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Time value of money
Money has a Time Value. This basic idea a dollar received today, other things being the same, is worth more than a dollar received a year from now underlies many financial decisions faced in Business (TItman, Keown, & Martin, 2014, P. 172).
TItman, S., Keown, A., & Martin, J. (2014). Financial Management: Principles and Applications (12th ed.). : Prentice Hall Efficient market
A market in which prices quickly respond to the announcement of new information. Efficient markets describes the extent to which information is incorporated into security prices. In an efficient market, security prices reflect all available information at all times; and, because of this, it is impossible for an investor to consistently earn high rates of return without taking substantial risk (TItman, Keown, & Martin, 2014, P.210). TItman, S., Keown, A., & Martin, J. (2014). Financial Management: Principles and Applications (12th ed.). : Prentice Hall Primary versus secondary market
A primary market is a market in which new, as opposed to previously issued, securities are bought and sold for the first time. In this market, firms issue new securities to raise money that they can then use to help finance their businesses. The key feature of the primary market is that the firms selling securities actually receive the money raised.
The secondary market is where all subsequent trading of previously issued securities takes place. In this market the issuing firm does not receive any new financing, as the securities it has sold are simply being transferred from one investor to another. The principal benefit of the secondary market for the shareholders of firms that sell their securities to the public is liquidity(TItman, Keown, & Martin, 2014, P.25). TItman, S., Keown, A., & Martin, J. (2014). Financial Management: Principles and Applications (12th ed.). : Prentice Hall Risk-return tradeoff tells us that we will expect to receive higher returns for assuming more risk (even though there is no guarantee we will get what we expect).
However, the risk–return tradeoff that investors face is not based on realized rates of return; it is instead based on what the investor expects to earn on an investment in the future (TItman, Keown, & Martin, 2014, P.193). TItman, S., Keown, A., & Martin, J. (2014). Financial Management: Principles and Applications (12th ed.).
: Prentice Hall Agency (principal and agent problems)
The conflict of interest between the firm’s managers and its stockholders is called a principal-agent problem, or agency problem, in which the firm’s common stockholders, the owners of the firm, are the principals in the relationship, and the managers act as “agents” to these owners (TItman, Keown, & Martin, 2014, P. 13)
TItman, S., Keown, A., & Martin, J. (2014). Financial Management: Principles and Applications (12th ed.). : Prentice Hall Market information and security prices and information asymmetry A situation in which one party in a transaction has more or superior information compared to another. This often happens in transactions where the seller knows more than the buyer, although the reverse can happen as well. Potentially, this could be a harmful situation because one party can take advantage of the other party’s lack of knowledge (Investopedia, 2015). Investopedia. (2015). Asymmetric Information. Retrieved from http://www.investopedia.com/terms/a/asymmetricinformation.asp Agile and lean principles
Agile refers to an adaptive, incremental approach to solutions development, with strong emphasis on delivering value. In contrast, Lean respresents a widely adopted approach to continuous improvement, designed to improve performance by removing barriers which disrupt workflow in existing systems. Both Agile and Lean are particularly attractive and suited to finance sector enviroments where business requirements change frequently and recation time is critical (Agile And Lean In Finance, 2011) Agile and Lean in Finance. (2011). Retrieved from http://www.dbconsulting.co.uk/agile-and-lean-in-finance-22-september/ Return on investment
Return on investment, or ROI, is the most common profitability ratio. There are several ways to determine ROI, but the most frequently used method is to divide net profit by total assets. So if your net profit is $100,000 and your total assets are $300,000, your ROI would be .33 or 33 percent. Return on investment isn’t necessarily the same as profit. ROI deals with the money you invest in the company and the return you realize on that money based on the net profit of the business (Entrepreneur Media, Inc., 2014). Entrepreneur Media, Inc.. (2014). Return on Investment ROI. Retrieved from http://www.entrepreneur.com/encyclopedia/return-on-investment-roi
Cash flow and a source of value
In investments, cash flow represents earnings before depreciation, amortization, and non-cash charges. Sometimes called cash earnings. The maount of net cash generated by an investment or a business durning a specific period. Once measure of cash flow is earnings before interest, taxes, depreciation, and amortization (The Free Dictionary, 2015). The Free Dictionary. (2015). Cash flow. Retrieved from http://financial-dictionary.thefreedictionary.com/cash+flow
The planning and organization of an organization’s resources in order to move a specific task, event or duty toward completion. Project management typically involves a one-time project rather than an ongoing activity, and resources managed include both human and financial capital.
A project manager will help define the goals and objectives of the project, determine when the various project components are to be completed (Project Management, 2015). Project Management. (2015). Retrieved from http://www.investopedia.com/terms/p/project-management.asp Outsourcing and offshoring
Outsourcing refers to an organization contracting work out to a 3rd party, while offshoring refers to getting work done in a different country, usually to leverage cost advantages. It’s possible to outsource work but not offshore it; for example, hiring an outside law firm to review contracts instead of maintaining an in-house staff of lawyers. It is also possible to offshore work but not outsource it; for example, a Dell customer service center in India to serve American clients. Offshore outsourcing is the practice of hiring a vendor to do the work offshore, usually to lower costs and take advantage of the vendor’s expertise, economies of scale, and large and scalable labor pool (Offshoring Vs. Outsourcing, 2014). Offshoring vs. Outsourcing. (2014). Retrieved from http://www.diffen.com/difference/Offshoring_vs_Outsourcing Inventory turnover
A measure of how often the company sells and replaces its inventory. It is the ratio of annual cost of sales to the latest inventory. One can also interpret the ratio as the time to which inventory is held. For example a ratio of 26 implies that inventory is held, on average, for two weeks (365 days in a year divided by inventory turnover ratio of 26 equals 14 days pr 2 weeks average inventory holding period). It is best to use this ratio to compare companies within an industry (high turnover is a good sign) because there are huge differences in this ratio across industries (The Free Dictionary, 2013-2015). The Free Dictionary. (2013-2015). Inventory turnover. Retrieved from http://financial-dictionary.thefreedictionary.com/Inventory+Turnover Just-in-time inventory (JIT)
A supply chain management system designed to reduce carrying costs to a minimum. A firm only orders what it expects for its immediate needs; therefore, it keeps a lowinventory. For example, if a retailer believes it will sell 1,000 widgets in a week, it orders precisely 1,000 widgets from its manufacturer. JIT systems require that the retailer at the end of the supply chain can accurately predict demand for its products. They also require that each stage of the supply chain knows exactly how much time it takes to fill an order when it is made. The automotive industry and budget retailers commonly use JIT systems (The Free Dictionary, 2012-2015). The Free Dictionary. (2012-2015). Just In Time. Retrieved from http://financial-dictionary.thefreedictionary.com/Just-in-Time+Inventory+System Vender managed inventory (VMI)
A means of optimizing Supply Chain performance in which the manufacturer is responsible for maintaining the distributor’s inventory levels. The manufacturer has access to the distributor’s inventory data and is responsible for generating purchase orders. To further define it, let’s look at 2 business models (Vendor Managed Inventory, 2015). Vendor Managed Inventory. (2015). Definition of Vendor Managed Inventory. Retrieved from http://www.vendormanagedinventory.com/definition.php Forecasting and demand management
The use of historic data to determine the direction of future trends. Forecasting is used by companies to determine how to allocate their budgets for an upcoming period of time (Investopedia, 2015). Demand Management: Macroeconomics: Use of monetary and fiscal policies to influence the aggregate demand for goods or services in an economy. During periods of high unemployment, governments attempts to stimulate damand, and hence, production and employment and during periords of high inflation or balance fo payment problems to curb it ( Business Dictionary, 2015).
Investopedia. (2015). Forecasting . Retrieved from http://www.investopedia.com/terms/f/forecasting.asp
Business Dictionary. (2015). Demand Management. Retrieved from http://www.businessdictionary.com/definition/demand-management.html