ACCOUNTING/FINANCE Flashcards
Key activities of finance
- planning
- investment (spending money)
- financing (rasing money + seeking balance between debt [borrowed funds] and equity [sale of ownership in business])
Definition of Risk and Return
Return = opportunity for profit
Risk = potential for loss
Liquidity and managing cash flows
Financial managers plan and monitor cash flow
- long term: manage capital expenditures through capital budgeting (project costs and future returns) - consider time value of money
Short term expenses
operating expenses ( used to support current production and selling activities + result in current assets[asset that can be converted quickly into cash])
Long term expenses
for fixed assets (ex: land, building)
capital budgeting
a method of estimating the financial viability of a investment
capital expenditure
money spent by a business on acquiring fixed assets
Accounts receivable
money owed to the company
Accounts Payable
money that business owes
Stock out
=> not enough stock for demand -> may lose customers
Excess inventory
high sunk costs and possibly cash shortages
Equity financing pros and cons
Pros: few resictions (no dividends or no repaying the investment)
Cons: more costly than debt, gives common stockholders voting rights
Firm obtains equity financing by selling new ownership shares (external financing), by retaining earnings (internal financing) and venture capital (external financing)
Debt financing
pros and cons and defo
used for long term expenses
Pros: deductibility of interest expense for income tax purposes, no loss of ownership
Cons: financial risk
Dividends/retained earnings
Dividend = payments to stockholders from a corporation’s profits
Retained earnings = profits that have been reinvested in the firm
Securities markets primary and secondary
primary market = new securities sold to the public
secondary market = old securities bought and sold among investors
