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Business Fundamentals > Chapter 15 > Flashcards

Chapter 15 Flashcards

1
Q

What are the 4 keys a financial manager follows

A
  1. Determine firm’s LT invest. goals
  2. Obtain funds to pay for invest.
  3. Conduct firm’s everyday financial activities
  4. Help manage risks firm takes
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2
Q

What is the financial manager responsible for

A

Planning, overseeing financial ressources of a firm ex: cash-flow management, financial planning and controlling

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3
Q

Define cash flow management

A

Managing pattern of cash inflows (rev) and outflows (dept payments)
Investing funds not needed to service debt
Use funds either to maintain firm, earn interest, but NOT sit idle

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4
Q

Define financial control

A

Check performance against strategic plans
Make adjustments
Prep budgets to ensure there is sufficient cash on hand to meet operational/debt-service needs

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5
Q

Define financial planning

A

Plan to achieve desired financial status
ex: project revenue flows, source/planned use for funds ST/LT, time when funds are required

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6
Q

Define ST expenses

A

Operating expenses
Accounts receivable (credit policy)
Inventory (raw materials, WIP)

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7
Q

Define LT expenses

A

Capital expenses
Funding fixed assets with long life/lasting value (land, building, machine)
Not normally sold/converted to cash
Acquistion requires large investment, tying up firm’s ressources

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8
Q

Define a ST fund

A

Allows a firm to cover op expenses and implement ST plans such as
Trade credits
Secured loans
Unsecured loans
Factoring accounts receivable

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9
Q

Define trade credit

A

Granting credit by selling firm to buy firm
Ex open book credit, promissory note, trade draft

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10
Q

Define a secured ST loan

A

Borrower required to put up collateral, interest rates lower than unsecured, appeals to firms whose credit is not sufficient to qualify for unsecured

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11
Q

Give examples of an unsecured ST loan

A

Line of credit, revolving credit agreement, commercial paper

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12
Q

What are 4 sources of LT funds

A

Debt financing
Equity financing
Hybrid financing
Risk-return relationship

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13
Q

Define debt financing

A

LT loans: borrow money for 3-10 years at fixed or floating rate
Corp bond: promise by borrower to pay lender amt of money at maturity date

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14
Q

Give examples of bond types

A

Secure
Unsecured (debenture)
Registered
Bearer (coupon)
Callable
Serial
Convertible

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15
Q

Define callable bonds

A

may be called at anytime, or after a minimum period of time, and paid off for a specified call price

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16
Q

Define serial bonds

A

redemption rates are staggered so that the bond is paid off gradually over time

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17
Q

Define convertible bonds

A

option of receiving common stock instead of cash

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18
Q

Define common stock

A

Firm selling ownership rights by issuing shared, and investors purchase hoping they appreciate in value

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19
Q

Define retained earnings

A

Financing by retaining profits in firm and NOT paying dividends to shareholders

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20
Q

Define market value (stocks)

A

Current price of share on secondary secuirities marktes

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21
Q

Define book value (stocks)

A

Shareholders’ equity divided by # of shares outstanding

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22
Q

Define par value (stocks)

A

Arbitrary value set by company’s board of directors and stated on stock certificates

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23
Q

Define preffered stock

A

Form of hybrid financing
Required fixed payments
No maturity date
No voting rights, affecting firm’s control

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24
Q

Define capital structure

A

Mix of debt vs equity

25
Q

What is the difference between debt and equity financing

A

Debt: cheaper, but comapny may not be able to service it
Equity: more expensive, but company has no obligations to shareholders

26
Q

Define primary securities market

A

Sale, purchase of newly issued stocks/bonds

27
Q

Define secondary securities market

A

Sale, purchase of previously issued stocks/bonds

28
Q

Define the stock exchange

A

Setting where members buy/sell stock in accordance with rules of the exchange

29
Q

Define the TSX

A

Large exchange in Canada with 110 members
Securities of most major Canadian companies listed

30
Q

Define the 2 major foreign exchanges

A

New York, London stock exchange

31
Q

Define the OTC Market

A

Numerous dealers trading amongst themselves for smaller firms not listed on exchanges, trade all fixed-income securities

32
Q

Define the NASDAQ

A

National association of securities dealers automated quotation
First electronic stock market

33
Q

Define a market index

A

Summarizes trends in stock market and specific industires ex S&P

34
Q

Bear vs bull market

A

Bear: stock prices drop
Bull: stop prices rise

35
Q

Define market order

A

Buy, sell at current price

36
Q

Define limit order

A

Buy only at certain price

37
Q

Define stop order

A

Sell stock if it falls to certain $

38
Q

Define round lot

A

Buying shares in multiples of 100

39
Q

Define odd lot

A

Fractions of round lots

40
Q

Define margin traiding

A

Investor makes down payment of portion of price with rest financed by a broker, broker then borrows amt from bank secured by stock and charges investor a higher interest rate than the bank

41
Q

Define short sale

A

Investor borrows share from broker and sells, then must repurchase equal number of shares and return them to original broker in hopes of making more money himself (same principle as stock borrowing on wealthsimple)

42
Q

Define a mutual fund

A

Company pooling ressources of many investors and purchasing various types of securities with them, professionally managed, all with difference goals and risk levels

43
Q

Define ethical funds

A

Socially responsible investing in companies producing safe, useful products and emphasizing employee relations, environmental practices, human rights

44
Q

Define an ETF

A

Bundle of stocks/bonds in index tracking overall movement of market, low operating expenses

45
Q

Define hedge funds

A

Private money pools looking for positive returns regardless of stock market performance, sold to wealthy/knowledgeable investors, principle-protected notes

46
Q

Define principle-protected notes

A

Orginial principal returned, but no guarantee of extra return

47
Q

Define a commodity

A

Undifferentiated products, futures contract (agreement of purchasing specific amount at certain price on set future date)

48
Q

Call vs put option

A

Call: buy stock at certain price until set date
Pull: sell stock at certain price until set date

49
Q

Are securities legislations federal or provincial

A

Provincial

50
Q

Define the blue sky law

A

Regulates how firms back up securities

51
Q

Define prospectus

A

Detailed registration statement about new stock filed with provincial securities exchange

52
Q

What are 3 things small businesses can do as responsible financial management

A

Establish bank/trade credit
Plan for cash flow
Venture capital approach

53
Q

Define risk management

A

Conserving a firm’s financial power or assets by minimizing the financial effect of accidental losses

54
Q

Define risk

A

Uncertainty about future events

55
Q

Define speculative risk

A

Change for gain or loss

56
Q

Define pure risk

A

Only chance of loss

57
Q

Define the risk management process

A
  1. identify risk and potential losses
  2. measure frequency, severity of losses and impact
  3. evalute alts and choose techniques that can best handle losses
  4. implement program
  5. monitor results
58
Q

Define risk management alts

A

Avoidance, control, transfer, retention

Business Fundamentals (15 decks)

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