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Financial Analysis and Reporting > Chapter 5 > Flashcards

Chapter 5 Flashcards

1
Q

this involves the maintenance of the appropriate level of cash and investment in marketable securities to meet the firms cash requirements and to maximize income on idle funds

A

cash and marketable management

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2
Q

their objective should be invest in cash for a return while retaining sufficient liquidity to satisfy future needs

A

cash and marketable securities

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3
Q

these are crucial to a firms continuing success

A

cash and short-term investments

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4
Q

these are the primary concerns of the treasurer when dealing with highly liquid assets

A

liquidity and safety

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5
Q

these are held because of their ability to facilitate routine operations of the company

A

cash and short-term investments

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6
Q

these assets are not held for purposes of achieving investment returns

A

cash and short-term investments

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7
Q

the ff are the reasons why the company would need to hold cash

A

transaction purposes
compensating balance requirements
precautionary reserves
potential investment opportunities
speculation

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8
Q

cash balances needed to conduct the ordinary business transactions

A

transaction purposes

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9
Q

the amount left in the checking balance to be maintained at all times as part of a loan agreement

A

compensating balance requirements

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10
Q

these are used to handle unexpected problems and contingencies due to the uncertain pattern of cash inflows and outflows

A

precautionary reserves

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11
Q

used to build up in anticipation of a future investment opportunity such as a major capital expenditure project

A

potential investment opportunities

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12
Q

the practice of delaying purchases and store up cash for use later to take advantage of possible changes in prices of materials, equipment and securities as well as changes in currency exchange rates

A

speculation

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13
Q

the difference between the banks balance for a firms account and the balance that the firm shows on its own books

A

float

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14
Q

types of float

A

positive float (disbursement float)
negative float

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15
Q

occurs when the bank balance exceeds the book balance, such as when checks issued by the firm are already delivered to the supplier but the same have not yet been cleared by the bank

A

positive float

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16
Q

this type of float should be increased

A

positive float

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17
Q

occurs when the book balance exceeds the bank balance

A

negative float

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18
Q

it shows that there is more cash tied up in the collection cycle

A

negative float

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19
Q

this type of float should be decreased or if possible eliminated

A

negative float

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20
Q

negative float can be categorized as

A

mail float
processing float
clearing float

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21
Q

occurs when the payment has already been or mailed by a customer but not yet received by the company

A

mail float

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22
Q

occurs when customers payments have been received but not yet deposited

A

processing float

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23
Q

occurs when customers checks have been deposited but not yet clesred

A

clearing float

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24
Q

is one strategy for expediting the receipt of funds

A

lockbox system

25
Q

ZBA

A

Zero balance accounts

26
Q

are those with no minimum maintaining cash balance required

A

Zero balance accounts

27
Q

similar with basic knowledge on break-even analysis

A

cash break-even chart

28
Q

the chart would show the amount of sales in pesos or the number of units to be sold so that the total cash inflows would equal total cash outflows

A

cash break-even chart

29
Q

an EOQ type model which can be used to determine the optimal cash balance where the costs of maintaining and obtaining cash are at the minimum

A

Baumol cash management model

30
Q

two types of costs related to holding cash

A

Cost of securities
Opportunity cost

31
Q

Are those short-term money market instruments that can be easily converted into cash

A

marketable securities

32
Q

the company may hold marketable securities because

A

substitute for cash balances
temporary investment
meet known financial obligations

33
Q

it is the opportunity cost of idle cash

A

return on marketable securities

34
Q

this return is the denominator of the optimal balance formula provided in the baumol cash management model

A

return on marketable securities

35
Q

Risks involved in marketable securities

A

default risk
interest rate risk
inflation risk

36
Q

The risk that the issuer may not be able to pay the interest or principal on time or at all

A

Default risk

37
Q

The risk that the price of the securities would fluctuate due to changes in the market interest rates

A

Interest rates

38
Q

The risk that inflation will reduce the real value of the investment

A

Inflation risk

39
Q

How quickly a security can be sold before maturity without a significant price concession

A

Marketability

40
Q

This focuses on plans and policies related to sales on account and ensuring the maintenance of receivables at a predetermined level and their collectability as planned

A

Receivables management

41
Q

The objective of which is to have the right amount of its outstanding receivable balances and bad debts

A

Receivables management

42
Q

It is the primary determinant of accounts receivable

A

Credit policy

43
Q

Is a key determinant of sales so sales & marketing executive or concerned with this policy

A

credit policy

44
Q

The credit policy consists of four variables

A

Credit period
discounts
credit standards
collection policy

45
Q

The length of time buyers is given to pay for their purchases

A

Credit period

46
Q

Price reductions given for early payment

A

discounts

47
Q

The increase in quantity may offset the reduction in price or revenue

A

Balance

48
Q

The criteria that determine which customers will be granted credit and how much

A

Credit standards

49
Q

Two types of credit standards

A

strict credit standards
liberal credit standards

50
Q

May tend to eliminate the risk of non-payment but may also decrease the potential sales due to rejected customers

A

Strict credit standards

51
Q

May lead to higher sales but also higher bad debt losses and collection cost

A

Liberal credit standards

52
Q

Factors to consider in traded standard or the four c’s of credit

A

character
capacity
capital
conditions

53
Q

The customers willingness to pay

A

character

54
Q

The customers ability to generate cash

A

capacity

55
Q

The customers financial sources such as collateral

A

capital

56
Q

The current economic or business conditions

A

conditions

57
Q

The procedures used to collect past due accounts including the toughness or laxity used in the process

A

Collection policy

58
Q

It is defined as a statement of the firm’s credit period and discount policy

A

Credit terms

59
Q

Factors in credit terms

A

Cash discounts
credit and collection cost

Financial Analysis and Reporting (7 decks)

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