Finance is concerned with how individuals, such as managers, lenders, businesses, firms, investors, and borrowers allocate money over a specified period. This paper lists the definitions and roles of financial and accounting terms provided in the course design. The terminology that follows explains and interprets the concepts and elements relevant to the first week’s objectives and topics in Finance 370. Emphasis is placed on types of securities, markets, finance, equity, liability, ratios, and assets.
Finance is the study of how people and businesses evaluate investments and raise capital to fund them. The key role of finance is the management of cash flow in deciding on ...view middle of the document...
That someone can sell securities whenever they want to makes liquidity an important factor in increasing revenue for investors instantly. Though no investment is ever as liquid as cash, the investments benefit the issuing firm in the market.
Risk is any decision not 100 % probable of certainty in the likelihood of turning out a good outcome could be a danger or a risk. It could result in an error type. A key role in finance is in principle two, which states that there is a risk-return tradeoff which we will not take on additional risk unless we expect to be compensated with additional return (Titman, Martin & Keown. 2011. p. 12).
Security is a negotiable tool that represents a financial claim against a firm’s assets. The role is to bring investors and firms looking for financing and cash inflow together in the security market. Initially, securities are sold and bought for the first time in the primary market. Cash flows may be received by the corporations and invested in return generating assets. This cash flow goes back into the firm, for projects, to launch a project, or pay taxes to the government or dividends to investors.
Stock-Common stock is an accounting term that means units of ownership bought by stockholders.
Bond is a debt security that has a face value. It is issued by a bank that is sold in a capital market and takes more than 10 years to mature. It is liquidable when it matures after accruing a low fixed rate than it is paid to the lender. If the lender cashes the bond in early, he or she will not have accrued the total amount of compounded interest or receive the total sum value of the face of the bond. Some bonds issue accrued interest to the lender for the sum of 40 or 80 dollars quarterly.
Capital, which is sometimes referred to as working capital are the funds and assets that a firm has that pays for monthly and immediate operating expenses that a firm needs to grow and survive in the market.
Debt is defined as money that has been borrowed from a financial market and must be repaid with interest. It is a liability, a loan from a financial institution for cash, credit card purchases, more working capital, mortgage, or a personal loan.
Yield is the firm’s dividend yield, which is obtained by dividing the firm’s annual cash dividend and the day’s closing stock price.
Rate of Return is often called ROI or return on investment and is a profit financial ratio. It calculates the value that the firm has lost or gained. Return on investment (profitability ratio) often called return on equity is cash flow/total equity or net/stockholder's equity, and this one is very important to external users because it is one that investor's view and may deem the results as favorable or not because it is a profitability ratio it gives insight into the earning power and success of the company and how many dollars the company earned for each dollar that was invested by the...