Chapter 17 Financial Management Flashcards
Financial Management
The job of managing a firm resources to meet its goals and objectives
Financial Managers
Managers who examine the financial data prepared by accountants and recommended strategies for improving the financial performance of the firm
Short-Term Forcast
Forecast that predicts revenues, costs and expenses for a period of one year or less
Cash Flow Forecast
Forecast that predicts the cash inflows and outflows in future periods, usually months or quarters
Long-Term Forecast
Forecast that predicts revenues, costs, and expenses for a period longer than one year and as far as five or ten years in the future
Budget
A financial plan that sets forth managements expectations and allocates the use of specific resources throughout the firm
Operating Budget
The budget that ties together all of a firms other budgets and summarizes the businesses proposed financial activites
Capital Budget
A budget that highlights a firms spending plans for major asset purchases that often require large sums of money
Cash Budget
A budget that estimates a firms cash inflows and outflows during a particular period
Financial Control
A process in which a firm periodically compares its actual revenues, costs and expenses with projected ones
Capital Expenditures
Major investments in either tangible long-term assets such as land, buildings and equipment or intangible assets such as patents, trademarks and copyrights
Debt Financing
Funds are raised through various forms of borrowing that must be repaid
Equity Financing
Funds are raised from operations within the firm or through sole ownership in the firm
Short-term Financing
Borrowed funds that are needed for one year or less
Long-term Financing
Borrowed funds needed for a period longer than one year
Trade Credit
The practice of buying goods and services now and paying for them later
Promissory Note
A written contract with a promise to pay
Secured Loan
A loan backed by collateral, something valuable such as property
Unsecured Loan
A loan that does not require collateral
Line of Credit
A given amount of unsecured funds a bank will lend to a business
Revolving Credit Agreement
A line of credit that is guaranteed but usually comes with a fee
Commercial Finance Companies
Organizations that make short-term loans to borrowers who offer tangible assets of selling accounts
Factoring
The process of selling accounts receivable for cash
Commercial Paper
Unsecured promissory notes of $100,000 and up that mature in 365 days or less
Term-loan Agreement
A promissory note that requires the borrower to repay loan in specified installments
Risk/Return Tradeoff
The principle that the greater the risk a lender takes in making a loan the higher the interest rate required
Bond
A long-term legal obligation of a corporation or government to make regular interest payments during the term of the bond and to repay the entire bond principle at the prescribed date
Maturity Date
The exact date the issuer of a bond must pay the principle to the bond holder
Debenture Bonds
Bonds that are unsecured (no collateral)
Sinking Fund
A reserve account in which the issuer of a bond periodically sets aside some part of the bond principle prior to the maturity date so that enough capital will be accumulated by the maturity date to pay-off the bond
Stocks
Shares of ownership in a company
Initial Public Offer (IPO)
The first public offering of a corporations stock
Stock Certificate
Evidence of stock ownership that specifies the name of the company, number of share and type of stock being issued
Dividends
Part of a firms profits that may be distributed to shareholders as either cash payments or additional shares of stock
Common Shares
The most basic form of ownership in a firm; its confers voting rights and the right to share in the firms profits through dividends, if offered by the firms board of directors
Preferred Shares
Stock that gives its owners preference in the payment of the dividends and the earlier claim on assets than common shareholders if the company is forced out of business and its assets are sold
Venture Capitalists
Money that is invested in new or emerging companies that are perceived as having great profit potential
Leverage
Raising needed funds through borrowing to increase a firms rate of return
Finance
The function in a business that acquires funds for the firm and manages them within the firm
