Chapter 18 Flashcards
The function in a business that acquires funds for the firm and manages those funds within the firm.
Finance
The job of managing a firm’s resources so it can meet its goals and objectives.
Financial management
Managers who examine financial data prepared by accountants and recommend strategies for improving the financial performance of the firm.
Financial Managers
Three of the most common reasons businesses fail
Undercapitalization (not enough money to start the business)
Poor control over cash flow
Inadequate expense control
Predicts revenues, cost, and expenses for a period of one year or less.
Short-term forecast
Forecast that predicts the cash inflows and outflows in future periods, usually months or quarters.
Cash flow forecast
A financial plan that sets forth management’s expectations, and, on the basis of those expectations, allocates the use of specific resources throughout the firm.
Budget
A budget that highlights a firm’s spending plans for major asset purchases that often require large sums of money.
Capital Budget
A budget that estimates cash inflows and outflows during a particular period like a month or a quarter.
Cash Budget
The budget that ties together the firm’s other budgets and summarizes its proposed financial activities.
Operating Budget
A process in which a firm periodically compares its actual revenues, costs, and expenses with its budget.
Financial Control
All organizations have key operational areas that need funds. Name four
Managing day-by-day needs of the business
Controlling credit operations
Acquiring needed inventory
Making capital expenditures
A convenient wat to decrease the time and expense of collecting accounts receivable is to
accept bank credit cards such as MasterCard or Visa.
A _____ ______ helps manage the firms available funds and maximize profitability.
Inventory policy
Major investments in either tangible long-term assets such as land, buildings, and equipment or intangible assets such as patents, trademarks, and copyrights.
Capital expenditures
Funds raised through various forms of borrowing that must be repaid.
Debt financing
Money raised from within the firm, from operations or through the sale of ownership in the firm (stock or venture capital).
Equity financing
The bulk of a financial managers job does not relate to obtaining ______-_______ funds
long-term
The practice of buying goods and services now and paying for them later.
Trade Credit
A loan backed by collateral (something valuable, such as property).
Secured loan
A loan that doesn’t require any collateral.
unsecured loan
A given amount of unsecured short-term funds a bank will lend to a business, provided the funds are readily available.
A line of Credit
The process of selling accounts receivable for cash.
Factoring
_________ ___________ consist of unsecured promissory notes
Commercial Paper
These provide a readily available line of credit that can save time and the likely embarrassment of being rejected for a bank loan.
Credit Cards
Three questions for setting long-term objectives
- What are our long-term goals and objectives
- What funds are need to achieve goals and objectives
- What sources of long-term funding are avialiable
Borrowing money the company has a legal obligation to repay.
Debt financing
A promissory note that requires the borrower to repay the loan in specified installments.
term-loan agreement
Stockholders are considered
owners of the organization
Raising needed funds through borrowing to increase a firm’s rate of return.
Leverage
The rate of return a company must earn in order to meet the demands of its lenders and expectations of its equity holders.
Cost of capital
