Corporate Finance: Working Capital Mgmt Flashcards
Active Strategy
Investment strategy characterized by monitoring by and attempting to capitalize on market conditions optimize the risk and return relationship
Aging Schedule
A breakdown of accounts into categories of days outstanding
Anticipation stock
Excess inventory that is held in anticipation of increased demand in Glen because of seasonal patterns of demand
Asset-based loan
A loan secured with company assets
Assignment of accounts receivable
The use of accounts receivable as collateral for a loan
Automated Clearing House
An electronic payment network available to businesses, individuals and financial institutions in the United States, territories and Canada
Bond Equivalent Yield
A calculation that annualized using the ratio of 365 to the number of days to maturity
Captive finance subsidiary
A wholly-owner subsidiary of a company that is established to providing financing of the sales of the parent company
Committed lines of credit
A bank commitment to extend credit up to a pre spermicides amount; the commitment is considered a short-term liability and is usually in effect for 364 days
Credit scoring model
A statistical model used to classify borrowers according to creditworthiness
Credit-worthiness
The perceived ability of the borrower to pay what is owed on the borrowing in a timely manner; it represents the ability of a company to withstand adverse impacts on its cash flows
Direct Debit Program
An arrangement whereby a customer authorizes a debit a demand account; usually used by company to collect routine payments for services
Disbursement Float
The amount of time between check issuance and a checks clearing back against the companies account
Discount interest
A procedure for determine the interest in a loan or bond in which the interest is deducted from the face value in advance
Drag on liquidity
When receipts lag, creating pressure from the decreased available funds
Economic order quantity-record point
An approach to managing inventory based on expected demand and the predictability of demand; should minimize costs associated with inventory
Electronic Funds Transfer
The use of computer networks to conduct financial transactions electronicAlly
Float
The amount of money that is in transit between payments made by customers and the funds usable by the company
Float factors
An estimate of the average number of days it takes deposited checks to clears; average daily float divided by average daily deposit
Giro System
An electronic payment system used widely in Europe and Japan
Inventory blanket lien
The use of inventory as collateral for a loan
Just in time method
Method of managing inventory that minimizes in-process inventory stock
Laddering strategy
A form of active strategy which entails scheduling maturities on a systematic basis within the investment portfolio such that investment are spread out equally over the term of the ladder
Lockbox system
A payment system in which customer payments are mailed to a post office box and the banking institution retrieves and deposits these payments several times a day, enabling the company to have use of the fund sooner than in a centralized system in which customer payments are sent to the company
LIBOR Rate
Collective name for multiple rates at which a select set of banks believe they could borrow unsecured funds from other banks in the London interbank market for different currencies and different borrowing period ranging from overnight to one year
Manufacturing resource planning
The incorporation of production planning into inventory management
Matching Strategy
An active investment strategy that includes intentional matching of the timing of cash outflows with investment maturities
Mismatching strategy
An active investment strategt whereby the timing of cash outflows is not matched with investment maturities
Money market yield
A yield on a basis comparable to the quoted yield on an interest-bearing money market instrument that pays interest on a 360day basis
Passive strategy
In reference to short-term cash management, it is an investment strategy characterized by simple decision rules for making daily investments
Point of Sale (POS)
System that capture transaction data at the physical locating in which the sale is made
Precautionary stocks
A level of inventory beyond anticipated needs that provided a cushion in the revenues that it takes longer to replenish is inventory than expected
Pull on liquidity
When disbursements are paid to quickly or trade credit availability is limited, requiring companies to expend funds before they receive funds from sales that could cover the liability
Revolving credit agreements
The strongest form of short-term bank borrowing facilities; they are in effect for multiple years (3-5) and may have optional medium-term loan features
Safety stock
Inventory beyond need
Stock out losses
Profits lost from not having sufficient inventory on hand to satisfy demand
Target balance
A minimum level of cash to be held available-estimated in advance and adjusted for known funds transfers, seasonality or other factors
Trade credit
A spontaneous form of credit in which a purchase of the goods or service is financing its purchase by delaying the date on which payment is made
Transactions motive
The need for inventory as part of routine production-sales cycle
Trust receipt arrangement
The use of inventory as collateral for a loan. The inventory is segregated and held in trust and the proceeds of any sale must be remitted to the lender immediately
Warehouse receipt arrangement
The use of inventory as collateral for a loan; similar to a trust receipt arrangement except there is a 3rd party (warehouse) that supervises inventory
Working capital management
The management of a companies short term assets and liabilities
