BUSINESS FINANCE Flashcards
deals with decisions that are supposed to maximize shareholders wealth
financial management
play a crucial role in making financial decisions and exercising control over finances in the organizations
financial decisions and controls
are responsible for the planning of financial activities and resources in the organization
financial planning
responsibility of financial management to estimate the capital requirements of the organization from time to time
Capital management
ensures that all financial resources of the organization are used and invested effectively and efficiently
allocating and utilization of financial resources
important for organizations to have sufficient working capital and cash flow to meet their operational expenses and emergencies
cash flow management
the decision on how to surplus or profits the organizations is utilized is taken by the financial managers. they decided if dividends should be distributed
disposal of surplus
maintain all necessary reports related to the finance of the organization
financial reporting
prepares the organization to forecast risk, put in place mitigation plans as well as to meet unforeseen risk and emergencies effectively
risk management
goal of financial management
to minimize the value of shares of stocks
the owners or investors in the firm
shareholders
appointing and removing members of the top management including president
board of directors
it is the highest policy making body in a corporation
board of directors
overseeing the operations of a company and ensuring that the strategies as approved by the board are implemented as planned
president
representing the company in professional social, and civic activities
president
formulating marketing strategies and plans
vp for marketing
ensuring production meets customers demands
vp for production
identifying adequete and cheap raw material
vp for production
assisting other departments in hiring employees
vp for administration
identifying means, process, or systems that will minimize the operating cost of the company
vp for administration
funding long-term investment and working capital which deals with the day to day operations of the company
vp for finance
developing policies on dividends
vp for finance
dealing with daily operations of the company
vp for finance
serves as the link between depositor who has the money and the lender who needs money
financial intermediary
include commercial banks, universal banks, investment banks, investment companies, mutual funds companies and private equity firms
financial institutions
managing financial matters
financial management
the tools that helps a business daily operations
financial instruments
are funds that are available for a short-term
money market instruments
they are available most of the time and do not provide very high returns
money market instruments
•issued by the government
•maturity within a year
•not risky, because government must make an effort to pay
treasury bills (t-bills)
•issued by financial sound business to fund inventories and receivables
•maturity is about o months
•generally low default risk
commercial papers
•issued by banks or mutual funds companies
•maturity date is not specific
•default risk is low
•usually invested in money market instruments, commercial papers, and treasuries
money market funds
is an example of long-term debt. it is a security reflecting the debts of a government or business debt
bond
another example of long-term debt that has longer than a money market instruments
note
•issued by the government
•mature in two, five or ten years or move
•bond price usually fall becoming less attractive as interest rates in the market rise
treasury nites and bonds
•issued by federal agencies and it is similar to treasuries
•long-term maturity
•low default risk
federal agency debt
•issued by the local government
•long-term maturity
•more risky than government securities
municipal bonds, local government bonds
•issued by corporation s
•maturity in 40 years
•more risky than government securities
corporate bonds
types of security that represents ownership in a corporation
stocks
•issued by corporation in exchange of ownership
preferred stock (preference share)
units of ownership in a public corporation
common stock (ordinary share)
the meeting places of suppliers and users of various types of funds that can make transaction directly
financial market
buyers and sellers negotiate and transact business directly without an intermediary
primary market
new securities to the general public and the first offering of stocks is called IPO or initial public offering
public offering
previously issued securities are bought and sold
secondary market
securities with short-term maturities are borrowed or loaned
money market
financial market for stocks for a long-term period
capital market
is an estimate of cost, revenues, and resources over a specified period, reflecting a reading of future financial conditions and goals
budget
it is made to estimate how much their revenue and expenses would be within a year
operating budget
It is displays the expected cash receipts and disbursements for an accounting period.
cash budget
compose of collection from receivables, proceeds from loans, issuance of new shares of stocks and advances from the stockholders
cash receipts
include payments to suppliers and other service providers, loans, and cash dividends
cash disbursement
current assets like casg, accounts receivable, inventories and prepaid expenses used in the operation of the business
working capital
is the difference between current assets and current liabilities
net working capital
is the average number of days to sell its inventory
days of inventory
the time it takes collect cash from the sale of the inventory
days of receivable
is a metric that expresses the time (measured in days) it takes for a company to convert its investment in inventory and other resources into cash flows from sales
cash conversion cycle
refers to the minimum level of current assets required by the firm to continue the operations of the business and to cover up all current liabilities
permanent or fixed working capital
difference between net working capital and permanent working capital. it can help the business to survive during the slack season
temporary working capital
involves the maintenance of a casg and marketable securities investment level which enables the company to meet its casg requirements and at the same time, optimize the income of idle funds
cash management
cash is needed for the day to day operation of business
transaction motivate
some banks requires a company to maintain a certain compensating balance for their depositing accounts and loans
contractual motive
firms hold casg to be ready incase of unwanted situation
precautionary motive
a company holds cash for others investment opportunities
speculative motive
use in determining the casg needs of the company
cash budget
providing credits to a customer is one way of increasing sales and gaining additional customers
receivables management
5 c’s of credit can be used in credit evaluation
character
capacity
capital
collateral
condition
Is the borrower’s willingness to pay the loan
character
is the borrower’s ability to pay the loan
capacity
is the borrowers financial resources
capital
is the borrowers security pledge for the loan payment
collateral
is the current economic or business conditions
condition
