Understanding Business Chapter 18 Flashcards
Finance
The function in a business that acquires funds for the firm and manages those funds within the firm.
Financial Management
The job of managing a firm’s resources so it can meet its goals and objectives.
Financial Managers
Managers who examine financial data prepared by accountants and recommend strategies for improving the financial performance of the firm.
Short-term forecast
Forecast that predicts revenues. costs. and expenses for a period of one year or less.
Cash Flow Forecast
Forecast that predicts the cash inflows and outflows in future periods. usually months or quarters.
Long-term Forecast
Forecast that predicts revenues. costs. and expenses for a period longer that 1 year. and sometimes as far as 5 or 10 years into the future.
Budget
A financial plan that sets forth management’s expectations and. on the basis of those expectations. allocates the use of specific resources throughout the firm.
Capital Budget
A budget that highlights a firm’s spending plans for major asset purchases that ofter require large sums of money.
Cash Budget
A budget that estimates cash inflows and outflows during a particular period like a month or a quarter.
Operating (or master) Budget
The budget that ties together the firm’s other budgets and summarizes its proposed financial activities.
Financial Control
A process in which a firm periodically compares its actual revenues. costs. and expenses with its budget.
Capital Expenditures
Major investments in either tangible long-term assets such as land. buildings. and equipment or intangible assets such as patents. trademarks. and copyrights.
Debt Financing
Funds raised through various forms of borrowing that must be repaid.
Equity Financing
Money raised from within the firm. from operations or through the sale of ownership in the firm (stock or venture capital).
Short-term Financing
Funds needed for a year or less.
Long-term Financing
Funds needed for more than a year (usually 2 to 10 years).
Trade Credit
The practice of buying goods and services now and paying for them later.
Promissory Note
A written contract with a promise to pay a supplier a specific sum of money at a definite time.
Secured Loan
A loan backed by collateral. something valuable such as property.
Unsecured Loan
A loan that doesn’t require any collateral.
Line of Credit
A given amount of unsecured short-term funds a bank will lend to a business. provided the funds are readily available.
Revolving Credit Agreement
A line of credit that’s guaranteed but usually comes with a fee.
Commercial Finance Companies
Organizations that make short-term loans to borrows who offer tangible assets as collateral.
Factoring
The process of selling accounts receivable for cash.
