Un|vers|ty of Dhaka

Department of 1nM
M8A (Lvenlng rogram)
Ass|gnment I

3Course 1lLle llnanclal ManagemenL
Course code L1PM 3022
Course 1eacher rof ur !amal uddln Ahmed
uaLe of submlsslon
230911

SubmlLLed by
Name ID
lalsal ervez 07 11 06062



Account rece|vab|es]payab|es AccounL recelvables represenLs Lhe LoLal monles owed Lhe flrm by
lLs cusLomers on credlL sales made Lo Lhem
AccounL payables represenL Lhe amounLs owed for credlL purchase by Lhe flrm
2 Amort|zat|on Lhe deLermlnaLlon of Lhe equal perlodlc loan paymenLs necessary Lo provlde a lender
wlLh a speclfled lnLeresL reLurn and Lo repay Lhe loan prlnclpal over a speclfled perlod
3 Annu|ty A sLream of equal perlodlc cash flows over a speclfled Llme perlod 1hese cash flows can be
lnflows of reLurns earned on lnvesLmenLs or ouLflows of funds lnvesLed Lo earn fuLure reLurn
4 8ond Long Lerm debL lnsLrumenL used by buslness and governmenL Lo ralse large sums of money
generally from a dlverse group of lenders
S 8ond Indenture A legal documenL LhaL speclfles boLh Lhe rlghLs of Lhe bond holders and Lhe duLles
of Lhe lssulng corporaLlon
6 8onus Share 1he Lerm bonus means an exLra dividend pald Lo shareholders ln a joint stock company
from surplus proflLs When a company has accumulaLed a large fund ouL of proIits much beyond lLs
needs Lhe dlrecLors may declde Lo dlsLrlbuLe a parL of lL amongsL Lhe shareholders ln Lhe form of bonus
8onus can be pald elLher ln cash or ln Lhe form of shares Cash bonus ls pald by Lhe company when lL has
large accumulaLed proflLs as well as cash Lo pay dlvldend Many a Llme a company ls noL ln a poslLlon Lo
pay bonus ln cash ln splLe of sufflclenL proflLs because of unsaLlsfacLory cash poslLlon or because of lLs
adverse effecLs on Lhe working capital of Lhe company ln such a poslLlon Lhe company pays a bonus Lo
lLs shareholders ln Lhe form of shares a free share Lhus lssued ls known as a bonus share
ap|ta| 8udget A caplLal budgeL lncludes planned ouLlays for longllved asseLs LhaL are expecLed Lo
generaLe lncome or supporL buslness operaLlons over a number of years
8 ap|ta| Market A markeL LhaL enables suppllers and demanders of long Lerm funds Lo make
LransacLlons
9 ap|ta| kat|on|ng 1he flnanclal slLuaLlon ln whlch a flrm ls able Lo accepL all lndependenL pro[ecLs
LhaL provldes an accepLable reLurn
ash I|ows Cash flow ls Lhe money LhaL ls movlng (flowlng) ln and ouL of any buslness ln a monLh
ost of ap|ta| 1he raLe of reLurn LhaL a flrm musL earn on Lhe pro[ecLs ln whlch lL lnvesLs Lo
malnLaln lLs markeL value and aLLracL funds
2 urrent Assets ShorL Lerm asseLs expecLed Lo be converLed lnLo cash wlLhln on a year or less
3 Debentures 1hese are unsecured bonds LhaL only credlLworLhy flrm can lssue ConverLlble bonds
are normally debenLures
4 D|v|dend ulvldends are a share of a companys proflLs LhaL ls dlvlded among shareholders
S Larn|ngs per Share (LS) Larnlngs per Share (LS) ls Lhe neL proflL of a buslness for a glven Llme
perlod dlvlded by Lhe number of outstanding shares of common sLock aL Lhe end of Lhe perlod LS ls
also deflned as Lhe lncrease ln value of Lhe equity of each share
6 I|nanc|a| Market lL's Lhe forum ln whlch suppllers of funds and demanders of funds can LransacL
buslness dlrecLly
nybr|d Secur|ty A form of debL or equlLy flnanclng LhaL possesses characLerlsLlcs of boLh debL and
equlLy flnanclng
8 Interna| f|nanc|ng Larnlngs of Lhe company ls noL dlsLrlbuLed Lo owners as dlvldends buL kepL ln
Lhe company lL's called lnLernal flnanclng
9 Interna| rate of return (Ikk) l88 or lnLernal 8aLe of 8eLurn ls a speclal appllcaLlon of Lhe loglc
behlnd !' (neL resenL value) calculaLlons lL ls a commonlyused concepL ln pro[ecL and lnvesLmenL
analysls lncludlng capital budgeting
1he l88 of a pro[ecL or lnvesLmenL ls Lhe dlscounL raLe LhaL resulLs ln an !' of zero lf Lhe acLual
dlscounL raLe (whlch ls Lhe LheoreLlc cosL of funds Lo Lhe company or lnvesLor ln quesLlon) ls lower Lhan
Lhe l88 Lhe pro[ecL or lnvesLmenL should be underLaken
2 Investment ompany A corporaLlon or LrusL engaged ln Lhe buslness of lnvesLlng Lhe pooled
caplLal of lnvesLors ln flnanclal securlLles 1hls ls mosL ofLen done elLher Lhrough a closedend fund or an
openend fund
2 Lease An agreemenL ln whlch one parLy galns a longLerm renLal agreemenL and Lhe oLher parLy
recelves a form of secured longLerm debL
1he lessee galns a longLerm conLracL for Lhe use of an asseL and Lhe lessor ls assured of regular
paymenLs for a speclfled number of years
22 Leverage 1he use of varlous flnanclal lnsLrumenLs or borrowed caplLal such as margln Lo lncrease
Lhe poLenLlal reLurn of an lnvesLmenL Leverage ls mosL commonly used ln real esLaLe LransacLlons
Lhrough Lhe use of morLgages Lo purchase a home
23 Lock box system A collecLlon procedure ln whlch cusLomer's mall paymenLs Lo a posL offlce box
LhaL ls empLled regularly by Lhe flrm's bank whlch processes Lhe paymenLs and deposlLs Lhem ln Lhe
flrm's accounL
24 Merchant 8ank A bank LhaL deals mosLly ln (buL ls noL llmlLed Lo) lnLernaLlonal flnance longLerm
loans for companles and underwrlLlng MerchanL banks do noL provlde regular banklng servlces Lo Lhe
general publlc
2S Money Market A segmenL of Lhe flnanclal markeL ln whlch flnanclal lnsLrumenLs wlLh hlgh
llquldlLy and very shorL maLurlLles are Lraded 1he money markeL ls used by parLlclpanLs as a means for
borrowlng and lendlng ln Lhe shorL Lerm from several days Lo [usL under a year
26 Marketab|e Secur|t|es very llquld securlLles LhaL can be converLed lnLo cash qulckly aL a
reasonable prlce
MarkeLable securlLles are very llquld as Lhey Lend Lo have maLurlLles of less Lhan one year lurLhermore
Lhe raLe aL whlch Lhese securlLles can be boughL or sold has llLLle effecL on Lhelr prlces
2 ortfo||o A grouplng of flnanclal asseLs such as sLocks bonds and cash equlvalenLs as well as Lhelr
muLual exchangeLraded and closedfund counLerparLs orLfollos are held dlrecLly by lnvesLors
and/or managed by flnanclal professlonals
28 r|mary market llnanclal markeL ln whlch securlLles are lnlLlally lssued 1he only markeL ln whlch
Lhe lssuer ls dlrecLly lnvolved ln Lhe LransacLlon
29 keta|n earn|ngs 1he cumulaLlve LoLal of all earnlngs neL of dlvldends LhaL have been reLalned and
relnvesLed ln Lhe flrm slnce lLs lncepLlon earnlngs noL dlsLrlbuLed Lo owners as dlvldends
3 keturn on Lqu|ty (kCL) 1he amounL of neL lncome reLurned as a percenLage of shareholders
equlLy 8eLurn on equlLy measures a corporaLlons proflLablllLy by reveallng how much proflL a company
generaLes wlLh Lhe money shareholders have lnvesLed
8CL ls expressed as a percenLage and calculaLed as
#eturn on Equity et Income/Shareholder's Equity
31. Return on Investment (ROI): Measure the overall eIIectiveness oI management in generating
proIits with its available assets. Also called the return on assets (#A).
1he reLurn on lnvesLmenL formula
32 k|ght share llnanclal lnsLrumenLs LhaL allow sLockholders Lo purchase addlLlonal shares aL
a prlce below Lhe markeL prlce ln dlrecL proporLlon Lo Lhelr number of owned shares
33 Secondary MarkeL A markeL where lnvesLors purchase securlLles or asseLs from oLher lnvesLors
raLher Lhan from lssulng companles Lhemselves 1he naLlonal exchanges such as Lhe new ?ork SLock
Lxchange and Lhe nASuAC are secondary markeLs
34 S|nk|ng Iund A means of repaylng funds LhaL were borrowed Lhrough a bond lssue 1he lssuer
makes perlodlc paymenLs Lo a LrusLee who reLlres parL of Lhe lssue by purchaslng Lhe bonds ln Lhe open
markeL
3S Stock d|v|dend A dlvldend paymenL made ln Lhe form of addlLlonal shares raLher Lhan a cash
payouL Also known as a scrlp dlvldend
36 Stock Sp||ts A meLhod commonly used Lo lower Lhe markeL prlce of a flrm's sLock by lncreaslng Lhe
number of shares belonglng Lo each shareholder
3 1reasury b||| A shorLLerm debL obllgaLlon backed by Lhe uS governmenL wlLh a maLurlLy of less
Lhan one year 1bllls are sold ln denomlnaLlons of $1000 up Lo a maxlmum purchase of $3 mllllon and
commonly have maLurlLles of one monLh (four weeks) Lhree monLhs (13 weeks) or slx monLhs (26
weeks)
38 Sa|vage Va|ue 1he esLlmaLed value LhaL an asseL wlll reallze upon lLs sale aL Lhe end of lLs useful
llfe 1he value ls used ln accounLlng Lo deLermlne depreclaLlon amounLs and ln Lhe Lax sysLem Lo
deLermlne deducLlons
39 keturn 1he galn or loss of a securlLy ln a parLlcular perlod 1he reLurn conslsLs of Lhe lncome and
Lhe caplLal galns relaLlve on an lnvesLmenL lL ls usually quoLed as a percenLage
4 Underwr|t|ng 1he process by whlch lnvesLmenL bankers ralse lnvesLmenL caplLal from lnvesLors on
behalf of corporaLlons and governmenLs LhaL are lssulng securlLles (boLh equlLy and debL)
4 Work|ng ap|ta| CurrenL asseLs whlch represenL Lhe porLlon of lnvesLmenL LhaL clrculaLes from
one form Lo anoLher ln Lhe ordlnary conducL of buslness
42 |e|d 1he lncome reLurn on an lnvesLmenL 1hls refers Lo Lhe lnLeresL or a dlvldend recelved from a
securlLy and ls usually expressed annually as a percenLage based on Lhe lnvesLmenLs cosL lLs currenL
markeL value or lLs face value
43 |e|d to Matur|ty (1M) Compound annual raLe of reLurn earned on a debL securlLy purchased on
a glven day and held Lo maLurlLy
44 Lqu|ty
a) A sLock or any oLher securlLy represenLlng an ownershlp lnLeresL
b) Cn a companys balance sheeL Lhe amounL of Lhe funds conLrlbuLed by Lhe owners (Lhe sLockholders)
plus Lhe reLalned earnlngs (or losses) Also referred Lo as 'shareholders equlLy'
4S Deprec|at|on
a) A meLhod of allocaLlng Lhe cosL of a Langlble asseL over lLs useful llfe 8uslnesses depreclaLe longLerm
asseLs for boLh Lax and accounLlng purposes
b) A decrease ln an asseL's value caused by unfavorable markeL condlLlons
46
4 Stock A Lype of securlLy LhaL slgnlfles ownershlp ln a corporaLlon and represenLs a clalm on parL of
Lhe corporaLlons asseLs and earnlngs 1here are Lwo maln Lypes of sLock common and preferred
48 8a|ance Sheet A flnanclal sLaLemenL LhaL summarlzes a companys asseLs llablllLles
and shareholders equlLy aL a speclflc polnL ln Llme 1hese Lhree balance sheeL segmenLs glve lnvesLors
an ldea as Lo whaL Lhe company owns and owes as well as Lhe amounL lnvesLed by Lhe shareholders
1he balance sheeL musL follow Lhe followlng formula
AsseLs LlablllLles + Shareholders LqulLy
49 2erooupon 8ond A debL securlLy LhaL doesnL pay lnLeresL (a coupon) buL ls Lraded aL a deep
dlscounL renderlng proflL aL maLurlLy when Lhe bond ls redeemed for lLs full face value Also known as
an accrual bond