Finance Management Flashcards
Finance
Get capital into the firm and manage it
Financial Management
Management of the firm’s resources so it can achieve its goals
Financial Managers
Study data presented by accountants and make recommendations for the top management, which they can use to improve the strategies used to improve the company’s financial health
Three most observed reasons for a firm’s financial downfall
Undercapitalisation, little control over cash flows, little control over spending
Financial Planning
Analysis of long- and short-term money flows in a firm
Short-term Forecast
Predicts revenues, costs and expenditures for a period of a year or less
Long-term Forecast
Predicts revenues, costs and expenditures for a period longer than one year
Cash Flow Forecast
Prediction of the cast inflows and outflows
Budget
Most firms set up a yearly budget that contains predictions of management and descriptions of how resources are used in the firm
Capital Budget
Focuses on the plans for purchasing large assets
Cash Budget
Predicts the cash inflow and outflow to predict cash position at the end of the year
Operational or Master Budget
Adds together all the other budgets and gives a summary of the proposed financial activities
Financial Control
Process in which a firm periodically compares the budgets to the actual numbers
Reasons why firms need operational capital
Managing daily operations, managing debtors, obtaining necessary inventory, large capital expenditures
Debt Financing
Capital obtained through a number of different loans
Equity Financing
Capital obtained from the company itself (issuing shares)
Short-term Financing
Consists of all the amounts needed for a period of one year or less
Long-term Financing
Consists of the amounts needed for a period longer than one year
Trade Credit
Purchasing goods or services on credit
Promissory Notes
Declarations given to a supplier which guarantee payment within a certain period or time. The supplier can sell these to the bank, who will then take over the amount payable
Forms of Short-term Financing
Trade credit, promissory notes, secured loan, unsecured loan, line of credit, revolving credit agreement, commercial financing firms
Factoring
Financing method in which a business owner sells accounts receivable at a discount to a third-party funding source to raise capital
Commercial Papers
Composition of non-secured payables with a value of $100,000 and its duration is 270 days
Term-loan Agreement
Promissory note that states that the loan must be repaid in specified terms
