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273 Cards in this Set
- Front
- Back
- 3rd side (hint)
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Capital Structure |
Focuses on mix of long term debt and equity |
LTDE |
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Utlitarian Ethical Model
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calls for the decisions that produces the greatest good for the greatest number of shareholder
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GGfGS
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Capital Budgeting |
Focuses on planning and managing of a corporations long term investments
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LTI |
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Accounting |
Focuses on activities that encompasses financial accounting , taxation and financial Reporting |
FATFR |
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Financial Market |
Mechanism used for trading securities |
Houston Flea Market |
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Financial Markets Contain the Following |
item traded, buyer, seller and those that organize the trades |
BISO |
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Money Markets Trade this type of security |
Short Term Securities |
Midgets |
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Capital Markets Trade this type of security |
Long Term Securites
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Time |
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Primary Markets are mechanisms to sell this type of item
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New Securities
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Not old |
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These are 4 types of primary market structures |
Brokers Auctions Direct Buy Dealers |
BADD |
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Secondary Markets |
Mechanism for investors to buy and sell previously issued securities. |
Used Goods |
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Why are secondary markets critical to corporations |
The liquidity of these markets means that buyers and sellers know they can resell whenever desired
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Drop it like its hot |
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What are the 4 primary financial statements |
Balance Sheet Income Statement Statement of Owners Equity Statement of Cash Flows |
BISS |
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Balance Sheet Represents this |
records the assets and liabilities and owners equity on a specific date (illustrates the accounting equations of assets= liabilities + owners equity)
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On today, it was this |
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Income Statement serves this function |
Reports the organizations profit or loss for a stated period -(Net income =Revenue-Expenses + Gains- losses-income taxes) |
What I like to see |
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Statement of Changes in Owners Equity serves this function |
Explains any changes thate have occurred in the organizations capital accounts (paid in capital and retained earnings during a specific period, |
Trading Cars |
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Statement of Cash Flows Serves this function |
Summarizes the cash effects of an organizations operating, investing and financing activities during a specific period. Used to determine an organizations ability to generate a positive future cash flows , its ability to meet its financial obligations, and its need for additional financing. |
Wallet full, wallet empty |
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Flow of Information from Financial Activity to Financial Statements |
Financial activity Bookkeeping - Records Accounting- classifies, appropriate method Financial Statements |
FBAF FRANK BOUGHT A FISH |
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What equation does the balance sheet illustrate |
Assets= Liabilities + Owners Equity |
ALOE |
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What provides a breakdown of the year to year differences between the owners equity figures on the balance sheets |
Total change in owners equity from the statement of changes in owners' equity = Total owners equity on balance sheet
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I sell it all and it does not change unless i profit |
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What provides a detailed explanation of the results of the organizations operations. |
Income Statement |
I am broke I am rich |
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The Net Income is found on what 2 statements |
Income & Cash Flows Statement |
Benjamin Franklin Walks in the door |
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What provides a detailed explanation of how mgmt used the organizations cash resources that are reported on the balance sheet. |
Statement of Cash Flow |
Stewie Beats up Brian |
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Net Income |
The difference between the earnings and expenses after income tax is the organizations net income. |
Half-court Shot Prize |
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GAAP |
Rules and Procedures to be used in preparation of an organizations financial statements |
BAB LEGS |
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What are the 8 Key accounting concepts and principles and the fundamental differences between accrual and cash bases accounting. |
Business Entity Going Concern Money Measurement Cost Principle Revenue Recognition Principle Matching Principle Materiality Principle Substance over form Concept |
SBCG MRMM Sam Bought Canned Goods Marsha Really Means Monster |
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Business Entity Concept |
financial records are related only to the business and not to its owners |
Stay Out My Business |
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Going Concern |
thought that the business will continue to operate indefinitely. |
Going to Heaven |
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Money Measurement Concept |
economic activities to only be reported in units of money |
Whats in my wallet is what i got |
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Cost Principle |
Assets to be recorded at purchase or production price |
VIN check tells me what this is |
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Revenue Recognition Principle |
Revenue recorded at the time service are rendered or goods are sold |
Put it in the book Sherry |
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Materiality Principle |
Recording items that are not material because not expensive |
Don't worry about the paperclips |
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Matching Principle |
Expenses incurred in generating revenues to be matched against those revenues
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Bought it Sold It Record It |
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Substance Over Form Concept |
Transactions are recorded in a way that reflects their economic substance and not simply their legal form
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The 5 dollar wrench makes me 100 a month |
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Accrual Basis Accounting |
Used by most companies, used to accomplish the matching of revenues and expenses by recording them as thy are incurred rather than when cash is received or paid. |
Get paid by the hour and bill by the hour - Every hour they bring me my money |
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Cash Basis Accounting |
Transactions are recorded only as cash is received or paid |
I don't have it yet, don't give me credit for it. |
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What are the 3 concepts and principles that govern the construction of financial statements |
Accounting Period Concept Consistency Principle Conservatism Principle |
Bruce is always voting republican |
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Accounting Period Concept |
Financial statements to be recorded over short periods of equal lengths so users can make valid comparisons. |
Monthly, Quarterly, Yearly |
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Consistency Principle |
Requires an organization to used the same accounting principle and reporting practices in every accounting period
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Not changing, we always did it this way |
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Conservatism Principle |
Requires and organization to record transactions in a manner that income and assets are not overstated . |
ACV not RCV |
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3 limitations of financial statements |
Uses Assumptions and Estimates No measure of economic value of an organizations qualitative assets Do not give the current fair market value of assets
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FAQ |
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5 sources of Financial Information |
Other Info Reporting (Financial Reporting) Financial Statements Accountants Reports Financial Statements
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ORFAN |
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Accountants Report |
A report attached to the financial statements that explains the extent to which the accountants were involved in evaluating the accuracy of the report |
Thorough Analysis or Skimmed it |
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Accountants Report Compilation |
Compilation of financial statements data with no opinion |
4 monkeys |
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Accountants Report Review |
Review by the accountant and nothing found
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Not enough to convoke |
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Accountants Report Audit |
Report in which the accountant expresses concern |
Bookem dano |
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The four opinions that can be issued by an accountant reports |
Qualified- Limited exception ,does not invalidate Unqualified-Fair expression of the reports Adverse -Statement do not reflect com financial opinion Disclaimer of Opinion- Not enough evidence |
QUAD |
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The information to notes of the Financial Statement |
Company's Operations Accounting Policies Long Term Debt Business Segment Contingincies and Commitments Other Necessary Info
COAL BC
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COAL BC |
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What are the 7 Significant Accounting Policies |
Consolidation of the results of subsidiaries Inventories LIFO or FIFO Recognition/Revenue - Method Used Depreciation of LTD -Method Recording of Income Taxes- How reported Employee Benefits Treatment- Earnings Per Share- Value of CO Stock
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RECRIED |
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Required Sections of a Companys Annual Report |
Financial Statements and Notes Auditors Report Report of Management Discussion of Managements Analysis Selected Financial Data
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FARDS |
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Additional Information Not Required but Usually Provided on the Company Annual Report |
Financial Highlights Letter to Shareholders Corporate Message Names of the Board of Directors Info - company news, date of annual
FINAL C |
FINAL C |
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The 3 Types of SEC Filings |
Form 10 K Form 10 Q Form 8 K |
Stupid if you don't know |
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SEC Filing Report That is Filed Annually by Publicly Traded Companies Similar to annual report but contains more detailed information. Includes bylaws and other legal documents, info on law suits |
Form 10 K |
Stupid if you don't know |
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SEC Filing Report that is filed quarterly by Publicly Traded Companies - includes unaudited financial Statements , Material Events During the quarter |
FORM 10 Q |
Stupid if you don't know |
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SEC Filing Report known as the current report.. Major events shareholders should know about material definitive agreements, release of non public info, change of independent auditor, Departure of election of directors and departure of appointment or principal officers |
FORM 8 K |
Stupid if you don't know |
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EDGAR |
Internet Base Company on the SEC website that performs automated collection, validation, indexing acceptance and forwarding of submissions by companies required to file with the SEC. Helps with time sensitive information. |
Stupid if you don't know |
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Rating Agencies |
Companies that use their own specific methodologies to develop and make public their opinion of a company to meet its financial obligations. Can include claims paying and credit agencies. |
Stupid if you don't know |
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Credit Bureaus |
Companies that provide how much credit a company has. |
Stupid if you don't know |
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Analysts Reports |
Companies that analyze a security to provide information for an investment decision. |
Stupid if you don't know |
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5 Basic Steps of Financial Analysis |
Establish goals of the analysis Review the Financial Info Select the appropriate analysis technique Apply the technique Interpret the results |
ERSAO Pay off house How much i have extra Lump Sum or Monthly Review Every 3 Months - reminder
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5 goals of of financial statements |
Screening classify co analyzed Evaluation performance Diagnosis reason for performanc Forecasting - future Reconstruction- whats missing |
Sadie Eats Dog Food Regularly |
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3 techniques of of Financial Statement Analysis |
Ratio Horizontal Vertical (Single/Multiple) |
Rates Very High |
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Ratio Analysis Technique of Financial Statement Analysis |
Highlights the relationships between items on a single financial statement or relationship it has to different financial statements. Single company comparison or more than one company |
I am not good at these |
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Horizontal Analysis |
The use of the period to period percentage change identified in common size statements to identify trends. |
Every period, she complains |
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Vertical Analysis |
Use of common size statements to highlight basic relationship among items within a single set of financial statements. Can be single period or or multiple periods |
How one affects the other |
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Common Sized Financial Statements |
A financial statement in which amounts are reported as a percentage of a base figure. Especially useful when comparing companies of different size. |
1 2 a 3 base are different sizes |
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Net Profit Margin |
net income/sales |
I sell basketball nets to make income |
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Return on assets |
Net incomes/total assets |
Alan played basketball to make money and made a butt out of himself |
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Return on equity |
Net income/owners equity |
Alan owes for playing basketball |
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Asset turnover |
Sales/total assets |
Sell Apple turnovers and people get big butts |
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Equity multiplier |
Total assets/owners equity |
Women who have nice butts are born with equity |
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DuPont return on equity/identity |
Net profit margin x asset turnover x equity multiplier |
New profit managers are turning employees mad |
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Combined ratio |
Loss ratio + expense ratio |
Losing my job was an expense to me |
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Loss ratio |
(Losses +LAE)/Earned premiums |
Had a claim of hundred dollars in premiums $200 ratio is 50% |
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Financial basis expense ratio |
Underwriting expenses/earned premiums |
Dave salary/my premiums paid |
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Trade basis expense ratio |
Underwriting expenses/written premiums |
Dave salary/what I intend to pay for my premium |
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Investment yield ratio |
Net investment earnings/invested assets |
Jordan's bank/Nike company |
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Return of policyholder surplus |
Net income/ policyholders surplus |
The NBA becomes so poor they buy uniforms from the Army store |
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Accounts Receivable turnover ratio |
Credit sales/Accounts Receivable |
Visa/ Scott's checks |
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Days sales outstanding |
365/Accounts Receivable turnover ratio |
A good art museum every day for a year |
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Inventory turnover ratio |
Cost of goods sold/inventory |
I had invested $500 in batteries and sold $ 250 worth of batteries
500/250= 50% |
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Current ratio |
Current assets/current liabilities |
My current butt is a cost to me
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Acid test ratio/quick ratio |
Cash + marketable securities + Accounts Receivable/current liabilities |
Wallet plus Walmart plus Scott/bills |
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Liquidity ratio |
Cash + invested assets/unearned premium reserve + loss and LAE |
Savings + house/prepaid notes + damaged + cost of the estimate |
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Debt to equity ratio |
Long-term debt/owners equity |
$235,000/ 325,000 |
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Debt to assets ratio or debt ratio |
Total liabilities/total assets |
235,000/625,000 |
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Premium to surplus ratio |
Net written premiums/policyholder surplus |
I paid Dave $600 and didn't use it now I've paid him $300 so the formula is 300/600 |
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Definition of net profit margin |
The amount of each dollar of sales that remains after that all the expenses for the accounting period. |
What the crock spread basketball team earns after paying its expenses |
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definition of return on assets |
A profitability ratio that shows how will company has used its resources |
The frame machine did not make me any money |
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Definition of the return on equity |
The profitability ratio that shows the rate of return owners earning on their investments |
I did not do well the first week of the stock market |
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definition of Asset turnover |
A ratio that emphasizes the efficiency of the company's use of its assets |
I didn't have any investment in the forklifts so I made money on the use of it |
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definition of equity multiplier |
A ratio that emphasizes the efficiency of the company's use of debt to finance its assets |
I borrowed $10,000 to buy a car and sold for 20,000 |
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DuPont return on equity definition |
An analysis of the return on assets and return on equity by breaking them down into their component ratios |
Her butt looks like a painted rat |
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Combined ratio definition |
A profitability ratio for insurers that indicate whether an insurer has made an underwriting loss or gain |
Salvage made this ratio profitable |
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Loss ratio definition |
A profitability ratio for insurers that relates loss expenses earned premiums |
BB is going berserk doing this |
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Financial basis expense ratio definition |
Profitability ratio for insurers that relates underwriting expenses earned premiums |
It's okay that he affected this ratio by hiring his friends as department heads Because it earned him satisfaction |
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Trade basis expense ratio Definition |
A profitability ratio for Insurers that relates underwriting expenses to written premiums |
We will never know what hiring his friends did to the money we already had in the bank |
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Investment yield ratio Definition |
A profitability ratio that indicates total return on investments for an insurers investments operations |
When I was there, the credit union made money |
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return on policyholder surplus Definition |
A profitability ratio that shows the rate of return for an insurer is earning on its resources |
McAllister's was a stupid decision |
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Accounts Receivable turnover ratio definition |
And efficiency ratio that indicates how quickly a business collects the amounts owed by its customers |
big m collects own time |
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Days sales outstanding definition |
A measure of the number of days it takes for an average company to collect its accounts receivable |
Attorneys usually pay late |
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Inventory turnover ratio definition |
And efficiency ratio that of indicates how quickly inventory is sold, generating either cash or accounts receivable |
I bought the lady had faces because they were in the store for a long time and they need to increase this ratio |
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Current ratio definition |
Liquidity ratio that indicates the adequacy of the company's working capital to meet its current financial obligations |
I got money to pay my bills |
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Acid test ratio or quick ratio definition |
A liquidity ratio that provides a measure of the company's ability to meet its current obligations of it cannot sell its inventory |
Can't sell the cars I can rent them |
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Liquidity ratio Definition |
The ratio insurers used to provide a conservative measure of an insurer's ability to meet its financial obligation |
my money and my stocks are enough to handle money paid to me that I have not used and the damage that was done to the house |
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Debt to equity ratio definition |
The leverage ratio that measures the extent to which a company is financed using borrowings rather than its own funds |
I get paid to pick out cars so essentially I am using someone else's money to earn money. The cost of using that money is divided by the profit I get |
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Debt to assets ratio or debt ratio definition |
A leverage ratio that shows the extent to which the company's assets are financed by debt |
235,000/750,000 or mortgage/value of house plus cars plus contents |
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Premium to surplus ratio definition |
A leverage ratio that indicate the insurer's financial strength by relating net written premiums to policyholders surplus |
the money are currently paid all my insurance/all the money I paid a my insurance |
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Limitations of ratio analysis |
No concrete guidance for which ratios are most important board which level they are too high or too low |
Was a height of rods concrete important |
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These are types of current assets For purposes of accessing working capital |
Cash, marketable securities, Accounts Receivable ( for non-insurers, class inventories) |
CARMS |
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The calculation for working capital of a company |
Current assets - Current liabilities ( ability to meet day-to-day operational requirements) |
Don't have enough money to buy gas I can go to work |
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These are two components of a credit policy |
Guidelines for for determining when credit is to be extended and the type of installment plans that will be offered |
I loaned my sister $10,000 to be paid back in three months |
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The five C's of credit decision |
character capacity conditions capital collateral
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drug users broke people jobless money in the bank homeless |
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What does the outcomes of credit scoring and credit analysis enabling financial manager to do ? |
Credit decisions regarding policyholders, agents and brokers and reinsurers |
Will I loan the money to Russell , the insured , Hagerty or AON |
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Why is reinsurance a form of credit |
Because initial cash outflows ( reinsurance premiums) are accompanied by future inflows ( payments for reinsured losses) |
Exit Sign |
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List 4 types of short-term marketable securities. |
commercial paper certificates of deposit repurchase agreements treasury bills |
Charles Cant Read Today |
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Commercial Paper definition |
Unsecured short-term promissory notes issued by the company to raise short-term cash often to finance working capital requirements |
Corporation loan shark |
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Repurchase agreements definition |
Agreements involving the sale of one security by one party to another with a promise to repurchase securities at a specified price on a specified date |
Pawn shop |
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Treasury bills Definition |
Short-term debt obligations of the US government issued to cover government budget deficits and to refinance maturing government debt. |
I bought a treasury bill so the government wouldn't tax me as they are in debt and need money. |
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Certificates of deposit Definition |
Bank – issued, fixed maturity, interest-bearing time deposits that specify interest rate and a maturity date and that are negotiable |
You should know this dummy |
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Three reasons to hold cash |
Transaction needs precautionary needs speckled needs |
Need money to go to auction and if I see something I will buy it and if I break down, I need money to fix the truck |
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Three cash management activities |
Managing float accelerating collections controlling disbursements |
I bought a float and I'm lactose intolerant so accelerated my deposit of the float. MAC |
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Three things to consider when selecting a bank |
Quality considerations service considerations price |
My bank makes money as ATMs everywhere and offered free checking |
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Simple interest |
Earned only on the original amount invested |
The type of interest you offer to a sucker |
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Compound interest |
Earned on the original amount invested plus previously earned interest |
I'm not a sucker |
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Effective annual interest rate Definition |
Reflects the effect of compounding more than once a year( as compared to the stated interest rate which is quoted by the Bank does not take into account the frequency of compounding) |
CFJ |
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financial Calculator steps effective annual interest rate |
Orange shift – P/YR orange shift NOM% orange shift EFF% |
Pres. nominates ineffective people |
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How is a future value calculated
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The present value x rate of return & the number of periods of which the return can be earned. Inversely, the present value is the future value discount by( divided by) the rate of return and the length of the time of which that return can be earned |
I get it 12 times less a year because of her illness |
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Calculator steps future value of a single sum |
Shift clear all make sure the number of periods are accurate clear all held down shows you the number periods one shift per year sets it to one per year enter known values in any order (PV, I/YR, N) press FV Key |
Should not be a problem |
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Calculator steps present value of a single sum |
Clear calculator, Are the periods accurate Enter known values (PV, IR , N) Press PV Key |
Should not be a problem |
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Calculator steps number of compounding periods |
clear calculator make sure the periods are accurate Enter known values in any order present value must be negative when entering PV or FV Press N key |
Remember negative in the presence causes his future to be sad |
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Calculator steps interest rate |
Clear calculator Are the periods accurate Enter Known Values - PV neg because FV is there Press I/YR Key |
Remember negative in the presence causes his future to be sad and he is not interested in that |
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What are the four steps of the interpolation process for manually determining the rate of return |
Appropriate row for # of periods, Find the two interest rates and future value factors for those rates , between which the Calculated future value factor fails. calculate the difference between the two factors from the future value table of the difference between the lower table factor and the calculated factors divide the difference between the table factor in the calculated factor by the difference between the two table factors interest rate to step one x percentage in step 2 add the amount calculated in step three to the lower discount rate selected in step one to arrive at the discount rate.
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I don't think is going be on the terrace in a memo learned |
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Calculator steps present value equation can be used to determine the number. That will be required to accumulate a specific amount |
Clear all I/YR present value is a negative number future value press N |
I am not interested in how long it will take a present negative person to become positive. It does not matter how many years to me |
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The rule of 72 |
States that the number of years required for money to double at a given interest rate and compound annually is equal 72 divided by the interest or discount rate I.E. years to double a investment at 7% 7% = 72÷7 = 10 .3 years |
Makes sense but never saw it |
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Definition of an annuity |
Series of fixed payments made of specified dates over a set period |
SSS |
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What are the three types of annuities |
Ordinary Due perpetuity |
POD |
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Definition of an ordinary annuity |
Series a periodic payments which are equal and made at the end of each period |
Yeah the period is over |
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Definition of annuities due |
A series of equal periodic payments made at the beginning of each period |
Oh crap, it just started |
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Perpetuities definition |
A series of fixed payments made on a specified dates over an indefinite period |
More money more money more money – never ends |
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calculator steps present value of an annuity |
Clear calculator make sure the periods per year are correct make sure the payments are either beginning or end based on the type of annuity Enter known values in any order (Pmt, I/YR, N) Request the unknown value PV |
you can begin or end based on what you choose. I chose end |
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calculator steps Future value of an annuity |
Clear the calculator make sure the number of periods are correct. shift begin entered the known values (Pmt, I/YR, N) request the unknown value |
You can begin or end based on what you choose I chose begin |
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calculator steps present value of a perpetuity |
payment per period /Discount rate |
$1000/4.75%
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Cash inflows To investors must be input as ___________ numbers, whereas cash outflows must be input as ______________ numbers |
Positive Negative |
I am positive that I don't want to be be negative |
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Before calculating the future value and present value of unequal cash flows, it is important to determine |
Compounding period ( The period of time between the two consecutive cash flows for example, semiannual is two periods Per year |
I buff with this |
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When calculating the future value and present value of unequal cash flows, a cash flow of zero must be entered for every compounding period during the holding period of the investment or this will occur |
The number of compounding periods will be incorrect |
Include the years you don't make money or you lose money |
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The first cash outflow usually the purchase of an investment is called___________ and it occurs as _______________ on the time line. |
Cash flow 0 (CFj), N = 0 |
you can Only find cash not junk in my trunk. I have zero junk in my trunk. |
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Capital projects and long-term investments can be evaluated by doing this in order to determine the total present value |
Discounting future cash flows at a given discount rate |
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The difference between the total present value of the cash flows and the amount of the initial outlay (cost of investment) is the |
Investment net present value |
I paid this but it cost me this so my NPV is the difference between the 2 |
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Present value of cash flows less cost of investment |
Net present value of investment |
I presently have this much money but I invested that much money so present money I have is this amount |
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This type of stock normally does not have a maturity date at which the investment will be repaid to the owner, its life is indefinite |
Preferred stock |
I prefer to get paid indefinitely instead of a certain period of time
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What are the three basic types of loans |
Pure discount interest-only amortized |
People are idiots |
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Pure discount loan definition |
Lump sum of money of a borrower today and is repaid with interest by payment of a single lump sum at the specific future date. ( generally less than one year) example is a federal treasury bill |
My balloon is about to pop I don't have any money for another |
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Interest – only loans definition |
Requires the borrower to make interest payments on a periodic basis during the life of the loan and repay the original amount of the loan on a specified future date. ( usually available for short to medium-term financing) |
I may would take this loan if I was going to build something and sell it. |
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Amortized loans definition |
Requires the borrower to make payments consisting of both principal and interest over the duration of the loan. |
Easy to know |
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This represents a large portion of assets of most properties – casualty insurers because they provide insurers with the liquidity and investment income needed to operate profitably |
Bonds |
James family is coming over so we will have the blank for dinner |
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What are the four basic components of bonds |
Principal (face value or par value) Rights and duties of the issuer and borrower Interest Rate (coupon rate) % of par value. Maturity Date- the date the principal is to be paid |
PRIM Paula Rides Indian Motorcycles |
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Definition of a bond |
Long-term debt instrument that requires the issuer to pay a set annual rate of interest and repay the borrowed some on a specified date. |
I want to be paid interest and I want to be paid at this time. my word is my _______ |
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Definition of convertible bonds |
Gives the bondholder the option to convert the bond into a another security of the issuing company at a specified price within a given time in understated terms |
I'm trading the convertible for hardtop because it was agreed I could do that |
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Guarantee Bonds |
Guaranteed by the entity other than the issuer. |
Mr Haney states his when he sells it for someone else. |
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Participating bonds |
Debt instruments that link interest payments financial performance of the issuer |
Participate in building a LINCOLN log house. I hope to get paid by building it. |
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Serial bonds |
debt instruments that have different portions of the principal maturing on different dates |
pay is erratic when your self-employed. it is like eating Froot Loops never know which are going to get |
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Floating rate bonds and/or adjustable or variable rates |
Debt instruments that pay interest at a rate that is indexed to the rates of the US treasury securities or other money market instruments |
payment depend on the government and their interest rates |
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Callable bonds |
Debt instruments that give the issuer the right to pay off the bond before maturity. |
I have the right to pay my house off early |
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Zero coupon bonds/ deep discount bonds |
Debt instruments that pay no interest and that can be redeemed at par at maturity |
I'm not interested in being a zero James Bond |
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Sinking fund bond |
A provision that requires a bond issuer to set aside money at periodic intervals for the Pacific purpose of repaying a portion of its existing bond each year |
Better sink that money away so you can pay your bills at the end of the year |
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Secured bonds |
Bonds secured by specific asset of the issuer have priority over funds received in the liquidation of those assets |
I feel secure when my butt is protected by James Bond |
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This is another name for an unsecured bond |
Debenture bonds |
CSA bonds are like this |
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Asset backed securities |
Financial instruments collateralized loans, leases, or other receivables |
These types of securities are sold from one bank to another |
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Mortgage-backed securities |
Financial instruments collateralized by a pool of mortgages |
The type of securities are also sold from one bank to another |
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Debenture bonds |
Debt instruments that are unsecured general obligation of the issuing corporation |
Bond to improve the road am swamped my checkbook because of the unsecured |
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What are the four factors that affect bond pricing |
Interest rates- market interest rates and coupon rates influence a bond price and they move inversely of each other Maturity- the longer of the bonds maturity, the larger the change in price, given a change in interest rates Yield to Maturity- a measure of the total rate of return bondholder will earn of life of the bond is held to maturity Inflation- the inflation rate has substantial effects on the purchasing power of the dollars returned on investments |
I married young idiot |
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What are the 4 classifications of bonds |
Federal Debt Corporate State and Local Debt International |
I can't see Far |
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this is how statutory accounting principles treat bonds |
Bond premium or discount is amortized over the life the bond and the value of the bond is determined by the securities valuation office of the NAIC |
It is secure to have amortized payments |
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This is how generally accepted accounting principles treat bonds |
Bonds are recorded on the balance sheet at there amortized cost if they are held to maturity debt securities not held to maturity it is fair market value |
Your mature if you do not sell your stuff early and let it amortize |
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This is how statutory accounting principles treat stocks |
Preferred and common stocks based on the NAIC valuation of Securities Listing witches fair market value. Must have a sinking fund. Temporary market fluctuations are treated as unrealized gains or losses in surplus. Gains or losses other than temporary or reported as realized loss on the income statement |
It is only fair to have a sink to collect your gains or losses of water surplus not temporary must realize this |
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This is how generally accepted accounting principles treat stocks |
Nonrefundable for common stock is either considered to be trading securities or for sale. trading securities gains or losses recorded on the Current income statement. Securities available for sale are not considered trade in securities and they must be reported on fair what value on the balance sheet. The gains or losses from the sale of the securities are not included in the income statement but are reported as a separate amount of statement of owners equity |
Chapter 8 needs to be reviewed |
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What are the two basic types of stock |
Common preferred |
I prefer commons rap music over his acting |
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Preferred stock definition |
Represent ownership of a corporation Has preferences over common stock regarding dividends and liquidation payments priced as a perpetuity because I have a set liquidation values and anal dividends but no maturity dates. a.k.a. present value of future stream of the dividend payments |
I prefer to have a stream of money by owning a corporation |
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Common stock definition |
Represents ownership in a corporation and use of voting rights but has the lowest priority regarding dividend payment and liquidation. Their value is based on the income discounted by the return required by investors. |
It is common to try and buy something that earns money |
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These factors affect the price of common stock |
Firms earning potential relative price to earnings ratio potential takeover breakup value dividend payout ratio quality of management |
If FB was a stock company, would be in for some trouble because of their management and how they never pay enough and not looking around for potential takeover. |
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In determining the price of the stock, there are two types of analysis. What are these types |
Fundamental technical |
At Tech learn the fundamentals |
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Fundamental analysis definition |
Analyze the data that are fundamental to the companies growth dividend payouts risk and interest rates |
How risky is it to be interested in person who has a growth problem and divides horribly |
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Technical analysis definition |
Determining stock price by trying to detect patterns in market activity statistics past prices and market volume |
In the past hurricanes raised up the price of stock in Home Depot and Copart |
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Efficient market hypothesis definition |
Asserts that stock prices reflect the expectations of all market to dispense and that no individual investor has superior knowledge |
What he knows will help him. |
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What are the three forms of the efficient market hypothesis |
Weak form efficiency semi – strong form efficiency strong form efficiency |
Charles Atlas was weak and became semi-and then strong by being efficient not going to the market |
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Dividend growth model definition |
A financial model that assumes that the price of common stock is equal to the present value of the future dividend stream in perpetuity |
My land is worth more money because I have a cell tower |
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This is the equation for the value of a perpetual annuity |
Value it time = dividends per share + market rate of return minus annual constant percentage growth in dividends per share |
Checkbook on this one |
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What are 4 Economic Factors that influence the P&C Industy |
m |
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Current Assets for a Non Insurance Carrier includes |
Cash Accounts Receivable Marketable Securirties Inventory |
MICA is a current butt |
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Current Liabilities for a Non Insurance Carrier Includes |
Stated Taxes due Short term liablities |
My SS is a Liabliitis |
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Calculator Functions Payment Formula |
Shift Clear All Future Value IYR N Pmts |
Regular Mode |
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Calculator Functions Real Rate of Return |
1 + Nominal Rate/1 + Inflation Rate less 1
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Keep your inflat in mind when you do your returns
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Assets for calculating Owners Equity include |
Buildings Cash Accounts Receivable |
CABs seat is it equity |
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Liabilities for calculating owners equity |
Building Mortgate Balance |
My House is mine |
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NPM form = |
NI/SALE |
Need to know NIS |
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ROA form |
NI/TA |
NITA
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ASSETS form = = = |
LIA=PS |
LIAPS |
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How bonds are amortized on the balance sheet |
Discount Rete/Number of years add that amount to each year $10,000 bond $9900 par value $100/N or number of years if 5 was it and you are doing the 1st year, it would be $100/5 or 9920 |
Pretty Easy |
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Paid in Capital + Retained Earnings is aka |
Owners Equity |
A different view of it. |
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How are Policy Acquisition Cost determined on a SAP |
Up Front |
SAP FRONT OF THE TREE |
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How are Premium Cost determined on a SAP |
Lifetime of the policy |
Makes sense |
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Calculator Formula Present Value of Annuity Different Amounts |
0 CFJ Amt CFJ Amt CFJ I/YR Shift NPV -
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u can use different amounts and different years
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KEYS TO REMEMBER CFJ is used to calculate |
ANNUITIES |
Remember |
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Arithmetic Mean |
Return Percentage Year 1 Less Return Percentage Year 2 divied by number of year I.E. 8% Year 1 -8% Year 2 8+-8/2 = ) |
Check this one |
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Calc Keys How do u change the calc from 1 year to 12 months |
12 Shift PYR |
Neet to remember |
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EBIT FORMULA |
Total Shares Outstanding if Stock is Sold x Cost of Debt)/ Additional Shares to be Sold |
O C A Check this one |
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If actual EBIT is lower than the breakeven point , |
, equity financing produces a higher earnings per share. |
CHECK THIS ONE |
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What does the euity multiplier do |
Emphasizes the efficiency of the use of debt to finance assets |
Is Whitney Making me money |
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Ending Retained Earnings
equal this |
Beginning Retained Earnings + Net Income - Dividends |
BRENID |
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DtoE |
LTD/TE |
DELTDTE |
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DtoA |
LTD+CL/TA |
Linus Told David Charles Love Tastes Acidic |
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EM |
TA/TE |
Tom Ate Tims Eclair |
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ROE |
NI/TE |
Nicholas Is Too Edgy |
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Formula Value Per Share of Preferred Stock that pays a dividend |
Payment Amount / Divdend Rate |
People Always Disappoint Rhea |
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Formual Obtaining the annual interest expense on bonds |
Capital Needing to be raised multiplied times the annual interest rate
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This is how much the EXPENSE would be. May want to go over a few times |
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Formula for Return on Equity for EBIT |
EBIT- Interest Expense/Equity |
EIEE Ed is Every EGO |
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Formula for Determining the amount of shares outstanding once stock is sold to raise capital |
Capital Needed/Cost Per Share= # of shares needed. Add this amount to the current outstanding shares |
Pretty Logical |
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Formula Net Income for EBIT |
EBIT - Interest Expense
Interest expense is the amount needed x interest rate) |
EBIITE |
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When will the nominal and effective rates be identical |
When the compounding occurrs annually |
Donald And Ronald are identical when compounded annually. |
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Formula ITR= |
COGS/INVEN |
I tried run consistently inside |
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What does the premium to surplus ratio relates Net Written Premiums |
PH Surplus |
Makes Sense |
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Formula NPV of a series of payments |
Shift Clear All Amount of payment CFJ Amount of payment CFJ I/YR Shift NPV |
ISU |
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IRIS Ratio 3 |
Change in Net Writings greater than 0. NWP greater than the year before |
Go over this |
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CR forumla |
ER + LR |
Cindy Really Eat Litte Rasberrys Like Rod |
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Formula Insurance Leverage = |
Premiums Written/PH Surplus *Reserves / Premium Written |
PWPHS*RPW |
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Formula Cost of Funds from Insurance Operations |
Underwriting Loss x 1-tax rate/loss + lae Reserve + Unearned Premiums |
Remember the 1 |
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Formula Equity Cost of Capital Formula |
R= (d1/V0) +g R= Cost of equity capital d1=dividend projeccted for the year (Prior Dividend multiplied by 1 plus the dividend growth rate) VO= Current Value of Stock g= growth rate |
Over and Over- Chapter 10 |
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Formula Cost of Debt |
(Risk Free Rate or Return + Risk Premium) X (1-Tax Rate) |
Run Forest Run Realy Run Pinhead and deduct for taxes |
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Under the RBC Formula , insurers should maintain their capacity a this level to avoid any regulatory action. |
200% of the Authorized Control Lever |
RBC needs reviewed |
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Formula Cost of Debt |
YTM x (1-TR) |
Tax rate deducted |
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Formula Cost of Preferred Stock |
Dividend $ Amount/Market Price |
DAMP |
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Formula Determining a Dividend |
Par Vaue X Divdend Percentage |
Easy One |
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Formula Weighted Average Cost of Capital |
Cost of Equity x Percentage of Equity PLUS Cost of Debt x Percentage of Debt |
WACC COE POE COD POD |
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Name 3 items that are taken into account under the RBC Model |
Credit Asset Underwriting |
Cindy Underestimated Angie |
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Formula Market Value Surplus of an Insurer |
Fair Value of Assets - (Present Value of Liabiities + Market Value Margin)
This represents an additional payment in case reserves are inadequate. |
FVA PVOL MVM |
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If the demand for a product is elastic , the demand (and revenues) will increase after a drop in price. |
The demand (and revenues) will increase after a drop in price. |
Rubberband man |
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What are 4 economic factors that influence the P&C Industry |
Economic & Business Conditions Financial Market Changes Bankruptcies Supply and Demand |
Ed Frequent St Bar |
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What are 4 socioeconomic factors that influence the P&C Industry |
Litigation Population Catastrophe Technology |
Paula Cant Tell Lies |
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3 Various Industry Insurance Cycles |
Business Underwriting Profit |
PUB |
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Phases of the Underwriting Cycle |
Hard Soft |
Skinny Woman Fat Woman
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Factors Influencing the Underwriting Cycle |
Return on Equity Capacity Investmentment Income |
RIC Ricky Is Crooked |
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What is supply in insurance |
the aggregate willingness of insurers to assume risk at given time. |
Willing Suppler |
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Capacity |
Reflects the total amount of risk insurers can assume relative to their surplus regardless of their willingness to do so. |
Risky Surplus |
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Factors Affecting the Supply of Property Casualty Insurance |
Reinsurance Difficulty of Exit Dedicated Capital Underreserving Proft Expectations |
DR PUD
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Demand |
Willingness and ability to buy a product |
WAB |
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Elastic Demand |
Willingness to buy a product that varies signficantly with price |
Willing to buy rubber band |
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Inelastic Demand |
Willing to buy a product that does not vary signficantly in price. |
Buys broken bands |
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What does an insurer do during a soft market |
They cultivate a niche market that allow them to operate with less price competition. |
Antique Insurance |
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What does an insurer do during a hard market |
Insurers become more selective with the accounts they will write |
The opposite of what FB does |
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Why does small company stock have historically greater returns than large company stocks |
HIgher risk/reward for smaller companies |
Dynamite comes in small packages |
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What are 5 common investment related risks |
Market Company Specific Credit Interest Rate Liquidity |
Safeway State Farm Visa Bank Water |
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Quantitative Measures of Risks |
Variance Standard Deviation Coefficient of Variation Value at Risk Beta |
Bob Values Connie Snobby Vests |
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Variance |
measure of the deviation from the mean of each variable in a data set, used to quantify investments values during a specific period , the larger it is, the more volatile |
I measure a mean woman's period , the longer it is the more period
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Standard Deviation |
the average of the differences between the values in a distribution and a expected value the larger the more volatile |
A standard tow is average cost , if it is larger, we become volatile |
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Coefficient of Variation |
a distributions standard deviation divided by the mean or expected value |
Don Stand Devided but means every vast |
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Value at Risk |
A measure of potential dollar losses from an unlikely adverse event affecting an investment portfolio in otherwise normal market |
Money potential |
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Beta |
the movement of an individuals stock to the market |
Beta Market |
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Modern Portfolio Theory |
an investment decision process that quantifies the relationship between risk and return and consists of 4 Steps |
Risky for my relationship that i don't return |
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What are the four steps of Modern Portfolio Theory |
Security Valuation Asset Allocation Portfolio Optimization Performance Measurement |
SAPP Secure Asses Peform Portly |
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Risk Return Trade Off |
Potential Return to Increase as Risk Increases |
Riskier the higher the return |
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Diversification |
Array of Financial Assets to Lower Risk |
Flowers are Risky |
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Risk Premium |
Amount of Compensation in Excess of the risk free return needed to induce |
What are my odds
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Efficient Frontier |
Collection of securities portfolios combinations that generate the highest expected return for a given level of risk that have the lowest risk for a given expected of return |
The Frontier I want to reach |
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Capital Asset Pricing Model |
A method of pricing securities based on the relationship between risk and return. |
CAPS are risky to truckersT |
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The CAPM indicates the expected return for a particular asset is based on these 3 elements |
Risk Free Returns Market Risk Premiums Market Risk Assumed |
Return to the market for premium ass |
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In regards to financial markets, who assumes the price risk when securities are sold through a firm committment underwriting |
Dealer |
LAC ASSUMES |
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The higher the bonds coupon rate, |
the lesser the percentage change in the price for a given change in interest rate |
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What if the following factors influence a bonds yield to maturity |
Risk Premium Inflation Premium Real Rate of Return |
Risk Inflates Returns is my bond |
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In regards to the efficient market hypothesis |
the weak form suggests that determing a companys expected cash flow will aid in performance |
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What does the strong form of efficient market hypothesis states |
That stock prices reflect not only public information but also reflect insider information |
The crowd and the team are strong. |
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FASB guidance establishing an assets value , suggests |
fair value should be equal to the NPV of expected future dividends |
Read |
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What effects bonds rating |
the rating assigned by the securities valuation office |
makes sense
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