Chapter 18- Financial management Flashcards
Financial management
Managing a firms resources so it can meet its goals and objectives
Finance
acquires funds for the firm and manages those funds within the firm
Financial managers
examine financial data and recommend strategies for improving the financial performance
Short-term forecast
Predicts revenues, costs, and expenses for a period of one year or less
Cash flow forecast
Predicts the cash inflows and outflows in future periods
Long-term forecast
Predicts revenues costs and expenses for a period longer then one year
Budget
allocates the use of specific resources based on managements expectations
Capital budget
highlights a firm spending plans for major asset purchases that often acquire large sums of money
Cash budget
Budget the estimates cash inflows and outflows during a particular period
Operating ( or master ) budget
Ties together the firms other budgets and summarizes it’s proposed financial activities
Financial control
periodically compares is actual revenues, costs, and expenses with its budget
Capital expenditures
Major investments in either tangible long-term assets
Debt financing
Funds raised through various ways 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
Short-term financing
Funds needed for a year or less
Long-term financing
Funds needed for more than a 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 a supply a specific sum of money at a definite time
Secured loan
A loan backed by collateral
Unsecured loan
A loan that doesn’t require any collateral
Line of credit
A given amount of unsecured short-term funds a bank will lend to a business
Revolving credit agreement
A line of credit that’s guaranteed that usually comes with a fee
Commercial finance companies
make short-term loans to borrowers who offer tangible assets as collateral
Factoring
The process of selling accounts receivable for cash
Commercial paper
Unsecured promissory notes of $100,000 and up the mature in 270 days or less
Term loan agreement
And promissory note that requires a borrower to repay loan in specified installments
Risk/return trade-off
Principle that the greater the rest in lender takes in making the loan, the higher the interest rate required
Indenture terms
The terms of agreement in a bond issue
Secured bond
A bond issued with some form of collateral
Unsecured bond
A bond backed only by the reputation of the issuer
Venture capital
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
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
