Chapter 18 Flashcards
Financial Management
The art and science of managing a company’s money so that it can meet its goals.
Return
Opportunity for profit.
Risk
The potential for loss or chance of investment not meeting expected level of return.
Risk-Return Trade Off
A basic principle in finance that holds that the higher the risk, the greater the return required.
Short Term Forecasts
Projections of revenues, costs of goods, and operating expenses over one year.
Long Term forecasts
Projections of a company’s activities and the funding for those activities over a period that is longer than a year. Typically 2 to 10 years.
Budgets
Formal written forecasts of revenues and expenses that set spending limits based on operational forecasts; includes cash budgets, capital budgets and operating budgets.
Cash Budgets
Budgets for income and outflow of cash and help company plan for surpluses and shortages of cash.
Capital Budgets
Budgets that forecast a company’s outlasts for fixed assets ( plants and equipment) typically covering a period of seven years.
Operating Budgets
Budgets that combine sales forecasts with estimates of productions costs and operating expenses to forecast profits
Cash Management
The process of making sure that a company has enough cash on hand to pay bills as they are due and to meet unexpected expenses.
Treasury Bill (T-Bill)
An investment issued by the government
Certificate of deposit (CD)
Time deposit offered by financial Institutions
Commercial Paper
Unsecured short term debt an IOU issued by a financially strong operation.
Marketable securities
Short Term investments that are easily converted to cash.
Accounts receivable
Sales for which a company has not yet been paid.
Capital Expenditures
Investments in long lived assets such as land, buildings, machinery and equipment that are meant to produce profit beyond one year.
Capital Budgeting
The process of analyzing long-term projects and selecting those that offer the best returns while maximizing the company’s value.
Unsecured Loans
Loans for which the borrower does not have to pledge specific assets as security
Trade Credit
The extension of credit by the seller to the buyer between the time the buyer receives the goods or services and when it pays for them
Accounts Payable
A purchase for which a buyer has not yet paid the seller
Line of Credit
An agreement between a bak and a business or person that specifies the maximum amount of short term borrowing the bank will allow to that person or business
Revolving Credit Agreement (revolving line of credit)
A line of Credit that allows the borrower to have access to funds agin once they have been repaid.
Secured Loans
Loans for which the borrower is required to pledge specific assets as collateral or security.
Factoring
A form of short term financing in which a company sells its accounts receivable outright at a discount to a factor.
Financial Risk
The chance that a company will be unable to make scheduled interest and principal payments on its debt.
Term Loan
A business loan with an annual maturity of more than one year; can be unsecured or secured
Bonds
Securities that represent a long term debt obligations (liabilities) issues by corporations or governments.
Mortgage Loan
A long term loan made against real estate as collateral
Common Shares
Te most widely form of ownership with the right of owner(shareholder) to vote on important corporate decisions.
Dividends
Profits of the company that are distributed to the shareholders
Share or Stock Dividends
Payments to shareholders in the form of more shares; can replace or supplement cash dividends
Retained Earnings
Profits that have been reinvested in the company.
Preferred Shares
Shares that unlike common shares, have a specified fixed dividend but typically not a voice in management.
Risk Management
The process of identifying and evaluating risks and selecting and managing techniques to adapt to risk exposures.
Peril
A hazard or a source of danger.
Speculative Risk
The chance of either loose or gain without insurance against the possible loss
Insurance
The promise of compensation for certain financial losses.
Insurance policy
A written agreement that defines what the insurance covers and the risks that the insurance company will bear for the insured party.
Underwriting
A review process of all insurance applications and the selection of those who meet the standard.
Insurable interest
An insurance applicant’s chance of loss if a particular peril occurs.
Insurable Risk
A risk that an insurance company will cover; must meet certain criteria.
Law of Large Numbers
Insurance companies predictions of the likelihood that a peril will occur, used to calculate premiums.
Deductibles
The amounts that the insured must pay before insurance benefits begin.
Employment insurance
Payment of benefits to laid off workers while they seek new jobs.
Workers Compensation
Payments to cover the expenses of job related injuries and diseases including medical costs, rehabilitation and job retraining if necessary.
Canada Pension Plan
Insurance that provides retirement disability, death and health benefits.
Provincial or territorial Healthcare
Health insurance programs provided by the provinces.
Business Interruption Insurance.
Insurance that covers costs such as rental foo temporary facilities, wage and salary payments to employees, payments for leased equipment, fixed payments, and profits that would have been earned during that period.
Theft Insurance
A broad insurance coverage that protects businesses against losses from stealing.
Professional Liability Insurance
Insurance designed to protect top corporate management, who can be the target of malpractice lawsuits.
Enterprise Risk Management (ERM)
A company-wide, strategic approach to identifying, monitoring and managing all elements of a company’s risk.
