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1ST: Business Finance > 1ST QUARTER FLASHCARDS > Flashcards

1ST QUARTER FLASHCARDS

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1
Q

What is finance?

A

It is concerned with the sourcing and allocation of scarce resources, which includes money. In business, it is the function or area which is responsible for managing the aspect of the operations that deals with money matters.

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2
Q

What is financial management?

A

It covers the planning, organizing, leading, and controlling of all financial activities of an organization. It puts emphasis on managing the funds of an organization which includes day-to-day operations, investments, decisions, and financing of those investments.

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3
Q

3 Branches of Finance

A
  1. Public Finance - is a field of finance which deals with the collection of taxes and the budget allocation for programs
  2. Personal Finance - is a field of finance that gained popularity especially among the younger generation of income earners. It encompasses everything that pertains to personal financial planning.
  3. Corporate Finance - is primarily concerned with the management of all the financial activities of an enterprise or a business organization.
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4
Q

Finance vs Accounting

A

Finance - it involves the preparation of reports which are intended to aid internal users in decision-making ; the reports should emphasize sound decision-making to ensure good or better performance in the future

Accounting - keeps track of all the historical transactions of a business which will then be used in the preparation of reports intended for the use of external parties such as government, investors, and creditors.

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5
Q

It incorporates bookkeeping, projections, financial statements, and financing, which forms the base for attaining your goals through sound business decisions.

A

Financial Management in Business

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6
Q

They are involved in planning wherein they contribute in identifying goals and objectives, setting targets, and establishing control measures in order to monitor performance.

A

Financial Managers

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7
Q

They rely heavily on financial information prepared, processed, and analyzed by financial managers.

A

Decision-makers

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8
Q

It is generated by different departments. It also serves as an effective communication tool across departments.

A

Financial Information

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9
Q

What are Financial System?

A
  • a set of institutions, such as banks, insurance companies, and stock exchanges, that permit the exchange of funds.
  • also includes sets of rules and practices that borrowers and lenders use to decide which projects get financed, who finances projects, and the terms of financial deals.
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10
Q

They facilitate the flow of funds between savers and demanders of funds in an economy. They are organizations that handles financial transactions for individuals, groups, and other organizations

A

Financial Institution

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11
Q

Purpose: Deposits, loans; debit card; retirement plans, investment plans; Payment centers as they partner with commercial establishments.

A

Commercial Banks

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12
Q

They are also referred to as S&L or thrift banks. ; Dedicated to residential Mortgages.

A

Savings and Loans

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13
Q

They do not deal with the general public. ; May facilitate buying and selling of stocks.

A

Investment Banks

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14
Q

They provide individuals and organizations a way to manage risk. They operate on the principle of pooling of risks wherein premiums are collected from clients.

A

Insurance Companies

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15
Q

Earns through commission. ; Facilitates buying and selling of securities. ; Helps in managing one’s investment portfolio.

A

Brokerage

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16
Q

It is a collection of financial products owned by a single investor.

A

Investment Portfolio

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17
Q

Also called Financial Product, a document that signifies a legal or binding agreement between two parties. They have monetary values associated with them.

A

Financial Instrument

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17
Q

It is an account where an investor earns minimal interest.

A

Savings

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18
Q

Regular account vs Time-deposit account

A
  1. Regular account – one where the depositor is issued a Passbook.
  2. Time Deposit (long-term basis) – one where the depositor is issued a Time Deposit Certificate.
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19
Q

What do banks do with deposits?

A

They loan them to individuals and organizations that need funds.

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20
Q

What is a collateral?

A

A collateral is an asset that is attached to a loan. In case of default in payment, the lending institution may take ownership of the collateral in place of money.

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21
Q

It is a loan granted to other organizations by individuals and organizations with excess funds.

A

Bonds

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22
Q

When an investor has _______, this means that he/she has a financial instrument signifying ownership of stocks of a publicly-traded company or a bond issued by a government agency.

A

security

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23
Q

These are issued financial instruments or securities of the government to the public

A

Treasury Bills

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24
Q

These are bought by policyholders from insurance companies as protection of both life and property.

A

Insurance Products

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25
Q

These are invested in different financial products such as securities, stocks, and bonds.

A

Mutual Funds

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26
Q

It is a means for buying and selling of stocks, bonds, and other financial instruments. It is also a means where individuals and organizations who need funds find investors and lenders

A

Financial Market

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27
Q

Two types of Financial Market

A

MONEY MARKETS are the markets where transactions involving short term debt securities take place.
CAPITAL MARKETS are where transactions involving long term debt happen. The buying and selling of stocks issued by the corporations also take place in capital markets.

28
Q

It is an entity that acts as the middleman between two parties in a financial transaction, such as a commercial bank, investment bank, mutual fund, or pension fund.

A

Financial Intermediaries

29
Q

What are Financial Projections?

A

✓ help to see if a business is feasible, or more importantly sustainable.
✓ it is a great tool in making decisions - business expansion, improvements, modernization, or purchase of new pieces of machinery and equipment.

30
Q

It is the grand plan of any organization wherein specific programs are created in support of the overall objectives

A

Strategic Plan

31
Q

Elements included in the Strategic Plan:

A
  1. Vision Statement (aspires to be)
  2. Mission Statement (purpose)
  3. Corporate Objectives (outline the specific goals)
  4. Corporate Strategies (concrete programs)
  5. Departmental Plans and Programs (operational plans)
  6. Financial Forecasts and Budgets (tie everything together)
32
Q

STRENGTHS, WEAKNESSES, OPPORTUNITIES, THREATS

A
  • Strengths, weaknesses, opportunities, and threats are all factored in during the process of making financial projections.
  • The key is for the firm to use its strengths to take advantage of opportunities, counter the threats, and do something to improve on its weaknesses.
33
Q

FINANCIAL STATEMENTS

A

Income Statement, Balance Sheet, Statement of Cash Flows

34
Q

Income Statement

A

➢ Revenues and Expenses over a certain period.
➢ Revenues – Expenses = Income or Net Profit (Loss)
➢ Operating Income or EBITDA = Sales (Revenues) – Operating Expenses

35
Q

Balance Sheet

A

➢ Assets represent all investments
➢ Liabilities represent the enterprise’s debts
➢ Equity represents the investors’ investment in the stock or shares of the business.
➢ Balance Sheet Equation is: Assets = Liabilities + Equity

36
Q

Statement of Cash Flows

A

➢ Cash received and Cash spent by the firm over a specified time
➢ Cash Inflows and Outflows from Operating, Investing, Financing Activities of the firm
➢ Results to; Increase/Decrease; Favorable/Not Favorable

37
Q

These are projections of sales of a product or service expressed either in units or absolute monetary value.

A

Sales Forecast

38
Q

What are projected financial statements?

A

It is a financial projection that presents the entity’s expected financial positions, results of operation, and cash flows.

39
Q

All Financial Statement projections begin with _________ _______.

A

projected sales

40
Q

Factors considered in preparing projected financial statements:

A

a. market conditions, b. economy, c. investment climate, d. the competitive position of the firm in the industry

41
Q

Budget

A

✓ It is a statement of projected sales, expenses, income, and other financial transactions for the coming period.
✓ It is a firm’s financial plan.

42
Q

It is a detailed projection of all income and expenses for a given period of time, which is usually one year.

A

Operating Budget

43
Q

It indicates the number of units a firm expects to sell. The determinant of all other budgets included in the master budget.

A

Sales Budget

44
Q

Production Budget

A

Expected Production Volume = Planned Sales + Desired Ending Inventory - Beginning Inventory

45
Q

It is a summary of the quantity of direct materials required to meet production requirements.

A

Direct Materials Budget

46
Q

It estimates or projections on how much to produce (production budget) will be used to come up with the estimates for the labor requirements and how much to budget for the direct labor cost.

A

Direct Labor Budget

47
Q

These are manufacturing expenses other than direct materials and direct labor.

A

Factory Overhead Budget

48
Q

These are necessary for constructing budgeted income statement and budgeted balance sheet

A

Ending Inventory Budget

49
Q

These are operating costs that are not associated with production. These are operating costs incurred in selling and managing the business.

A

Selling and Administrative Expense Budget

50
Q

It shows the impact of the planned operations and capital investments on a firm’s assets, liabilities, and owner’s equity. It also shows the flow of cash and other funds in the business.

A

Financial Budget

51
Q

Financial Budget includes the following:

A

✓ Cash budget - essential to sustain operations of the business.
- it must be managed well, shortage of cash can cause the firm to lose a lot of opportunities, on the other hand, idle cash could mean inefficient use of company resources.
- helps the firm manage cash inflow and outflow.
✓ Balance sheet

52
Q

It is a document that contains assumptions made by those involved in financial planning, a review of past financial performance and trends in the industry, and projected financial statements and ratios.

A

Financial plan

53
Q

They ensure the proper timing of the inflow and outflow of funds. They make sure that amount of cash held is neither too little.

A

Finance Managers

54
Q

A firm’s working capital is its…

A

current assets

55
Q

Working capital is essential as firms are required to:

A

▪ Pay Bills
▪ Purchase Supplies
▪ Provide funding for contingencies such as breakdown of equipment.

56
Q

The working capital of a firm normally consists of the following:

A
  1. Cash on Hand and in Bank
  2. Cash Equivalents (Checks for encashment, Marketable Securities)
  3. Accounts Receivable
  4. Inventories and Supplies
  5. Prepaid Expenses and Deferred Items
57
Q

A firm uses working capital for the following purposes:

A
  1. Replenishment of Inventories – keeping the amount of the inventory that will suffice in supporting the production of a firm.
  2. Provision for Operating Expenses – firm’s working capital will enable them to pay short term obligations and support programs for its development.
  3. Support for Credit Sales – Not all of the firm’s sales will be in cash. Inventory and supplies will have to be supplied and expenses will have to be paid.
  4. Provision for Contingencies – In any business, there are unforeseen events or occurrences that are beyond anyone’s control.
58
Q

Net Working Capital formula

A

Net Working Capital = Current Asset – (Payables+ Accruals)

59
Q

fixed, regular or permanent working capital vs. variable or fluctuating working capital

A

Fixed working capital refers to the portion of working capital requirements that are constantly needed by the firm. The fluctuating portion of working capital results from factors like – seasonality, changes in demand, and inflation, that cause the requirements of the firm to change.

60
Q

Quantity Discount

A

reduces the cost of raw materials, supplies and other types of inventories.

61
Q

Investment Inventory

A

average amount of investment.

62
Q

Carrying Costs

A

cost associated with the holding of inventory (warehousing, insurance, taxes, and opportunity cost).

63
Q

Ordering Costs

A

cost associated with the placement and receipt of orders (Shipping and Administrative cost).

64
Q

Economic Order Quantity (EOQ)

A

helps finance managers in determining the optimal level of inventory every time an order is placed.

65
Q

Reorder Point

A

determines the time when to place an order.

66
Q

ABC Warehousing and Inventory Control

A

under this system, all items in the warehouse are classified into three categories: A, B, C. Items are classified from the most important to the least important.

67
Q

First in, First out Inventory Control (FIFO)

A

system wherein the oldest stock is used first.

68
Q

Just in Time Inventory Management System

A

it is used by companies to help them ensure efficiency and reduce waste that results from spoilage and obsolescence.

1ST: Business Finance (1 decks)

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