Finance Flashcards
Define Finance. (financial management)
obtaining and managing funds to accomplish the company’s objectives
What are the main sources of funding?
- Profits from operations
- Financing from banks (debt)
- Shareholder investments (equity)
What is the funding used for?
- manage everyday operations
- extend credit to customers (reimburse creditors)
- keep enough inventory available
- make major investments
What is a financial plan and what are the 3 parts?
Firm’s strategy for reaching its financial goals
- forecasting (predicting)
- budgeting
- financial controls (compare between predicted and actual)
What are examples of short term loans?
- line of credit
- secured loans
- unsecured loans
What are examples of short term loans?
-term-loan agreement
What are examples of debt financing?
- bonds (contracts)
- secured bonds
- unsecured bonds
What are examples of equity financing?
- private placements
- public offerings
- investment capital
Define and give examples of liquidity ratios.
-measure a firm’s ability to meet its short-term obligations when they are due
Current ratio: current assets/current liabilities
Define and give examples of activity ratios.
-measure the efficiency, how well manage assets to make profit
Inventory turnover: COGS/ avg inventory
Define and give examples of debt to owners equity ratios.
-measure the extent to which the company relies on debt (labilities) to acquire assets
Debt-to-equity: liabilities / owner’s equity
Debt-to-assets: liabilities / assets
Define and give examples of profitability ratios.
-ability to generate profit from operations
Earnings per share: Net income - dividends / avg # shares outstanding
Gross margin: gross margin/net sales
Profit margin: net income/net sales
Define Leverage
How much does a company rely on debt (loans) vs equity to finance its activities and purchase assets?
