Finance: Applications and Theory

Agency Problem
The difficulties that arise when a principle hires an agent and cannot fully monitor the agent’s actions.
Angel Investors
Individuals who provide small amounts of capital and expert business advice to small firms in exchange for an ownership stake in the firm.
Auditor
A person who performs an independent assessment of the fairness of a firm’s financial statements.
Board of Directors
The group of directors elected by stockholders to oversee management in a corporation.
Chief Executive Officer (CEO)
The highest-ranking corporate manager.
Corporate Governance
The set of laws, policies, incentives, and monitors designed to handle the issues arising from the separation of ownership and control.
Credit Analysts
A person who analyzes a company’s ability to repay its debts and reports the findings as a grade
Defined Benefit Plan
A retirement plan in which the employer sets aside money for the employees’ retirement benefits
Defined Contribution Plan
A retirement plan in which the employee contributes money and directs its investment. The amount of retirement benefits are directly related to the amount of money contributed and the success of its investment.
Double Taxation
A situation in which 2 taxes must be paid on the same income.
Employee Stock Option Plan (ESOP)
An incentive program that grants options to employees (typically managers) as compensation.
Equity
An ownership interest in business enterprise.
Ethics
The study of values, morals and morality.
Fiduciary
A legal duty between two parties where one party must act in the interest of the other party.
Finance
They ways people and organizations raise and allocate capital, use monetary resources, and accounts for the risks involved.
Financial Asset
A general term for securities like stocks, bonds, and other assets that represent ownership in a cash flow.
Financial Institutions and Markets
The organizations that facilitate the flow of capital between investors and companies.
Financial Management
The process for and the analysis of making financial assets between investors.
401K Plan
A defined contribution plan that is sponsored by corporate employers.
General Partnership
A form of business organization where the partners own the business together and are personally liable for legal actions and debts of the firm.
Individual Retirement Account (IRA)
A self-sponsored retirement program.
International finance
The use of finance theory in a global business environment.
Investment Analysts
A person who analyzes a company’s business prospects and gives opinions about its future success.
Investment Banks
Banks that help companies and governments raise capital.
Investment
The analysis and process of choosing securities and other assets to purchase.
Investors
Those who buy securities or other assets in hopes of earning a return and getting more money back in the future.
Invisible Hand
A metaphor used to illustrate how an individual pursuing his own interests also tends to promote the good of the community.
Limited Liability
Limitation of a person’s financial liability to a fixed sum or investment.
Maximization of Shareholder Wealth
A view that management should first and foremost consider the interests of shareholders in its business decisions.
Option
The opportunity to buy stock at a fixed price over a specific period of time.
Perk/perquisites
Non wage compensation, often in the form of company car, golf club membership, etc.
Public Corporation
A company owned by a large number of stockholders from the general public.
Real Assets
Physical property like gold, machinery, equipment or real estate.
Real Markets
The places and processes that facilitate the trading of real assets.
Restricted Stock
A special type of stock that is not transferable from the current holder to others until specific conditions are satisfied.
Retained Earnings
The portion of company profits that are kept by the company rather than distributed to the stock holders as cash dividends.
Risk
A potential future negative impact to value and/or cash flows. It is often discussed in terms of the probability of loss and the expected magnitude of the loss.
Sole Proprietorship
A business entity that is not legally separate from its owner.
Stakeholder
A person or organization that has a legitimate interest in a corporation.
Stock Price
The price of a share of stock trading on a stock market.
Time Value of Money (TVM)
The theory and application of valuing cash flows at various points in time.
Unlimited Liability
A situation in which a person’s personal assets are at risk from a business liability
Venture Capitalists
Similar to angel investors except that they are organized as groups of investors and can provide larger amounts of capital.