Chapter 8 Flashcards
Financial management
Activities and decisions undertaken with regard to the financing and investment requirements of an organisation
Financial forecasting and planning
An ongoing process that involves forecasting financial performance, planning the sources and uses of funds, and monitoring cash flows
Bank overdraft
A short-term loan whereby a bank gives permission to a borrower to have a negative bank balance up to a pre-arranged limit
Contributed capital
Funds contributed to a business by the owner(s). Represents a portion of owners’ or shareholders’ equity
Current assets
Cash, or assets which are expected to be converted to cash within one year
Long-term assets
Assets which are expected to provide benefits over more than one accounting year
Inventory
Goods for resale, or to be used in production of goods for sale. Also known as stock in trade.
Accounts receivable
Short-term debt due from a customer, on account of goods sold in the normal course of business. Also known as debtors.
Economic life
The useful life of a business asset
Private sector
The business sector of the economy. Excludes government departments and state-owned enterprises
Wealth maximisation
Represents the goal of financial management. Refers to maximising the wealth of the firms owners. For a company, this is achieved by maximising the market price of the company’s shares
Owners equity, partnership capital
A residual claim by the owner(s) on the assets of the business, after payment of all liabilities
Public sector
Government departments and state-owned enterprises
Commercial
Relating to commerce; profit-oriented
Loss
A negative ‘profit’ arising when expenses exceed income
Earnings per share
Net profit after taxes divided by the number of ordinary shares on issue
Depreciation
The allocation of the cost of a long-term asset to the periods benefiting from its use. Represents a non-cash expense. Relates only to assets that decline in value over time
Solvency
The ability of a person or an organisation to meet their financial commitments as they come due
Corporate governance
The set of policies and procedures that direct and control how a company conducts its business
Agency costs
Costs incurred to monitor management and costs associated with offering financial incentives to act consistently with shareholder wealth maximisation
Share options
A financial asset that gives the holder the right to purchase shares at a given price
