01 - Introduction

  1. Sole Proprietorship
    A business owned by a single individual.
  2. Partnership
    An association of two or more individuals joining together as co-owners to operate a business for profit.
  3. Company
    An entity that legally functions separately and apart from its owners.
  4. Limited Liability
    Ordinarily, company shareholders are not liable for the debts of the company.
  5. Primary Market
    The segment of the financial markets in which securities are offered for sale for the first time.
  6. Initial Public Offering (IPO)
    The first time the company's stock is sold to the public.
  7. Secondary Issue
    An issue of shares and/or debt by a company other than it's first issue or floatation.
  8. Secondary Market
    The segment of the financial markets in which exsiting securities are bought and sold.
  9. Principle 1
    The risk-return trade-off (won't take additional risk unless we expect to be compensated with additional return).
  10. Principle 2
    The time value of money (TVM) (a dollar received today is worth more than a dollar received in the future).
  11. Principle 3
    Cash, not profits, is king.
  12. Principle 4
    Incremental cash flows (it's only what changes that counts).
  13. Principle 5
    The curse of competitive markets (why it's hard to find exceptionally valuable projects).
  14. Principle 6
    Efficient capital markets (the markets are quick and the prices are right).
  15. Principle 7
    The agency problem (managers won't work for owners unless it's in their best interest).
  16. Principle 8
    Taxes bias business decisions.
  17. Principle 9
    All risk is not equal (some risk can be diversified away, and some cannot).
  18. Principle 10
    Ethical behaviour is down the right thing, and ethical dilemmas are everywhere in finance.
  19. Tax Savings
    A reduction in the amount of tax that is associated with a particular decision or action. A negative tax saving occurs when a particular decision or action results in an increase in the amount of tax.
  20. Classical Tax System
    A tax system applying to companies and their shareholders, where the net income of the company is taxed twice. First at the company level and then again when dividends are received by the shareholders.
  21. Dividend Imputation System
    A tax system applying to companies and their shareholders, where the net income of the company is imputed to the shareholders and taxed at their marginal rate. Although company income is taxed twice (company level and dividends received) the shareholders receive a credit for the income tax paid by the company.
  22. Franking (Imputation) Credits
    An amount of income tax paid by the company that is credited to shareholders when they receive company dividends and which can be used by the shareholders to offset income tax levied on the grossed-up dividend amount imputed to them.
  23. Taxation Category 1
    Companies with shareholders that are fully or substantially integrated by the dividend imputation system.
  24. Taxation Category 2
    • Sole trader.
    • Partnerships.
    • Companies with shareholders that are NOT integrated by the dividend imputation system.
  25. Taxation Category 3
    The in-between case - companies with shareholders that are PART integrated by the dividend imputation system.
  26. Capital Gain
    Occurs when the sale price minus the purchase price is positive.
  27. Capital Loss
    Occurs when the sale price minus the purchase price is negative.
  28. Financial Asset
    A non-tangible asset that entitles the holders to receive a set of cash flows in the future.
  29. External Funds
    Funds raised from outside sources (bond or equity issue).
  30. Internal Funds
    Funds generated within the company through retaining profits.
  31. Financial Intermediary
    An institution whose business is to bring together individuals and institutions with money to invest or lend with other firms or individuals that need money.
  32. Real Assets
    Tangible assets such as houses, equipment and inventories. Real assets are distinguished from financial assets.
  33. Commercial Banks
    Financial institutions that accept deposits, make loans and provide other financial services to the public.
  34. Building Societies and Credit Unions
    Authorised deposit-taking institutions that provide banking services to their members.
  35. Superannuation Fund
    A retirement fund that helps individuals to save and invest for their retirement.
  36. Superannuation Guarantee
    The compulsory contribution that employers must make on behalf of their employees.
  37. Preservation Age
    The age at which individuals have access to their superannuation money.
  38. Defined Benefit Fund
    A superannuation fund that provides a retirement benefit determined by a formula, not by investment performance.
  39. Mutual Fund
    A professionally managed investment company that pools the investments of many individuals and invests them in financial assets such as stocks, bonds and other types of securities.
  40. Net Asset Value (NAV)
    The difference between the current market value of a fund's assets and the value of it's liabilities.
  41. Exchange-traded Fund (EFT)
    An investment vehicle traded on stock exchanges much like a share or stock. The entity holds investments in assets that meet the investment objective of the entity.
  42. Hedge Fund
    An investment fund which is open to a limited range of investors and which can undertake a wider range of investment and trading activities than a mutual fund.
  43. Private Equity Firms
    Financial intermediaries that invest in companies that are not traded on the public capital markets.
  44. Venture Capital Firms
    Investment companies that raise money from accredited investors and use the proceeds to invest in new start-up companies.
  45. Leveraged Buyout Funds
    Private equity funds that raise capital from investors and use those funds, along with significant amounts of debt, to acquire controlling interests in operating companies.
  46. Preferred Stock
    An equity security that holds preference over common stock in terms of the right to the distribution of dividends and the right of distribution of proceeds in the event of the liquidation and sale of the issuing firm.
  47. Derivative
    A financial instrument whose value is derived from or based on the value of an underlying asset.
  48. Exchange-traded Instruments
    Financial instruments that are bought and sold through an organised exchange.
  49. Over-the-counter Instruments
    Financial instruments that are privately arranged between two parties.
  50. Futures Contract
    Legally binding agreement to buy or sell a stated commodity or financial instrument at a specified price at some future specified time.
  51. Option
    Agreement that gives the holder the right (but not the obligation) to buy or sell a commodity or financial instrument at a specified price on or before a specified date.

    • Call = buy
    • Put = sell
  52. Money Market
    All institutions and procedures that facilitate transactions in short-term financial instruments.
  53. Capital Market
    All institutions and procedures that facilitate transactions in long-term financial instruments.
  54. Public Offering
    Offer of new securities to the public.
  55. Private Placement
    The offer of financial securities directly to selected potential purchasers (in contrast to a public offering).
Card Set
01 - Introduction
211 - Introduction