Pedro Reyes – FIN/370
Week 1 Individual Assignment
Resource: Financial management: Principles and applications
Define the following terms and identify their roles in finance:
* Finance - The “science of funds management.” Finance includes saving money and often includes lending money. The field of finance deals with the concepts of time, money, risk and how they are interrelated. Finance also deals with how money is spent and budgeted. * *
Efficient market - A market in which the values of all assets and securities at any point in time reflect all available public information. In order to understand what causes price changes in stock prices and how securities are valued or priced in the financial markets, it is
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The purpose of businesses is to maximize the market value of existing shareholders’ common stock. * * * Bond - A type of debt or a long-term promissory note, issued by the borrower, promising to pay its holder a predetermined and fixed amount of interest each year. Bonds provide the borrower with external funds to finance long-term investments
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Capital - Money used by entrepreneurs and businesses to buy what they need to make their products or provide their services. This refers to the funds provided by lenders (and investors) to businesses to purchase real capital equipment for producing goods/services.
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Debt – Anything owed or assets owed. Debt is created when a creditor lends a sum of assets to a debtor. Debt is usually granted with expected repayment plus interest. * *
Yield - Describes the amount in cash that returns to the owners of a security. Yield applies to various stated rates of return on stocks, bonds and other investment type insurance products. *
Rate of return - The ratio of money gained or lost on an investment relative to the amount of money invested. The amount of money gained or lost may be referred to as interest, profit/loss, gain/loss, or net income/loss. This is also known as return on investment (ROI). * *
Return on investment - The ratio of money gained or lost on an investment relative to the amount of money
Return on assets is an efficiency ratio. It compares the profits generated with the asset base required. It answers the question, how hard
* Return on Sales (ROS) – ROS is the percentage of each dollar of sales that is left as a profit. For example if a company has $100 in revenue and $20 in profit, at the end of the period they have a ROS of 20%. ROS is best used when compared to other companies within the same industry. This is because different industries can have different levels of ROS depending on the competitiveness level. Competiveness can drive prices down overall in the industry, which will drive down ROS for all companies. A high ROS can indicate premium pricing in the industry or great efficiency where as a low ROS can be an indicator of financial trouble such as a company slashing prices just to garner
I. Rate of Return on Total Assets: Measures the company’s profitability relative to total assets. A percentage increment for Company G, from 12.30% to 13.68% (2011-12) keeps them above industry benchmarks (8.60% and 12.30%). Rate of Return on Total Assets represents strength for Company G.
Capital is the source of fiancé through which resources are provided. It may be debt financing
In January of 2010, Tampa Bay Online published an article stating that Youth Research, Inc. had defrauded federal regulators in the company’s safety testing reports. The article claimed that Youth Research, Inc. had been hired by various lighter manufacturers between 1994 and 2005 to conduct child safety tests on the lighters (Silvestrini, 2010).
Debt capital: borrowing someone else’s money to finance the business under the condition that the money plus accrued interest must be paid back in full by an agreed upon date in the future
As stated above Microsoft issued a temporary fixit tool that can be applied to 32-64 bit
Debt financing, by contrast, is cash borrowed from a lender at a fixed rate of interest and with a predetermined maturity date. The principal must be paid back in full by the maturity date, but
Debt is something owed to a group, individual or company in reparation of services, goods, money, or involvement.
The ARR (Accounting rate of return) is the only method that compare the measure of profit over the life of a project to the amount of capital that must be invested to earn that profit. Once the ARR has been calculated, it is compared to the firm’s target return normally the organisation’s
The idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity. This core principle of finance holds that, provided money can earn interest, any amount of money is worth more the sooner it is received.
“The biggest tragedy in America is not the waste of natural resources, though this is tragic. The biggest tragedy is the waste of human resources.” Oliver Wendell Holmes (“Quotes On Human Capital”)
Return on investment (ROI) measures the rate of return generated by an investment center’s assets (Jackson, Sawyers, Sweeney, & Anderson, 2008). ROI is broken down into two components margin and asset turnover. Margin is a measure of operating performance and asset turnover is a measure of how effectively assets are used during a period (et. al. 2008).
* As a percentage-return measure, ROA is comparable to cost-of-capital and market rate of return measures.
The rate of return on capital employed represents the relationship between the value of resources used in a business and the return or profit derived therefrom (Bishop, E.B. 1969). ROCE reduced 5.2% because of