Download Corporate Finance Vocabulary

ECE 4000 -- Project Engineering & Professional Practice
Corporate Finance Vocabulary
Corporation- A legally established institution having a financial existence separate from that of
the individual owners, as distinct from the other forms of companies, sole proprietorships
or partnerships. A corporation has a board of directors whose function is to provide broad
oversight. The chief executive officer (CEO) of the corporation reports to the board. The
chair of the board may or may not be the CEO. The Board of Directors is typically
comprised of people from both without and within the corporation.
Stockholders- Owners of the corporation.
Stock- Shares of ownership in the corporation. For publicly held corporations, this stock is
usually traded on an exchange, such as the New York Stock Exchange. Many small
technical companies are traded on the NASDAQ .
Stockholder Rights:
Right to purchase or sell shares.
Right to share in dividends if declared.
Right to share in assets if corporation is liquidated.
Common Stock- Right to participate in growth and future profits of corporation. Typically has
voting power on corporate matters.
Preferred Stock- Stock that has a fixed return on investment. The price of the preferred stock
fluctuates with interest rate more like that of a bond, than like that of a common stock.
Bonds- Certificates, or equivalent, indicating ownership of debt by the corporation. Bond holders
have precedence over stockholders in the event of liquidation.
Equity- Interest, or claim upon, the assets of the corporation.
Liquidating Value- Value of the corporation upon ceasing operation and selling the assets.
Enterprise Value- Value of the business aspects of the corporation, defined as the market value
of the company, plus its debt and preferred stock minus the amount of cash and cash
equivalents.
Public Offering- Shares of ownership in the corporation offered to the public for sale.
Initial Public Offering (IPO)- The first offering of the stock to individuals outside of the
corporation employees and venture capitalists.
Lockup Period- The period of time, typically six months, during which time the insiders are
prohibited from selling their shares.
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ECE 4000 -- Project Engineering & Professional Practice
Venture Capitalists- Individuals and firms who provide significant early amounts of capital for
companies, in return for a significant Ownership stake.
Corporate Reporting
Balance Sheet- Statement of assets, liabilities, and stockholder equity.
Assets=Liabilities + Stockholder Equity
Earnings Statement- Statement of earnings and earnings per share for the corporation. Usually
reported on an annual basis, with some intermediate reporting also.
Change in Financial Position- Statement that shows flows of funds into and out of the business.
Cash Flow = Net Earnings + Non-Cash Expenses
For most companies, the majority of non-cash expense is depreciation.
Natural resource companies may, in some instances, claim depletion.
Revenue
– Expenses
________
Earnings
– Tax
________
Retained Earnings + Dividends
Dividends are taxable to the recipient. Hence, “Double taxation of dividends.”
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