C. Principles Of Financial Funding and Structure Flashcards

1
Q

works directly under or alongside the CEO and Board of Directors. The ______ prime responsibilities include managing the company’s finances, providing leadership, and advising the CEO/ board of directors on strategic financial recommendations.

is the highest financial position at a company and manages the whole financial division.

A

Chief Financial Officer

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2
Q

is to oversee the management of the financial affairs of the organization. This often includes the basic tasks of selecting a bank, reconciling bank statements, and managing cash flow.

A

Treasurer

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3
Q

used the data provided by the junior members of staff such as the
managerial accountant, financial accountant, and tax accountant, the ________ verifies the financial data of the organization. It includes risk management and risk control over the effectiveness of the operations.

A

Internal Auditor

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4
Q

an employee or in a larger company the FP and A team, is to provide, analysis, planning, reporting and forecasting that aids in the decision making process for the CFO, CEO, and Board of directors.

A

Financial Planning and Analysis Analyst

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5
Q

they are known as the leader of the accounting team, and are in charge of closely monitoring the company’s financial health. They typically maintain, manage, and analyze financial statements, payroll, budgets, tax compliance issues, and more.

A

Controller

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6
Q

they will make financial decisions that positively influence the company’s growth. Some ot the tasks of a _______ accountant are to manage the company’s numerous transactions, create budgets and incorporate data from past mistakes to prepare for future decisions.

A

Managerial Accountant

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7
Q

prepares the company’s financial statements using GAAP also known as, Generally Accepted Accounling Principles.

A

Financial Accountant

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8
Q

assist in preparing tax reports for governmental agencies, including the Internal Revenue Service. ______ accountants may provide their services to individual clients or for large scale corporations. A _____ accountant working for individual clients will provide assistance on how to properly fill out tax forms, and advise about future financial decisions.

A

Tax Accountant

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9
Q

is a solution that’s growing in popularity for small and medium-sized businesses that need working capital quickly. It comes from alternative lenders who specialize in helping small businesses with obtaining working capital quickly.

A

Short-term Financing

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10
Q

provides business owners with a large amount of capital for extensive, multi-year use. This is the go-to type of financing for large, established businesses that have a long-documented financial history, plenty of collateral, and a purpose for the proposed working capital.

A

Long-term Financing

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11
Q

Sources of Short-term Financing

A

Overdraft Agreement
Accounts Receivable Financing
Customer Advances
Selling Goods on Installment

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12
Q

By entering into an ______ with the bank, the bank will allow the business to borrow up to a certain limit without the need for further discussion.

The bank might ask for security in the form of collateral and they might charge daily interest at a variable rate on the outstanding debt.

A

Overdraft Agreement

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13
Q

Many banks and non-banking financial institutions provide invoice discounting facilities. The company takes the commercial bills to the bank which makes the payment minus a small fee.

A

Accounts Receivable Financing

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14
Q

There are many companies that insist on the customer making an advance payment before selling them goods or providing a service.

This method also ensures that the company has some funds to channel into its operations for fulfilling those orders.

A

Customer Advances

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15
Q

Many companies, especially those that sell television sets, fans, radios, retrigerators, vehicles, and so on, allow customers to make their payments in installments. Since many of these items have become modern-day essentials, their customers might not come from well-to-do backgrounds or the cost of the product might be too prohibitive for immediate payment.

A

Selling Goods on Installment

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16
Q

Sources of Long-term Financing:

A

Equity Capital
Preference Shares
Debentures
Loan
Retained Earnings

17
Q

There is a dilution in the ownership and the controlling stake with the largest equity holder in equity financing.

The equity holders have no preferential right in
the company’s dividend and carry a higher risk across all the buckets.

The rate of return expected by the equity shareholders is higher than the debt holders due to the excessive risk they bear in repayment of their invested capital.

A

Equity Capital

18
Q

Shares of a company’s stock that give their owner a higher claim to company assets and dividends than common stock owners.

Preference shareholders carry preferential rights over equity shareholders in terms of receiving dividends at a fixed rate and getting
back invested capital in the company if the same is wound up.

It is a part of the company’s net worth, thus increasing its creditworthiness and improving its
leverage compared to its peers.

A

Preference Shares

19
Q

They are entitled to a fixed interest payment per the agreed-upon terms mentioned in the term sheet.

They do not carry voting rights and are secured against the company’s assets.

In case of any default in debenture interest payment, the debenture holders can sell the company’s assets and recover their dues.

They can be redeemable, irredeemable, convertible, and non-convertible.

A

Debentures

20
Q

They are a flexible source of finance provided by the banks to meet the long-term eapital needs of the organization.

They carry a fixed interest rate and give the borrower the flexibility to structure the repayment schedule over the tenure of the loan based on the company’s cash flows.

It is faster than the company’s equity or preference shares issue as there are fewer regulations to abide by and less complexity.

A

Loans

21
Q

These are the campany’s free reserves which carry nil cost and are available free of charge without any interest repayment burden.

One can safely use it for business expansion and growth without taking additional debt burden and diluting further equity in the business to an outside investor.

They form pair of the net worth and directly impact the equity share valuation.

A

Retained Earnings

22
Q

dictates the amount of dividends paid out by the company to its shareholders and the frequency with which the dividends are paid out.

A

Dividend Policy

23
Q

Under the ______, the company pays out dividends to its shareholders every year. If the company makes abnormal profits (very high profits), the excess profits will not be distributed to the shareholders but are withheld by the company as retained earnings. If the company makes a loss, the shareholders will still be paid a dividend under the policy.

A

Regular Dividend Policy

24
Q

Under the _______, the percentage of profits paid out as dividends is fixed.

For example, if a company sets the payout rate at 6%, it is the percentage of profits that will be paid out regardless of the amount of profits earned for the financial year.

A

Stable Dividend Policy

25
Q

the company is under no obligation to pay its shareholders and the board of directors can decide what to do with the profits.

If they a make an abnormal profit in a certain year, they can decide to distribute it to the shareholders or not pay out any dividends at all and instead keep the profits for business
expansion and future projects.

A

Irregular Dividend Policy

26
Q

the company doesn’t distribute dividends to shareholders. It is because any profits earned is retained and reinvested into the business tor future growth,

Companies that don’t give out dividends are constantly growing and expanding, and shareholders invest in them because the value of the company stock appreciates.

For the investor, the share price appreciation is more valuable than a dividend payout.

A

No dividends policy

27
Q

Internal Sources of Finance

A

Owner’s Investment
Retained Profits
Issue of Stock
Sales of the Operating Assets of an entity
Leading the debt collection

28
Q

The owner is the person who owns the business and is thus responsible tor keeping the business funded. These investments are through the personal income source of the owner.

A

Owner’s Investment

29
Q

When the business is in an uptrend, huge cashflows are piling up in the business. Profits of each year are added to the reserves.

A

Retained Profits

30
Q

This option applies to listed entities where it can issue more stocks to the public through a further public offer.

A

Issue of Stock

31
Q

An entity can sell the old asset for partial funding of the procurement of a new asset.

A

Sale of the Operating Assets of an Entity

32
Q

refers to realizing the sales proceeds via the sale of products or provision of services. Normally a credit period is offered to the customers.

A

(Leading the) Debt collection