk that results from factors at a particular firm and can be reduced through diversification Credit Risk = The risk of loss due to borrower default Systematic Risk = Risk that affects the entire market and cannot be diversified away Market Risk = The risk of loss due to changes in market prices or interest rates

Steady State Growth = The level of growth where four key financial ratios are constant and the firm does not need to issue new equity to fund the growth. Sustainable Growth Rate (SGR) = The growth rate that allows a firm to maintain its present financial ratios without issuing new equity. Times Interest Earned (TIE) = A financing ratio found by EBIT divided by interest expenses. Systematic Risk = Risk that is inherent in the economy as a whole and cannot be diversified away.

Simple Interest = The interest earned only on the principal. Sunk Costs = A cost that has already been incurred and cannot be recovered. Stock = A share of ownership in a company. Shareholders = A person who owns shares of a company’s stock.

Standard Deviation = A measure of dispersion of possible outcomes about the mean. Syndicate = A group of intermediaries that is used to oversee the issuance of stocks and/or bonds. Specialist = A market maker on the NYSE that holds an inventory of securities and acts as a liquidity provider. Secondary Market = The financial market where securities are traded after the initial issuance.

Time Value of Money (TVM) = The idea that money that is available at the present time is worth more than the same amount in the future. Spontaneous Accounts = Accounts that vary naturally with sales. Stakeholder = Anyone who may be affected by actions taken or a decision made. Systematic Risk = Risk that is inherent in the economy as a whole and cannot be diversified away.

Sustainable Growth Rate (SGR) = The growth rate that allows a firm to maintain its present financial ratios without issuing new equity. Steady State Growth = The level of growth where four key financial ratios are constant and the firm does not need to issue new equity to fund the growth. Times Interest Earned (TIE) = A financing ratio found by EBIT divided by interest expenses. Standard Deviation = A measure of dispersion of possible outcomes about the mean.

Spontaneous Accounts = Accounts that vary naturally with sales. Systematic Risk = Risk that is inherent in the economy as a whole and cannot be diversified away. Syndicate = A group of intermediaries that is used to oversee the issuance of stocks and/or bonds. Shareholders = A person who owns shares of a company’s stock.

Benchmarking = The process of completing a financial analysis to compare a firm's financial performance to that of other similar firms Beta = A variable that describes how the price of a security varies with the market Cannibalization = The reduction in sales of a company's own products due to introduction of another similar product Capital Asset Pricing Model (CAPM) = A model used to determine the risk-return relationship for an asset

Banks = Receive deposits and extend loans to individuals and businesses Bondholders = A person who loans a corporation money by buying debt securities Credit Unions = Receive deposits and extend loans to individuals and businesses Business Finance = An area of finance that deals with sources of funding, the capital structure of corporations

Capital = A financial asset that can be used by a firm or individual Capital Budgeting = The process of evaluation and planning for purchases of long-term assets Bid-ask Spread = The difference between the bid and ask prices that compensate the specialist for the risk that he or she bears for willingness to provide liquidity Balance Sheet Forecasting = Using sales growth and the profit forecast to construct a pro forma balance sheet to understand the future implications of the sources and uses of finances

Bid-ask Spread = The difference between the bid and ask prices that compensate the specialist for the risk that he or she bears for willingness to provide liquidity Beta = A variable that describes how the price of a security varies with the market Capital Asset Pricing Model (CAPM) = A model used to determine the risk-return relationship for an asset Benchmarking = The process of completing a financial analysis to compare a firm's financial performance to that of other similar firms

Balance Sheet Forecasting = Using sales growth and the profit forecast to construct a pro forma balance sheet to understand the future implications of the sources and uses of finances Capital Budgeting = The process of evaluation and planning for purchases of long-term assets Cannibalization = The reduction in sales of a company's own products due to introduction of another similar product Business Finance = An area of finance that deals with sources of funding, the capital structure of corporations

Bondholders = A person who loans a corporation money by buying debt securities Banks = Receive deposits and extend loans to individuals and businesses Credit Unions = Receive deposits and extend loans to individuals and businesses Business Finance = An area of finance that deals with sources of funding, the capital structure of corporations