Ch15 Flashcards
finance
business function involving decisions about a firm’s long-term investments and obtaining the funds to pay for those investments
objectives of the financial manager
increase a firm’s value and stockholders’ wealth
responsibilities of financial manager
cash-flow management (managing pattern in which cash flows into the firm and out of the firm), financial control (process of checking actual performance against plans), financial plan (description of how a business will reach some financial position it seeks in the future)
credit policy
rules governing a firm’s extension of credit to customers
inventory
materials and goods currently held by the company that will be sold within the year
three types of inventory a firm buys in its production process
- raw-materials inventory (portion of a firm’s inventory consisting of basic supplies used to manufacture products for sale)
- work-in-process inventory (that portion of a firm’s inventory
- finished-goods inventory (portion of a firm’s inventory consisting of completed goods ready for sale)
sources of short-term funds
trade credit, open-book credit, promissory note, trade draft, trade acceptance
trade credit
granting of credit by a selling firm to a buying firm
open-book credit
form of trade credit in which sellers ship merchandise on faith that payment will be forthcoming
promissory note
form of trade credit in which buyers sign promise-to-pay agreements before merchandise is shipped
trade draft
form of trade credit in which buyers must sign statements of payment terms attached to merchandise by sellers
trade acceptance
trade draft that has been signed by the buyer
corporate bond
promise by the issuing company to pay the holder a certain amount of money on a specified date, with stated interest payments in the interim; a form of long-term debt financing
bond indenture
indicates the key terms of a bond (amount, interest rate, maturity date)
market index
measure of the market value of stocks (provides a summary of price trends in a specific industry or of the stock market as a whole
bull market/bear market
bull: period of rising stock prices
bear: period of falling stock prices
examples of common market indexes
Dow Jones Industrial Average, S&P/TSX index
market order
order to a broker to buy or sell a certain security at the current market price
limit order
an order to a broker to buy a certain security only if its price is less than or equal to a given limit
stop order
an order to a broker to sell a certain security if its price falls to a certain level or below
round lot
purchase or sale of stock in units of 100 shares
odd lot
purchase or sale of stock in units of other than 100 shares
risk retention and transfer
retention: covering of a firm’s unavoidable losses with its own funds
transfer: transfer of risk to another individual or firm, often by contract
risk management
conserving a firm or individuals’ financial power or assets by minimizing the financial effect of accidental losses
