Chapter 18: Financial Management Flashcards
budget
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.
capital budget
A budget that highlights a firm’s spending plans for major asset purchases that often require large sums of money.
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.
cash budget
A budget that estimates cash inflows and outflows during a particular period like a month or a quarter.
cash flow forecast
Forecast that predicts the cash inflows and outflows in future periods, usually months or quarters.
cost of capital
The rate of return a company must earn in order to meet the demands of its lenders and expectations of its equity holders.
debt financing
Funds raised through various forms of borrowing that must be repaid.
equity financing
Money raised from within the firm, from operations or through the sale of ownership in the firm (stock or venture capital).
factoring
The process of selling accounts receivable for cash.
finance
The function in a business that acquires funds for the firm and manages those funds within the firm.
financial control
A process in which a firm periodically compares its actual revenues, costs, and expenses with its budget.
financial management
The job of managing a firm’s resources so it can meet its goals and objectives.
financial managers
Managers who examine financial data prepared by accountants and recommend strategies for improving the financial performance of the firm.
leverage
Raising needed funds through borrowing to increase a firm’s rate of return.
line of credit
A given amount of unsecured short-term funds a bank will lend to a business, provided the funds are readily available.
operating (or master) budget
The budget that ties together the firm’s other budgets and summarizes its proposed financial activities.
promissory note
A written agreement with a promise to pay a supplier a specific sum of money at a definite time.
risk/return trade-off
The principle that the greater the risk a lender takes in making a loan, the higher the interest rate required.
secured loan
A loan backed by collateral (something valuable, such as property).
term-loan agreement
A promissory note that requires the borrower to repay the loan in specified installments.
trade credit
The practice of buying goods and services now and paying for them later.
unsecured loan
A loan that doesn’t require any collateral.
venture capital
Money that is invested in new or emerging companies that are perceived as having great profit potential.
