BUSINESS FINANCE Flashcards
Inexpensive way for government and financial institutions to raise funds; for only short period of time.
MONEY MARKET
They also earn highest interest. People avail money market funds because of their liquidity.
MOENY MARKET INSTRUMENTS
What are the four debt-based Financial Instruments?
BANKER’S ACCEPTANCE, CERTIFICATE OF DEPOSIT, COMMERCIAL PAPER, REPURCHASE AGREEMENTS
- Issued by the banks or mutual fund companies.
- No specific maturity date
- Default risk are low
MONEY MARKET FUND
Short-term debt guaranteed by commercial banks.
BANKER’S ACCEPTANCE (BA)
Bank issued savings certificates with short-term maturity.
CERTIFICATES OF DEPOSIT (CDs)
Unsecured short-term corporate debt.
COMMERCIAL PAPER
Examples of Money Market Funds
TREASURY BILLS, COMMERCIAL PAPERS, CONSUMER CREDIT/CREDIT CARD DEBT
- Issued by treasury/government.
-Mature within one year. - Free from default risks.
TREASURY BILLS
Short-term government securities
REPURCHASE AGREEMENTS (REPO)
Issued by banks, credit unions, or finance companies.
CONSUMER CREDIT/ CREDIT CARD DEBT
- Issued by financially sound business to fun investors and receivables.
- Mature less than one year
COMMERCIAL PAPER
Examples of Long term-debt
TREASURY BONDS, TREASURY NOTES, MUNICIPAL BOND, CORPORATE BONDS
- Interest rate are higher than Money Market Instruments.
- Locked in over the entire life of debt.
LONG-TERM DEBT
- Referred to as Long Bonds
- Offered to investors in terms of 20 and 30 years to maturity.
TREASURY BONDS
Similar to treasury bonds but have shorter terms.
TREASURY NOTES
- Type of debt security.
- Offered to pay capital expenditures.
MUNICIPAL BOND
- They perform data analysis and advise senior managers
- Responsible for the financial health of an organization
FINANCIAL MANAGERS
Issued by corporation and have maturity date more than 30 years.
CORPORATE BONDS
(Goals of Financial Manager)
Managing the right combination of assets and liabilities
EFFECTIVE WORKING CAPITAL MANAGEMENT
(Goal of Financial Manager)
Companies need a detailed cash flow budget.
EFFECTIVE CASH MANAGEMENT
(Goals of Financial Manager)
Overstocking and Understocking are undesirable for the market.
EFFECTIVE INVENTORY MANAGEMENT
(Goals of Financial Managers)
Excess cash needs to be invested to earn income
EFFECTIVE INVESTMENT DECISIONS
(Goals of Financial Manager)
Selecting right machinery and equipment.
PROPER ASSET SELECTION
(Goals of Financial Manager)
Buying stocks or investing needs risk analysis and assessment.
- The riskier the project, the higher the return.
PROPER RISK MANAGEMENT
Three Tools f Financial Managers
FINANCIAL POLICY-MAKING, FINANCIAL PLANNING AND BUDGETING, FINANCIAL ANALYSIS
Selection of financial goals, development of financial policies and designation of the finance department.
FINANCIAL POLICY-MAKING
Forecasting is an integral part of the planning process.
FINANCIAL PLANNING AND BUDGETING
The process of evaluating business performance, projects, investment options, and other finance related activities
FINANCIAL ANALYSIS
- Repost a company’s financial performance over a specific accounting period.
- Focuses on the revenue, expenses, gains and losses of a company.
INCOME STATEMENT
The amount of goods and services sold in terms of price paid by the customer
NET REVENUE OR SALES
Formula of Cost of Good Sold
COGS = BEGINNING INVENTORY + PURCHASED INVENTORY - ENDING INVENTORY
The amount of goods and services sold in terms of costs to the company
COST OF GOOD SOLD
Also known as sales profit or gross income
GROSS PROFIT
All direct and indirect selling costs, operational overhead cost, and administrative cost
SELLING AND GENERAL ADMINISTRATIVE EXPENSES
- Residual income after all costs have been included.
- Also called Earning Before Interest and Tax (EBIT)
OPERATING PROFIT
Cost incurred by an entity for borrowed funds.
INTEREST EXPENSE
Calculation of a firm’s earnings before taxes are deducted
INCOME BEFORE TAXES
A liability owed to a federal, state, or local government within given time period
TAX EXPENSE
The amount of a business makes after deducting costs, allowances, and taxes.
NET INCOME
Cash dividends that a company pays out to its preferred shareholders
PREFERRED STOCK DIVIDENDS
Portion of a company’s net income that remains after paying dividend to preferred shareholders.
EARNINGS AVAILABLE TO COMMON SHAREHOLDERS
