Chap 18 Flashcards
(54 cards)
Finance
the function of a business that acquires funds for the firm and manages them within the firm
financial management
the job of managing a firms resources to meet its goals and objectives
financial managers
managers who examine financial data prepared by accountants and recommend strategies for improving the financial performance of the firm
three common reasons a firm fails
1) undercapitalization or insufficient funds
2) poor control over cash flow
3) inadequate expense control
financial management
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
three steps of financial planning
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
short-term forecasting
predicts revenues, costs, and expenses for a period of one year or less
cash flow forecast
predicts the cash inflows and outflows in future periods, usually months or quarters
long-term forecast
predicts revenues, costs, and expenses for a period longer than one year (sometimes five years).
budget
a financial plan that sets management expectations, allocates the use of specific resources throughout the firm
three common types of budgets
1) capital budget
2) cash budget
3) operating or master budget
capital budget
forecasts a firm’s spending plans for major asset purchases that often require large sums of money
(property, equipment)
cash budget
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)
operating (master) budget
ties together the firm’s other budgets and summarizes its proposed financial activities
financial control
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.
why firms need operating funds
Managing the day-by-day needs of the business
Controlling credit operation
Acquiring needed inventory
Making capital expenditures
time value
if someone gave you $200, you could invest it today and in a year it would grow
controlling credit operations
making credit available helps keep current customers happy and attract new ones.
capital expidentures
major investments in tangible long-term assets like land, buildings, and equipment or intangible assets like copyrights and patents
debt financing
funds raised through various forms of borrowing that must be repaid
equity financing
money raised from within the firm, from operations, or through the sale ownership in the firm (stock/ venture capital)
long-term financing
covers funds needed for more than a year
short-term financing
funds needed for a year or less
trade credit
the practice of buying goods or services now and paying for them later. (most used source of short-term funding)
