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Finance: According to Keown, Martin, Petty and Scott (2005, p.4) the economic value is created and maintained through financial management.
– Role in finance: According to Keown et al. (2005, p. 4) no company can operate without finance as the creation of the wealth is based on the finance present within a company. All the operations are based on the finance and many decisions are made in regard to it. Obviously, a company cannot make a product, launch it and market it if it does not has sufficient finance required for doing all this.
Efficient Market: According to Keown et al. (2005, p. 16) an efficient market is the one where accurate, appropriate and updated information regarding the values of all assets and securities is present for the public all the time.
– Role in finance: Provision of accurate and updated, timely information regarding the right prices.
Primary Market: According to Keown et al. (2005, p. 484) in the primary market the potential investors are been offered for the first time with the transactions in regard to securities
– Role in finance: The primary market is where the new securities are offered to the potential buyers and it offers a channel for sale of these securities. It also provides the opportunity for different organizations and governments to raise funds. But these organizations can do so by remaining in their obligations.
Secondary Market: According to Keown et al. (2005, p. 11) the secondary market is the one where the previously issued stock is traded.
– Role in finance: The secondary markets act as an agent to control and monitor for the management of firms. Various decisions are made and it also enables implementation of incentive-based management contracts for the management. Thus, here the public who wants to invest or trade the securities can do it efficiently.
Risk: According to Keown et al. (2005, p. 507) the risk is the unpredictability linked with the incoming income or expected revenues.
– Role in finance: The investments are evaluated on the basis of risk.
Security: According to InvestorGuide.com, Inc. (2009) when a corporation, government, or other organization issues an investment instrument which serves as evidence of debt or equity then it is known as a security. It differs from an insurance policy or fixed annuity.
Role in finance: There are different types of securities such as bonds, notes, preferred stock, common stock, debenture, option right, warrant or any other financial asset. The one who issues it earns finance from it whereas it is an investment for the one who buys it.
Stock: According to InvestorGuide.com, Inc. (2009) stock is an instrument which gives a part in the ownership to a person in an organization. Basically, by acquiring stock one gets a share in the equity and holds a right to claim as its proportional share in the corporation’s assets and profits.
Role in finance: By selling stocks the company raise funds otherwise it can only survive on real assets. The future payments can be claimed and it is a way of being able to have financial assets.
Bond: According to Keown et al. (2005, p. 224) when a borrower issues a long-term promissory note in which he assures to pay the person to whom it is been given that he’ll pay a fixed amount of interest each year then such a note is known as a bond. It can also be considered as a type of debt.
Role in finance: The company can sell bonds to the investors in order to raise funds. The capital for operating the company is earned through these bonds for longer periods of time.
Capital: According to InvestorGuide.com, Inc. (2009) capital could either be in form of money, property or any other valuable which together form the wealth of any business or organizations. It can also be said as the assets available.
Role in finance: No business can survive without capital. Capital is required for every operation that is conducted by any business. It is the most essential element in finance as without cash/goods the functioning of a business is not possible.
Debt: According to Keown et al. (2005, p. 37) the debt is the borrowed money with the promise to repay it on a preordained time.
Role in finance: When the external sources like banks or investors lend money to a business then debt is caused.
Yield: According to InvestorGuide.com, Inc. (2009) yield is the percentage of the annual rate of return on an investment.
Role in finance: In order to determine the return, the investors and companies must know the yield which is basically the rate of return. It is based on market price.
Rate of Return: According to InvestorGuide.com, Inc. (2009) the rate of return is the percentage of the total amount invested in an investment and it is mostly not calculated annually.
Role in finance: When the return is to be ascertained then the investors and the companies must know the rate of return.
Return on Investment: According to InvestorGuide.com, Inc. (2009) the measurement of how well the capital is utilized by the firm in order to generate profits ROI is calculated. The higher the ROI the better the capital utilization is. When the fiscal year’s income of a corporation is divided by its common and preferred stock equity further on added to the long-term debt equals the corporation’s profitability then it is known as ROI. – Role in finance: ROI assists the management in making better decisions. Investors also invest in the companies which have good ROI.
Cash Flow: According to InvestorGuide.com, Inc. (2009) when the cash payments are subtracted from the cash receipts for a given period of time then the cash flow can be calculated. It can also be calculated when net profit plus amounts charged off for depreciation, depletion, and amortization. The financial health of a company is measured through the cash flows.
Role in finance: the better the cash flow the better a company can pay its dividends. Better cash flows also reduce debt, provide opportunities to invest in new assets and much more.
InvestorGuide.com, Inc. (2009). Investorwords.com from http://www.investorwords.com/
Keown, A. J., Martin, J. D., Petty, J. W., & Scott, D. F. (2005). Financial Management: Principles and Applications (10th ed.). Upper Saddle River, NJ: Pearson Education, Inc..
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