VOCABULARY Agency Problem -The possibility of conflict between the stockholders and management of a firm. Agency relationship - Principal hires an agent to represent his/her interests. Stockholders (principals) hire managers (agents) to run the company Aggregation-The process by which small investment proposals of each of a firm's operational units are added up and treated as one big project. Average Tax Rate - Total taxes paid divided by total taxable income Balance Sheet- Financial statement showing the firm's accounting value on a particular data. Cash Flow to Stockholders- Dividends paid out by a firm's less net new equity raised. Capital Budget -The process of planning and managing a firm's long term investments. Capital Intensity Ration -A Firm's Total assets divided by its sales or the amount of assets needed to generate $1 in sales. Capital Structure -The mixture of debt and equity maintained by a firm. Cash Flow From Assets -The total of cash flow to creditors and cash flow to stockholders, consisting of the flowing; operating cash flow, capital spending, and change in net working capital. Cash Flow to Creditors -A Firm's interest payments to creditors less net new barrowing. Common Based Year Statement – A standardized financial statement presenting all items relative to a certain base year amount. Common Size Statement -A standardized financial statement presenting all items in percentages terms. Balance sheet items are shown as a percentage of assets and income statements items as a percentage of sales. Compounding -The process of accumulating interest on an investment over time to earn more interest Compound interest -Interest earned on both the initial principle and the interest reinvested from prior periods. Corporation - A business created as a distinct legal entity composed of one or more individual or entities Discount - Calculate the present value of some future amount. Discount cash flow (DCF) Valuation -Calculating the present value of a future cash flow to determine its value today. Discount Rate -The rate used to calculated the present value of future cash flows Dividend Payout Ratio -The amount of cash paid out to shareholders divided by net income Financial Ratios- Relationships determined from a firm's financial information and used for comparison purposes. Free Cash Flow -Another name for cash flow from assets. Future Value (FV) -The amount an investment is worth after one or more periods. Generally Accepted Accounting Principles (GAAP) -
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