Defining Financial Terms
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Defining Financial Terms
Sarah Martin
FIN 370
October 20, 2010
Judith Vandenberg
Defining Financial Terms
The control of money; money required, money somebody has, provided money, decisions on how money is spent, money used to pay, and how much money you have are all parts of finance. Finance studies money and its management. It explores the allocation of resources in a world of uncertainty (Mayo, 2007).
In business, there are four financial statements used; Income Statement, Retained Earnings Statement, Balance Sheet, and Statement of Cash Flow. These four financial statements are prepared in this order. Each statement takes something from the previous statement. Net income is calculated first (revenues – expenses = net income/loss), using the Income Statement. This is needed to determine the ending balance in the Retained Earnings Statement (beginning retained earnings – dividends paid + net income/loss = ending retained earnings). To complete the Balance Sheet you need the ending retained earnings. This financial uses the basic financial formula (assets = liabilities + capital). The cash amount from the Balance Sheet is the amount of cash at the end of the period on the Statement of Cash Flow (cash from operating activities – cash spent on operations + cash from financing + cash at beginning of period = cash at end of period). If these numbers do not match up, there was something recorded wrong. These statements help determine where it might be.
A security is a fungible, negotiable instrument representing financial value. There are two security categories, debt securities, and equity securities. Debt securities include banknotes, bonds, and debentures. Equity securities include common stocks; and derivative contracts, such as forwards, futures, options and swaps (Wikipedia: The Free Encyclopedia, 2010).
Efficient Market is a market in which the values of securities at any instant in time fully reflect all available information, which results in the...
Sarah Martin
FIN 370
October 20, 2010
Judith Vandenberg
Defining Financial Terms
The control of money; money required, money somebody has, provided money, decisions on how money is spent, money used to pay, and how much money you have are all parts of finance. Finance studies money and its management. It explores the allocation of resources in a world of uncertainty (Mayo, 2007).
In business, there are four financial statements used; Income Statement, Retained Earnings Statement, Balance Sheet, and Statement of Cash Flow. These four financial statements are prepared in this order. Each statement takes something from the previous statement. Net income is calculated first (revenues – expenses = net income/loss), using the Income Statement. This is needed to determine the ending balance in the Retained Earnings Statement (beginning retained earnings – dividends paid + net income/loss = ending retained earnings). To complete the Balance Sheet you need the ending retained earnings. This financial uses the basic financial formula (assets = liabilities + capital). The cash amount from the Balance Sheet is the amount of cash at the end of the period on the Statement of Cash Flow (cash from operating activities – cash spent on operations + cash from financing + cash at beginning of period = cash at end of period). If these numbers do not match up, there was something recorded wrong. These statements help determine where it might be.
A security is a fungible, negotiable instrument representing financial value. There are two security categories, debt securities, and equity securities. Debt securities include banknotes, bonds, and debentures. Equity securities include common stocks; and derivative contracts, such as forwards, futures, options and swaps (Wikipedia: The Free Encyclopedia, 2010).
Efficient Market is a market in which the values of securities at any instant in time fully reflect all available information, which results in the...