WGU C214 Terms Defined 2023-2024| Must Read
before any exam!!
Corporate Finance -{Definition}- focuses on financial decision making by a firms management
Investments -{Definition}- various types of financial instruments (stocks, bonds, etc)
Banking or Financial Institutions -{Definition}- make money by paying depositors a smaller interest rate
than the interest rate charged to borrowers
Treasury Securities -{Definition}- generally bonds that are issued by the US government
Corporate Bonds -{Definition}- firms borrowing from the public
Stocks -{Definition}- a share of ownership in a company
Primary financial markets -{Definition}- markets where securities are first issued
Syndicate -{Definition}- a group that is temporarily formed to handle a bond or stock issue: generally
large investment bank or institutional investors
Underwriter -{Definition}- responsible for determining the value of the security; may purchase all the
securities & then resale to investors
Competitive sale -{Definition}- underwriters submit bids offering highest price/lowest interest rate;
underwriter resales a slightly higher price
Negotiated sale -{Definition}- underwriters submit bids, go thru interview to be selected
,Secondary financial markets -{Definition}- where securities are traded after the initial offering (stock
market)
Auction market -{Definition}- has a physical location & prices are determined by the highest price an
investor is willing to pay (New York Stock Exchange)
Dealer market -{Definition}- no physical location- securities are bought & sold thru a network of dealers
that trade for themselves; multi dealers per stock (NASDAQ)
Role of financial markets -{Definition}- they reduce the cost of borrowing from the public or selling
ownership to the public
Role of Specialist (NYSE) or Dealers -{Definition}- provide liquidity for a fair & orderly market; may
increase the spread to do so (charge a lower price to seller and a higher price to buyer)
Financial market liquidity -{Definition}- the ease of trading in the market (high frquency traders)
Market orders -{Definition}- time sensitive; sales at current bid price/buys at current asking price when
order is placed-immediately
Limited orders -{Definition}- price sensitive; sell occurs when price of stock matches order price
Role of price -{Definition}- convet information to consumers; affect incentives &affect the distribution
of income
Dollar Returns -{Definition}- Pt - Pt-1 + CFt (Pt= sold price, Pt-1=bought price, CFt=cash flow-coupons
for bonds/dividians for stocks)
Percentage Returns -{Definition}- Pt - Pt-1/Pt-1 + CFt/Pt-1 x 100 (1.2)
(figure for dollar return and divide into bought price)
Goal of company/firm -{Definition}- to maximize shareholder value or maximize profit
, Agency costs -{Definition}- costs that are incurred when management doesn't act in the best interests
of shareholders
Profit maximizarion -{Definition}- the potential effect of focusing soley on profits
Accounting -{Definition}- is backward-looking and risk free
Finance -{Definition}- is forward-looking and involes massive uncertainty
Income Statement -{Definition}- show results of operation over time; revenues - expenses = net income
Balance Sheet -{Definition}- a "snap shot" of a firm's assests & financing at a paticular point in time;
Assets= Liabilities + Owner's Equity
Statement of Cash Flows -{Definition}- tracks all cash in and out of the firm
Cash Accounting -{Definition}- cash in =revenue; cash out=expense
Accrual Accounting -{Definition}- revenues are recognized when the earnings process is complete;
expenses are "matched" to recongized revenues
Cash-based income -{Definition}- an informal metric based on cash in & cash out of the firm
Income for tax purposes -{Definition}- based on the government's definition of income, this is the
amount of income the government will tax
Accounting income -{Definition}- the income calculated using accrual accounting (aka, GAAP); best &
most complicated metric for understanding the operations of the firm
before any exam!!
Corporate Finance -{Definition}- focuses on financial decision making by a firms management
Investments -{Definition}- various types of financial instruments (stocks, bonds, etc)
Banking or Financial Institutions -{Definition}- make money by paying depositors a smaller interest rate
than the interest rate charged to borrowers
Treasury Securities -{Definition}- generally bonds that are issued by the US government
Corporate Bonds -{Definition}- firms borrowing from the public
Stocks -{Definition}- a share of ownership in a company
Primary financial markets -{Definition}- markets where securities are first issued
Syndicate -{Definition}- a group that is temporarily formed to handle a bond or stock issue: generally
large investment bank or institutional investors
Underwriter -{Definition}- responsible for determining the value of the security; may purchase all the
securities & then resale to investors
Competitive sale -{Definition}- underwriters submit bids offering highest price/lowest interest rate;
underwriter resales a slightly higher price
Negotiated sale -{Definition}- underwriters submit bids, go thru interview to be selected
,Secondary financial markets -{Definition}- where securities are traded after the initial offering (stock
market)
Auction market -{Definition}- has a physical location & prices are determined by the highest price an
investor is willing to pay (New York Stock Exchange)
Dealer market -{Definition}- no physical location- securities are bought & sold thru a network of dealers
that trade for themselves; multi dealers per stock (NASDAQ)
Role of financial markets -{Definition}- they reduce the cost of borrowing from the public or selling
ownership to the public
Role of Specialist (NYSE) or Dealers -{Definition}- provide liquidity for a fair & orderly market; may
increase the spread to do so (charge a lower price to seller and a higher price to buyer)
Financial market liquidity -{Definition}- the ease of trading in the market (high frquency traders)
Market orders -{Definition}- time sensitive; sales at current bid price/buys at current asking price when
order is placed-immediately
Limited orders -{Definition}- price sensitive; sell occurs when price of stock matches order price
Role of price -{Definition}- convet information to consumers; affect incentives &affect the distribution
of income
Dollar Returns -{Definition}- Pt - Pt-1 + CFt (Pt= sold price, Pt-1=bought price, CFt=cash flow-coupons
for bonds/dividians for stocks)
Percentage Returns -{Definition}- Pt - Pt-1/Pt-1 + CFt/Pt-1 x 100 (1.2)
(figure for dollar return and divide into bought price)
Goal of company/firm -{Definition}- to maximize shareholder value or maximize profit
, Agency costs -{Definition}- costs that are incurred when management doesn't act in the best interests
of shareholders
Profit maximizarion -{Definition}- the potential effect of focusing soley on profits
Accounting -{Definition}- is backward-looking and risk free
Finance -{Definition}- is forward-looking and involes massive uncertainty
Income Statement -{Definition}- show results of operation over time; revenues - expenses = net income
Balance Sheet -{Definition}- a "snap shot" of a firm's assests & financing at a paticular point in time;
Assets= Liabilities + Owner's Equity
Statement of Cash Flows -{Definition}- tracks all cash in and out of the firm
Cash Accounting -{Definition}- cash in =revenue; cash out=expense
Accrual Accounting -{Definition}- revenues are recognized when the earnings process is complete;
expenses are "matched" to recongized revenues
Cash-based income -{Definition}- an informal metric based on cash in & cash out of the firm
Income for tax purposes -{Definition}- based on the government's definition of income, this is the
amount of income the government will tax
Accounting income -{Definition}- the income calculated using accrual accounting (aka, GAAP); best &
most complicated metric for understanding the operations of the firm
