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Business exam 5 > Chap 18 > Flashcards

Chap 18 Flashcards

1
Q

Finance

A

the function of a business that acquires funds for the firm and manages them within the firm

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2
Q

financial management

A

the job of managing a firms resources to meet its goals and objectives

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3
Q

financial managers

A

managers who examine financial data prepared by accountants and recommend strategies for improving the financial performance of the firm

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4
Q

three common reasons a firm fails

A

1) undercapitalization or insufficient funds
2) poor control over cash flow
3) inadequate expense control

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5
Q

financial management

A

responsible for paying the company bills at the right time, and collecting overdue payments to make sure the company does not lose money to bad debts

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6
Q

three steps of financial planning

A

1) forecasting the firm’s short-term and long-term financial needs
2) developing budgets to meet those needs
3) establishing financial controls to see whether the company is achieving its goals

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7
Q

short-term forecasting

A

predicts revenues, costs, and expenses for a period of one year or less

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8
Q

cash flow forecast

A

predicts the cash inflows and outflows in future periods, usually months or quarters

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9
Q

long-term forecast

A

predicts revenues, costs, and expenses for a period longer than one year (sometimes five years).

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10
Q

budget

A

a financial plan that sets management expectations, allocates the use of specific resources throughout the firm

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11
Q

three common types of budgets

A

1) capital budget
2) cash budget
3) operating or master budget

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12
Q

capital budget

A

forecasts a firm’s spending plans for major asset purchases that often require large sums of money
(property, equipment)

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13
Q

cash budget

A

estimates cash inflows and outflows during a particular period. helps managers anticipate borrowing needs, debt repayment, operating expenses, and short-term investments. (often the last budget to be prepared)

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14
Q

operating (master) budget

A

ties together the firm’s other budgets and summarizes its proposed financial activities

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15
Q

financial control

A

a process where a firm periodically compares its actual revenues, costs, and expenses with its budget. they help reveal which specific accounts, departments, and other people are varying from the financial plan.

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16
Q

why firms need operating funds

A

Managing the day-by-day needs of the business
Controlling credit operation
Acquiring needed inventory
Making capital expenditures

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17
Q

time value

A

if someone gave you $200, you could invest it today and in a year it would grow

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18
Q

controlling credit operations

A

making credit available helps keep current customers happy and attract new ones.

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19
Q

capital expidentures

A

major investments in tangible long-term assets like land, buildings, and equipment or intangible assets like copyrights and patents

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20
Q

debt financing

A

funds raised through various forms of borrowing that must be repaid

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21
Q

equity financing

A

money raised from within the firm, from operations, or through the sale ownership in the firm (stock/ venture capital)

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22
Q

long-term financing

A

covers funds needed for more than a year

23
Q

short-term financing

A

funds needed for a year or less

24
Q

trade credit

A

the practice of buying goods or services now and paying for them later. (most used source of short-term funding)

25
Q

business invoices often containing 2/10, net 30

A

the buyer can take a 2 percent discount for paying the invoice within 10 days. otherwise, the total bill (net) is due in 30 days

26
Q

borrowing money from friends or family can be bad because…

A

they might not understand the cash flow, and it can create problems

27
Q

if an entreprenuer decides to borrow money from family or friends

A

they need to agree to specific loan terms, put the agreement in writing, arrange for repayment in the same way they would for a bank loan

28
Q

secured loan

A

a loan backed by collateral (something of value like property)

29
Q

unsecured loan

A

a loan that does not require collateral. lenders give this loan to highly regarded customers because they are riskier

30
Q

line of credit

A

a given amount of unsecured short-term funds a bank with lend to a business, provided the funds are readily available

31
Q

a line of credit is not…

A

guaranteed to a business but it speeds up the borrowing process since a firm does not have to apply for a new loan every time it needs funds

32
Q

if a business can Not secure a short-term loan…

A

the financial manager may seek short-term funds from commercial financial companies

33
Q

commercial financial companies

A

non-deposit type organizations that make short-term loans to borrowers who offer tangible assets like property, plant, and equipment as collateral

34
Q

factoring

A

the process of selling accounts receivable for cash at a discount depending on the age of the accounts receivable

35
Q

commercial paper

A

a type of short-term financing available to large corporations that need funds for just a few months and prefer not to have to negotiate with a commercial bank.

36
Q

credit cards

A

provide a readily available line of credit that can save time and the likely embarrassment of being rejected for a bank loan

37
Q

in setting long-term financing objectives, financial managers generally ask three questions

A

1) organization’s long-term goals and objectives
2) what funds do we need to achieve the firms long-term goals/objectives
3) what sources of long-term funding are available, wich will best fir our needs

38
Q

long-term loans…

A

are due within 3 to 7 years but can extend to 15 to 20 years

39
Q

term-loan agreement

A

a promissory note that requires the borrower to repay the loan in specified installments

40
Q

rick/return trade-off

A

the principle that the greater the risk the lender takes in making a loan, the higher the interest rate required

41
Q

if an organization is unable to obtain long-term financing needs by getting a loan from a bank…

A

can try to issue bonds

42
Q

a bond is like an…

A

IOU with a promise to repay the amount borrowed, with interest, on a certain

43
Q

if a firm can not obtain a long term loan from a bank or sell bonds to investors, it may seek…

A

equity financing

44
Q

equity financing

A

makes funds available when the owners of the firm sell shared ownership to outside investors in the form of stock

45
Q

initial public offering (IPO)

A

the first time a company offers to sell its stock to the general public

46
Q

retained earnings

A

the profits the company keeps and reinvests in the firm

47
Q

venture capital

A

money that is invested in new or emerging companies that are perceived as having great profit potencial

48
Q

leverage

A

raising needed funds through borrowing to increase a firm rate of return

49
Q

debt increases rick because it creates a financial obligation that must be repaid but…

A

it also enhances the firm’s ability to increase profits

50
Q

cost of capital

A

the rate of return a company must earn to meet the demands of its lenders and expectations of its equity holders

51
Q

major sources of long-term financing

A

debt financing and equity financing

52
Q

two major forms of debt financing

A

selling bonds and borrowing from individuals, banks, and other financial institutions

53
Q

how do firms use leverage

A

firms measure the risk of borrowing against the potential for higher profits

54
Q

why should should business use trade credit

A

it is the least expensive and most convenient form of short-term-financing, business can buy goods today and pay for them in the future

Business exam 5 (4 decks)

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