ECON 4 QUIZ 1 UCSD – Flashcards
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Value Proposition
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Original idea that the business begins with
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Business Plan
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Describes how the subject firm's value proposition will be commercialized
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Business Model
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Plan through which the business product or service is commercialized
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Assets
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Useful things that a firms needs to do business -Working capital -Real/Tangible (PPE) -Human capital -Intangible (legal) -Prepaid expenses
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Transaction
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An exchange that is necessary for something to be reported on a balance sheet
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Fundamental Accounting Equation
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Assets - Liabilities = Owner's Equity
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Stocks
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Equity capital, shareholders are the firm's owners -receive dividends -dividend theory
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Bonds
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Firms pay interest to bond owners -fixed rate established in the bond covenant
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Market Capitalization (Market Cap)
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Measure of firms value # of shares of common stock outstanding X market price of each share
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Enterprise Value (EV)
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Market Cap + Firm's Debt - Cash
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Underwriting
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Process of buying and selling a firm's securities in the financial market to raise cash
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Syndicate
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Collection of banks
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Bookrunner
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The lead underwriter
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Liquidity
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How quickly an investor can sell a security at a fair price Assets are listed on a balance sheet in order of liquidity
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Deliverable
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Annual report as well as four interim or quarterly reports of the firm's financial performance
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Income Statement
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Reflects the firm's financial performance
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Balance Sheet
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Reflects the firm's financial position
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Cashflow Statement
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Gives a view of the firm's liquidity
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Book value
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Values that were initially recorded at cost based on a transaction less any periodic accounting adjustment
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Duality Assumption
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Everything that the firm owns must have a source, liabilities and equity are sources of cash used to acquire assets
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Retained Earnings
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Profits not distributed to shareholders as dividends
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Treasury Stock
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Reflects amount paid to repurchase common stock from the public, listed as negative equity
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Real Capital
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Tangible Assets
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Intellectual Capital
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Intangible Assets
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Financial Capital
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All of the money invested in the firm long-term
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Debt Capital
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Creditor money or loans
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Equity Capital
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Shareholder's claims
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Invested Capital
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Long-term debt capital plus equity capital
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Working Capital
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Current assets excluding excess cash
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Net Working Capital
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Current assets minus current liabilities
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Receivables
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Reflect a sale to a customer who promises to pay later
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Advances
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Reflect customers paying in advance of the sale
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Payables
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Buying inventory on credit reflects a payable, an entity owed to another person
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Accruals
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Act of paying expenses after employing the service
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Revenue
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Receipt of cash or claims-to-cash resulting from the firm's primary activities
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Direct Expenses
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Costs that are directly associated with revenue, COGS, commissions, returns
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Periodic Expenses
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Costs that are based on a period of time regardless of level of revenue, salaries, rent
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Indirect Expenses
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Other costs required to carry-out the sales process
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Operating Expenses
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Related to the firm's business model - value proposition and any related activities
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Financing Expenses
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Periodic borrowing costs
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Recurring Costs
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Not related to the business model but are related to the economic environment, not periodic but predictable
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Fiscal Year
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Unit of time measured by 12 consecutive months
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Cash-basis Accounting
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Records only exchanges of cash, used by individuals and small businesses
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Accrual Accounting
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Focus is on earnings rather than cash, used to provide useful information about the firm's past and prospective earnings
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Entity Assumption
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A business is separate from its owners or other businesses
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Going Concern Assumption
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The subject firm will operate indefinitely
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The Cost Principle
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The business will report amounts based on acquisition costs
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Realization Principle
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The business will report revenue only when realized, when activities related to selling goods/services are complete and cash collection is likely
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Matching Principle
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Expenses should be matched with their revenues
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Disclosure Principle
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Not all information relevant to financial decision-making is quantitative
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Objectivity Principle
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Reported information should be based on objective evidence
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Materiality Principle
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The relative size and significance of reportable items determine how it will be reported
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Consistency Principle
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The business should apply the same accounting choices and methods year after year
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The Principle of Conservatism
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Accountants should avoid exaggerations
