Financial Terms
goal congruence

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Definition of goal congruence

Goal Congruence Image 1

goal congruence

a circumstance in which the personal and
organizational goals of decision makers throughout a firm
are consistent and mutually supportive

Related Terms:


a desired abstract achievement

Affirmative covenant

A bond covenant that specifies certain actions the firm must take.

Asset allocation decision

The decision regarding how an institution's funds should be distributed among the
major classes of assets in which it may invest.

capital budgeting decision

decision as to which real assets the firm should acquire.


he written statement that follows any "trade" in the securities markets. Confirmation is issued
immediately after a trade is executed. It spells out settlement date, terms, commission, etc.

decision making

the process of choosing among the alternative
solutions available to a course of action or a problem

Decision tree

Method of representing alternative sequential decisions and the possible outcomes from these decisions.

Goal Congruence Image 1

decision tree

Diagram of sequential decisions and possible outcomes.

decision variable

an unknown item for which a linear programming
problem is being solved

financing decision

a judgment made regarding the method
of raising funds that will be used to make acquisitions; it
is based on an entity’s ability to issue and service debt and
equity securities

financing decision

decision as to how to raise the money to pay for investments in real assets.

Financing decisions

decisions concerning the liabilities and stockholders' equity side of the firm's balance
sheet, such as the decision to issue bonds.


Refers to an order to buy or sell that can be executed without confirmation for some fixed period. Also,
a synonym for company.

Firm commitment underwriting

An undewriting in which an investment banking firm commits to buy the
entire issue and assumes all financial responsibility for any unsold shares.

Firm's net value of debt

Total firm value minus total firm debt.

Firm-specific risk

See:diversifiable risk or unsystematic risk.

Goal Congruence Image 2

Intrinsic value of a firm

The present value of a firm's expected future net cash flows discounted by the
required rate of return.

investment decision

a judgment about which assets will be
acquired by an entity to achieve its stated objectives

Investment decisions

decisions concerning the asset side of a firm's balance sheet, such as the decision to
offer a new product.

make-or-buy decision

a decision that compares the cost of
internally manufacturing a component of a final product
(or providing a service function) with the cost of purchasing
it from outside suppliers (outsourcing) or from another
division of the company at a specified transfer price

Managerial decisions

decisions concerning the operation of the firm, such as the choice of firm size, firm
growth rates, and employee compensation.

Mutually exclusive investment decisions

Investment decisions in which the acceptance of a project
precludes the acceptance of one or more alternative projects.

mutually exclusive projects

a set of proposed capital projects from which one is chosen, causing all the others to be rejected

mutually exclusive projects

Two or more projects that cannot be pursued simultaneously.

mutually inclusive projects

a set of proposed capital projects that are all related and that must all be chosen if the primary project is chosen

Neglected firm effect

The tendency of firms that are neglected by security analysts to outperform firms that
are the subject of considerable attention.

organizational culture

the set of basic assumptions about
the organization and its goals and ways of doing business;
a system of shared values about what is important and
beliefs about how things get accomplished; it provides a
framework that organizes and directs employee behavior
at work; it describes an organization’s norms in internal
and external, as well as formal and informal, transactions

Goal Congruence Image 3

organizational form

an entity’s legal nature (for example,
sole proprietorship, partnership, corporation)

organizational-level cost

a cost incurred to support the ongoing
facility or operations

organizational structure

the manner in which authority and
responsibility for decision making is distributed in an entity

outsourcing decision

see make-or-buy decision

Personal Assets

Assets, the title of which are held personally rather than in the name of some other legal entity.

Personal Guarantee

A legal document whereby an individual takes responsibility for payment of debt or performance of some obligation if the person/company primarily liable fails to perform.

Personal Line of credit (Credit Insurance)

A bank's commitment to make loans to a borrower up to a specified maximum during a specific period, usually one year.

personal line of credit (PLC)

A revolving source of credit with a pre-established limit. You access the funds only as you need them, and any amount that you pay back becomes accessible to you again. Unlike a personal loan, a PLC permits you to write cheques and make bank machine withdrawals, and requires you to pay interest only on the funds that you actually use.

personal loan

A lump sum that you borrow from a financial institution for a specified period of time. To repay the loan, you pay interest on the entire lump sum, and make payments on a scheduled basis.

Personal Overdraft Facility

A loan facility on a customers account at a financial institution allowing the customer to overdraw up to a certain agreed limit for an agreed period.

Personal Responsibility and Work Opportunity Reconciliation Act

A federal Act requiring the reporting of new hires into a national database.

Personal tax view (of capital structure)

The argument that the difference in personal tax rates between
income from debt and income from equity eliminates the disadvantage from the double taxation (corporate
and personal) of income from equity.

Personal trust

An interest in an asset held by a trustee for the benefit of another person.

PIN (personal identification number)

A secret code that you use to access your bank account at a bank machine or at a point of sale (POS) terminal. You may also have a PIN for banking by telephone.

preference decision

the second decision made in capital project evaluation in which projects are ranked according to their impact on the achievement of company objectives

screening decision

the first decision made in evaluating capital
projects; it indicates whether a project is desirable based
on some previously established minimum criterion or criteria
(see also preference decision)

Security selection decision

Choosing the particular securities to include in a portfolio.

Small-firm effect

The tendency of small firms (in terms of total market capitalization) to outperform the
stock market (consisting of both large and small firms).

special order decision

a situation in which management must determine a sales price to charge for manufacturing or service jobs outside the company’s normal production/service market

Target firm

A firm that is the object of a takeover by another firm.







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