# henzel

**Shareholder Wealth
Maximization**: the primary financial goal for managers of publicly owned
companies implies that decisions should be made to maximize the long-run value
of the firm’s common stock. **Intrinsic Value:** an estimate of
stock’s “true” value based on accurate risk and return data. **Market Price:** the stock value
based on perceived but possibly incorrect information as seen by the marginal
investor.**Primary markets:** markets in which
corporations raise capital by issuing new securities. **Secondary markets:** markets in which
securities and other financial assets are traded among investors after they
have been issued by corporations. **Public markets:** markets in which
standardized contracts are traded on organized exchanges. **Private markets:** markets in which
transactions are worked out directly between two parties. **Physical Location Exchanges:** formal
organizations having tangible physical locations that conduct auction markets
in designated (“listed”) securities. **Over-the-counter markets:** A large collection
of brokers and dealers, connected electronically by telephones and computers,
that provides for trading in unlisted securities. **Annual Report:** a report issued
annually by a corporation to its stockholders. Contains basic financial
statements and management analysis of a firm’s past operations and future
prospects. **Balance Sheet:** a statement of a
firm’s financial position at a specific point in time. **Income Statement:** reports summarizing
a firm’s revenues, expenses, and profits during a reporting period, generally
quarter or a year. **Working Capital:** current assets. **Free Cash Flow:** the amount of cash
that could be withdrawn without harming a firm’s ability to operate and to
produce future cash flows. **Liquidity Ratios:** ratios that show
the relationship of a firm’s cash and other current assets to its current
liabilities. **Asset Management Ratios:** a set of ratios
that measure how effectively a firm is managing its assets. **Debt Management Ratios:** a set of ratios
that measure how effectively a firm manages its debt. **Profitability Ratios:** a group of ratios
that show the combined effects of liquidity, asset management, and debt on
operating results. **Market Value Ratios:** ratios that relate the firm’s
stock price to its earnings and book value per share. **DuPont Equation**: a formula that
shows that the rate of return on equity can be found as the product of profit
margin, total assets turnover, and the equity multiplier. Shows the
relationships among asset management, debt management, and profitability
ratios. **Future Value:** the amount to which
a cash flow or series of cash flows will grow over a given period of time when
compounded at a given interest rate. **Present Value:** the value today of a future
cash flow or series of cash flows. **Compounding:** the arithmetic
process of determining the final value of a cash flow or series of cash flows
when compound interest is applied. **Discounting:** the process of
finding the present value of a cash flow or a series of cash flows, discounting
is the reverse of compounding. **Annuity:** a series of equal
payments at fixed intervals for a specified number of periods. **Perpetuity:** a stream of equal
payments at fixed intervals expected to continue forever. **Effective Annual Rate of
interest (EAR):** the annual rate of interest actually being earned, as opposed
to the quoted rate. **Real risk-free rate of
interest:** the rate of interest would exist on default – free U.S.
Treasury securities if no inflation were expected. **Nominal risk-free rate:** The rate of
interest on a security that is free of all risk. It is proxied by the T-bill
rate of the T-bond rate. Includes an inflation premium. **Inflation premium:** a premium equal to
expected inflation that investors add to the real risk-free rate of return. **Default risk premium:** the difference
between the interest rate on a U.S. Treasury bond and a corporate bond of equal
maturity and marketability. **Liquidity premium:** a premium added to
the equilibrium interest rate on a security if that security cannot be
converted to cash on short notice and at close to its “fair market value.” **Maturity risk premium:** the additional
return over the risk-free rate needed to compensate investors for assuming an
average amount of risk. **Yield curve:** a graph showing the
relationship between bond yields and maturities. **Bond:** a long-term debt
instrument. **Corporate Bonds:** bonds issued by
corporations. **Treasury Bonds:** bonds issued by the
federal government, sometimes referred to as government bonds.