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BEC > Financial Management > Flashcards

Financial Management Flashcards

1
Q

Financial mangement function that is concerned with raising capital to support hte firm’s operations and investemnt programs

A

Financing function

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2
Q

Financial management function that is concerned with selecting the best projects in which to invest firm resources, based on a consideration of risks and returns

A

Capital budgeting function

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3
Q

Financial management function concerned iwth manging the firm’s internal cash flows and its capital structure to minimize the financing costs and ensure that the firm can pay its obligations when due

A

Financial mangement function

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4
Q

Fnancial mangement function concerned with developing an ownership and corporate governance system for theifrm that will ensure htat mangers act ethically and in the best interst of stakeholders

A

Corporate governance function

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5
Q

Financial mangagement function concerned with managing the firm’s exposure to all types of risks

A

Risk-management function

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6
Q

Managing and financing the current assets and current liabilities of a firm; primarily with inventories and receivables

A

Working capital management

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7
Q

The lenght of time between when a firm makes payments and it receives cash inflows =Inventory Conversion Period + Receivables Conversion Period - Payables deferral Period

A

Cash conversion cycle

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8
Q

The average time required to convert materials into finished goods and sell those goods =Average inventory/(`COGS/day)

A

Inventory conversion period

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9
Q

The average time required to collect accounts receivable =Average receivables balance/(credit sales/day)

A

Receivables collection period (days sales outstanding)

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10
Q

The average lenght of time between the purchase of materials and labor and the payment of cash for them =Average payables /Purchases per day

A

Payables deferral period

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11
Q

Required minimum level of deposit based on a loan agreement

A

Compensating balances

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12
Q

Discounts, especially offered by suppliers, for early payment of accounts–a motivation to always have cash on hand

A

Cash discounts

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13
Q

Cash balances used to take advantage of favorable business opportunities (like business acquisitions)

A

Speculative balances

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14
Q

Cash balances used for emergencies

A

Precautionary balances

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15
Q

The time hat elaposes relating to mailing, processing, and clearing checks –want to extend for cash disbursements and shorten for cash receipts

A

Float

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16
Q

Maintaining a regional bank account to which just enough funds are bransferred daily to pay the checks presented

A

Zero-balance accounts

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17
Q

System in which customer payments are sent ot a post office box that is maintained by a bank–bank personnel retrive the payments and deposit htem into the firm’s bank account

A

Lockbox system

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18
Q

A way to speed up collection from customers (and reduce float) in which payments from customers are routed to local branch offices rather than firm headquarters

A

Concentration banking

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19
Q

A system in which funds are moved electronicaly between accounts without hte use of a check–takes the float out of both the receipts and disbursement processes

A

Electronic Funds Transfer (EFT)

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20
Q

The risk to the principal portion of a marketable security

A

Safety

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21
Q

The speed at which an investment can be liquiddated

A

Marketability/liquidity

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22
Q

Short-term obligations of hte federal government–active market ensures liquidity

A

Treasury bills (T-bills)

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23
Q

Government obligations with maturities from 1-10 years Appropriate for the investment of short-to intermediate term funds

A

Treasury notes

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24
Q

Government obligations that pay interest that equates to real rate of return specified by the US Treasur, plys principal at maturity that is adjusted for inflation Useful if a firm wants to minimize interest rate risk

A

Treasury Inflation Protected Securities (TIPS)

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25
Q

Offerings of government agencies, such as the Federal Home Loan Bank that offer security, liquidity, and pay slightly higher yields than treasury issues

A

Federal agency securities

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26
Q

Savings deposits at financial institutions

A

Certificates of Deposit (CD)

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27
Q

Large, unsecured short-term promissory notes issued to the public by large creditworthy corporations (usually held to term because no active secondary market)

A

Commercial paper

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28
Q

A draft drawn on a bank for payment when presented to the bank

A

Banker’s acceptance

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29
Q

US dollars held on deposit by foreign banks and in turn lent by the banks to anyone seeking dollars–pay higher yields than treasury bills

A

Eurodollar certificate of deposit

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30
Q

Shares in a fund that purchases higher-yielding bank CDs, commercial paper, and other large-denomination, higher-yielding securities; largely risk free

A

Money market funds

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31
Q

Similar to savings accounts, individual or business investors deposit idle funds in the accounts and the funds are used to invest in higher-yielding CDs, commerical paper, etc.

A

Money market accounts

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32
Q

Investments in publicly traded stocks and bonds of corporations; can reduce risk by diversifying away unsystematic risk in portfolios

A

Equity and debt securities

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33
Q

An inventory technique that minimizes the sum of inventory ordering and carrying costs

A

Economic Order Quanitity (EOQ)

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34
Q

A computerized system that manufactures finished goods based ondemand forecasts which are used to develop bills of materials and a master production schedule

A

Materials Requirement Planning (MRP)

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35
Q

The amont of current assets required to operate the business in even the slowest periods of hte year; should be financed iwth long-term financing such as stock s or bonds

A

Permanent current assets

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36
Q

Current assets accumulated during periods of high production and sales–appropriately financed with short-term financing

A

Temporary current assets

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37
Q

An approach to finaniing assets that involves matching asset and laibility matruities–a headging approach that minimizes the risk that the firm will be unable to pay its maturing obligations

A

Maturity matching approach

38
Q

The rate a bank charges its most creditworthy customers–increases if a customer is more risky

A

Prime rate

39
Q

A line of credit in which the bank is formally committed to lend the firm a specified maximum amount

A

Revolving Credit agreements

40
Q

The sale of receivables to a finance company

A

Factoring

41
Q

Floating public offerings of debt collateralized by the firm’s accounts receivables

A

Asset-backed public offerings

42
Q

Financing by using inventory as collateral

A

Inventory financing

43
Q

Inventory financing in whi8ch the inventory is held in a public warehouse under the lendor’s control

A

Warehousing

44
Q

Long-term debt; either in the form of loans from ifnancial institutions or private placement of unregistered bonds sold directly to accredited investors; less expensive to issue than public debt

A

Private debt

45
Q

Long-term debt that invovles selling SEC registered bonds idrectly to investors–the bond agreement specifies the par value, coupon rate, and maturity date

A

Public long-term debt

46
Q

restrictions on private and public debt agreements aht allow investors to monitor and contorl the activities of hte firm

A

Debt convenants

47
Q

A bond secured with the pledge of specific property

A

Mortgage bond

48
Q

A bond secured by financial assets of the firm

A

Collateral trust bond

49
Q

A bond that is not secured by the pledge of specific property, but is a general obl.igaition of the firm –can only be issued by firms with the highest credit rating and typically have higher yields because of the default risk

A

Debenture

50
Q

A bond with claims subordinated to other general creditors in the event of bankruptcy of hte firm –Bondholders receive distributions only after general creditors and senior debt holders have been paid–so offer higher yields

A

subordinated debenture

51
Q

A bond with interest payments that are contingent on the firm’s earnings–high yields because of high degree of risk –often associated with firms undergoing restructuring

A

Income bond

52
Q

bonds paid off in installments over hte life of the issue–desirable b/c bondholders can choose their maturity date

A

Serial payments/serial bonds

53
Q

Bonds in which the firm makes payments into a sinking fund which is used ot retire bonds by purchase

A

Sinking fund provisions

54
Q

Bonds that may be convertible into common stock

A

Convertible bonds

55
Q

Bonds in which the bondholder may have hte right to redeem the bonds for cash under certain circumstances

A

Redeemable bonds

56
Q

Bonds that may have a call provision allowing hte firm to force the bondholders to redeem the bonds before maturity for some premium

A

Call provisions

57
Q

Bonds that do not pay interest, but sell at a deep discount from theface or maturity value, and the return to hte investor is the difference between the cost and the bond’s maturity value

A

Zero-coupon rate bonds

58
Q

Bonds where the rate of interest paid floats with changes in the market rate—Therefore, the market price of hte bond does not fluctuate as widely

A

Floating rate bonds

59
Q

Bonds whose rates pay a higher rate of interest when other interest rates fall and a lower rate when other rates rise –riskier than normal bonds

A

Reverse floaters

60
Q

Bonds registered in the name of hte bondholder, and interest payments are sent directly to the registered owners

A

Registered bonds

61
Q

Bonds that carry very high-risk premiums, usually as a result of leveraged buyouts or firms in trouble

A

Junk bonds

62
Q

International bonds that are denominated in the currency of hte nation which they are sold (Diff. from Eurobonds which are denominated in US $)–can sure as an effective hedge for a firm that is heavily invested in assets in the foreign country

A

Foreign bonds

63
Q

A transaction in which the owner of he property sells the property to another and simultaneously leases it back

A

Sale-leaseback

64
Q

an option to buy common stock at a fixed price for some period of time—increases the marketability of bonds issued

A

Stock Warrants

65
Q

A hybrid securities in which the shareholders are entitled ot receive a stimupulated dividend and have priority over common stockholders in the event of liquidation of the firm

A

Preferred Stock

66
Q

A bond/share of preferred stock that can be converted, at the option of the holder, into common stock Attractive b/c investors require lower yield b/c of potential prospects of conversion But, dilutes the ownership of other common shareholders

A

Convertible security

67
Q

Occurs wehn a public diversified firm separates one of its subsidiaries, distributing hte shares on a pro rata basis to hte existing shareholders

A

Spin-offs

68
Q

A specialized equity offering that is based on the operations and cash flows of a wholly owned subsidiary of a diversified firm

A

Tracking Stocks

69
Q

A pool of funds that is used to make actively managed direct eequity investments in rapidly growing private companiese

A

Venture capital

70
Q

plans designed to motivate management to focus on shareholder value by rewarding management and key employees with stock or stock options as part of their compensation

A

Employee Stock Ownership Plans (ESOPs)

71
Q

Measures the degree to which a firm builds fixed costs into its operations

A

Operating leverage

72
Q

Measures the extent to which the firm uses debt financing

A

Financial leverage

73
Q

The weighted-average cost of its debt and equity financing components

A

Cost of capital

74
Q

= the interest rate of the loan adjusted for the fact that interest is deductible =i x (1-marginal tax rate)

A

Cost of debt

75
Q

Measures the correlation between the price volatility of the stock market and the price volatility of an individual firm’s stock higher= more volatility and more risk

A

beta coefficient

76
Q

The avilibty of a firm to raise capital on reasonable terms under adverse conditions

A

financial flexibility

77
Q

payments to existing stockholders of a dividend in the form of the ifrm’s own stock

A

stock dividneds

78
Q

Similar to stock dividends, but are generally designed to reduce the stock’s price to a target level that will attract more investors

A

Stock splits

79
Q

Markets in which newly issued securities are sold

A

Primary markets

80
Q

Markets in which previously issued securities are sold

A

Secondary markets

81
Q

A rising market

A

Bull market

82
Q

A declining/lethargic market

A

Bear market

83
Q

commissioned agents of buyers/sellers

A

Brokers

84
Q

Take positions in assets and buy and sell their own inventory –similar to brokers in that they match buyers and sellers

A

Dealers

85
Q

Banks that assist in the initial sale of newly issued securities by providing advice, underwrting, and sales assitance

A

Investment banks

86
Q

Financial instituions htat borrow one form of finanicla asset and distribute hte asset in another form

A

Financial Intermediaries

87
Q

When a firm combines with another in the same line of business

A

Horizontal merge

88
Q

When a firm combines with another firm in the supply chain

A

Vertical merger

89
Q

When the merging firms are somewhat related but not enough ti make it a vertical or horizontal merger

A

Congeneric merger

90
Q

When the firms are completely unrelated; provicdes the greatest degree of diversification

A

Conglomerate merger

BEC (7 decks)

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