Chapter 1: The Goals and Activities of Financial Management
Financial Capital – Common stock, preferred stock, bonds, and
retained earnings; appears on the corporate balance sheet under
long-term liabilities and equity.
Real Capital – long-term productive assets (plant and equipment)
Capital Structure Theory – addresses the relative importance of debt
and equity in the overall financing of the firm
Inflation – the phenomenon of prices increasing with the passage of
Sole Proprietorship – A form of organization that represents single-
person ownership and offers the advantages of decision making and
low organizational and operating costs. However, there is unlimited
liability to the owner.
Partnership – A form of ownership in which two or more partners are
involved. It carries unlimited liability of for the owners but there is only
single taxation for the partners.
Articles of Partnership – An agreement between the partners in a
business that specifies the ownership interest of each, the methods of
distributing profits, and the means for withdrawing from the
Limited Liability Partnership – A special form of partnership to limit
liability for most of the partners. Under this arrangement, one or more
partners are designated as general partners and have unlimited
liability for the debts of the firm, while the other partners are
designated as limited partners and are only liable for their initial
contribution. The limited partners are normally prohibited from being
active in the management of the firm.
Articles of Incorporation – a document that establishes a corporation
and specifies the rights and limitations of the business entity.
Sub-chapter S corporation – A special corporate form of ownership,
in which profits is taxed as direct income to the stockholders, and
thus is only taxed once, as a partnership. The stockholders still
receive all the organizational benefits of a corporation, including