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
Forecast that predicts revenues, costs, 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
Forecast that predicts revenues, costs, and expenses for a period longer than a year, and sometimes as far as 5 or 10 years into the future
Long Term 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 estimates cash inflows and outflows during a particular period like a month or a quarter
Cash Budget
A budget that highlights a firm’s spending plans for major asset purchases that often require large sums of money
Capital Budget
The budget that ties together the firm’s other budgets and summarizes its proposed financial activities
Operating (or master) Budget
A process in which a firm periodically compares its actual revenues, costs, and expenses with its budget
Financial Control
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
Funds needed for a year or less
Short-term Financing
Funds needed for more than a year (usually 2 to 10 years)
Long-term Financing
The practice of buying goods and services now and paying for them later
Trade Credit
A written contract with a promise to pay a supplier a specific sum of money at a definite time
Promissary Note
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
Line of Credit
A line of credit that’s guaranteed but usually comes with a fee
Revolving Credit Agreement
Organizations that make short-term loans to borrowers who offer tangible assets as collateral
Commercial Finance Companies
The process of selling accounts receivable for cash
Factoring
Unsecured promissory notes of $100,000 and up that mature (come due) in 270 days or less
Commercial Paper
A prommissory note that requires the requires the borrower to repay the loan in specified installments
Term-Loan Agreement
The principle that the greater the risk a lender takes in making a loan, the higher the interest rate required
Risk/Return Trade-Off
The terms of agreement in a bond issue
Indenture Terms
A bond issued with some form of collateral
Secured Bond
A bond backed only by the reputation of the issuer; also called a debenture bond
Unsecured Bond
Money that is invested in new or emerging companies that are perceived as having a great profit potential
Venture Capital
Raising needed funds through borrowing to increase a firms 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
