Introduction to Finance

Callable preferred stock
Gives the corpo-
ration the right to retire the preferred stock at 
its option
Cannibalization
This occurs when a project 
robs cash fl ow from the fi rm’s existing lines of 
business
Capacity
The ability to pay bills and often 
involves an examination of liquidity ratios
Capital
Indicates the adequacy of owners’ 
equity relative to existing liabilities as the 
underlying support for creditworthiness
Capital account
Summary of the fl ow of 
funds between one country and all other coun-
tries involving the transfer of fi nancial assets 
across country borders during a specifi ed time 
period
Capital budgeting
Process of identifying, 
evaluating, and implementing a fi rm’s invest-
ment opportunities
Capital consumption adjustment (deprecia-
tion)
The estimate of the “using up” of plant 
and equipment assets for business purposes
Capital formation
Process of construct-
ing real property, manufacturing producers’ 
durable equipment, and increasing business 
inventories
Capital markets
Where debt instruments or 
securities with maturities longer than one year 
and corporate stocks or equity securities are 
issued and traded
Capital structure
Firm’s mix of debt and 
equity used to fi nance a fi rm’s assets
Cash budget
A tool the treasurer uses to 
forecast future cash fl ows and estimate future 
short-term borrowing needs
Cash conversion cycle
Time between a 
fi rm’s paying its suppliers for inventory and 
collecting cash from customers on a sale of the 
fi nished product
Central bank
Federal government agency 
that facilitates the operation of the fi nancial 
system and regulates money supply growth