Corporate Finance: Working Capital Mgmt

Question 1

Active Strategy

Answer 1

Investment strategy characterized by monitoring by and attempting to capitalize on market conditions optimize the risk and return relationship

Question 2

Aging Schedule

Answer 2

A breakdown of accounts into categories of days outstanding

Question 3

Anticipation stock

Answer 3

Excess inventory that is held in anticipation of increased demand in Glen because of seasonal patterns of demand

Question 4

Asset-based loan

Answer 4

A loan secured with company assets

Question 5

Assignment of accounts receivable

Answer 5

The use of accounts receivable as collateral for a loan

Question 6

Automated Clearing House

Answer 6

An electronic payment network available to businesses, individuals and financial institutions in the United States, territories and Canada

Question 7

Bond Equivalent Yield

Answer 7

A calculation that annualized using the ratio of 365 to the number of days to maturity

Question 8

Captive finance subsidiary

Answer 8

A wholly-owner subsidiary of a company that is established to providing financing of the sales of the parent company

Question 9

Committed lines of credit

Answer 9

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

Question 10

Credit scoring model

Answer 10

A statistical model used to classify borrowers according to creditworthiness

Question 11

Credit-worthiness

Answer 11

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

Question 12

Direct Debit Program

Answer 12

An arrangement whereby a customer authorizes a debit a demand account; usually used by company to collect routine payments for services

Question 13

Disbursement Float

Answer 13

The amount of time between check issuance and a checks clearing back against the companies account

Question 14

Discount interest

Answer 14

A procedure for determine the interest in a loan or bond in which the interest is deducted from the face value in advance

Question 15

Drag on liquidity

Answer 15

When receipts lag, creating pressure from the decreased available funds

Question 16

Economic order quantity-record point

Answer 16

An approach to managing inventory based on expected demand and the predictability of demand; should minimize costs associated with inventory

Question 17

Electronic Funds Transfer

Answer 17

The use of computer networks to conduct financial transactions electronicAlly

Question 18

Float

Answer 18

The amount of money that is in transit between payments made by customers and the funds usable by the company

Question 19

Float factors

Answer 19

An estimate of the average number of days it takes deposited checks to clears; average daily float divided by average daily deposit

Question 20

Giro System

Answer 20

An electronic payment system used widely in Europe and Japan

Question 21

Inventory blanket lien

Answer 21

The use of inventory as collateral for a loan

Question 22

Just in time method

Answer 22

Method of managing inventory that minimizes in-process inventory stock

Question 23

Laddering strategy

Answer 23

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

Question 24

Lockbox system

Answer 24

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

Question 25

LIBOR Rate

Answer 25

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

Question 26

Manufacturing resource planning

Answer 26

The incorporation of production planning into inventory management

Question 27

Matching Strategy

Answer 27

An active investment strategy that includes intentional matching of the timing of cash outflows with investment maturities

Question 28

Mismatching strategy

Answer 28

An active investment strategt whereby the timing of cash outflows is not matched with investment maturities

Question 29

Money market yield

Answer 29

A yield on a basis comparable to the quoted yield on an interest-bearing money market instrument that pays interest on a 360day basis

Question 30

Passive strategy

Answer 30

In reference to short-term cash management, it is an investment strategy characterized by simple decision rules for making daily investments

Question 31

Point of Sale (POS)

Answer 31

System that capture transaction data at the physical locating in which the sale is made

Question 32

Precautionary stocks

Answer 32

A level of inventory beyond anticipated needs that provided a cushion in the revenues that it takes longer to replenish is inventory than expected

Question 33

Pull on liquidity

Answer 33

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

Question 34

Revolving credit agreements

Answer 34

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

Question 35

Safety stock

Answer 35

Inventory beyond need

Question 36

Stock out losses

Answer 36

Profits lost from not having sufficient inventory on hand to satisfy demand

Question 37

Target balance

Answer 37

A minimum level of cash to be held available-estimated in advance and adjusted for known funds transfers, seasonality or other factors

Question 38

Trade credit

Answer 38

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

Question 39

Transactions motive

Answer 39

The need for inventory as part of routine production-sales cycle

Question 40

Trust receipt arrangement

Answer 40

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

Question 41

Warehouse receipt arrangement

Answer 41

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

Question 42

Working capital management

Answer 42

The management of a companies short term assets and liabilities