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| What is Financial Management? |
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Definition
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| Accounting is a system for providing financial information. Its two principal elements are: |
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Definition
Financial Accounting
Managerial Accounting |
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| Finance is the area of financial management that supervises the __________ and ___________ of the firm's resources. |
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Definition
| Acquisition and Disposition |
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| _________ is the formalized system that records a firm's financial history. |
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Definition
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| A ________ _________ recports the firm's history to interested individuals typically via annual, quarterly, and monthly financial reports called financial statements. |
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Definition
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| Managerial Accounting does what? |
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Definition
Looks forward.
Provides information for improving decisions. |
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| Financial Accounting does what? |
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Definition
Looks backwards.
Reports what has happened. |
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Term
| The _________ functions analysis to improve decisions that affect the wealth of the firm's owners. |
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Definition
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| The ________ ________ provides information used in the financial analyses. |
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| The ________ ________ often performs the analysis. |
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| The main goal of financial management is __________ of the firm's profits. |
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Term
| Other goals of financial management |
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Definition
maximization of sales
maximization of market share
maximization of the growth rate of sales
maximization of the market price of the firm's stock |
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Term
| Managers are concerned with the maximization of salary and perks, which are tied in with: |
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Definition
return on investment
return on equity
return on assets
return on net assets |
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Term
Financial management has two overriding goals:
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Definition
| profitability and viability |
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Term
| Are the extra profits worth the risk? |
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Definition
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| The goal of viability is often measured in terms of: |
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Definition
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| __________ is simply a measure of the amount of resources a firm has that are cash or are convertible to cash in the near term, to meet the obligations the firm has that are coming due in the near term, generally one year or less. |
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Definition
| Liquidity (being liquid keeps you safe in the short run) |
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Term
| _________ is simply the same concept as liquidity from a long term perspective, meaning more than one year. |
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Definition
| Solvency (to be safe, organizations need to be both adequately liquid to meet short term obligations, and also adequately solvent to meet longer term obligations.) |
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Term
| So maximization of your firm's liquidity and solvency is a good strategy? |
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Definition
| NO! As we increase liquidity and solvency, we often lower profits. You are safer, but have a lower return. If you lock up resources in earning assets, you may be less liquid and possibly even less solvent, buy may earn higher profits. |
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| Does viability equal profitablity? |
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Definition
| No. A firm can be profitable every year of its existence, yet go bankrupt anyway. This is frequently the result of rapid growth and poor financial planning. |
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Term
______ implies outlay of substantial amounts of cash for increased inventory levels.
_______ is often accompanied by an expansion of plant and equipment, again wll in advance of the ultimate receipt of cash. |
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