Term
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Definition
| Art/ Science of manageing a firm's money so it can meet its goals |
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Term
| Financial Manager's Responsibilities |
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Definition
- Financial planning
- Investment (spending money)
- Financing (raising money)
- Maximize the valye of the firm to its owners
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Term
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Definition
Forecasts a firm’s cash inflows and outflows and help the firm plan for cash surpluses and shortages |
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Term
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Definition
- Forecasts a firm's outlays for fixed assets (plant + equipment)
- Covers a period of several years
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Term
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Definition
- Combines sales forecasts with estimates of production costs and operating expenses
- Covers a period of several years
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Term
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Definition
- Short term expenses
- Outlays used to support current selling and production activities
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Term
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Definition
- Making sure a firm has enough cash on hand to pay bills as they are due
- Meet unexpected expenses
- Invest surplus cash
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Term
| Managing Accounts Receivable (sales not yet received) |
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Definition
Setting:
- Credit policies: guidelines on offering credit
- Credit terms: specific repayment conditions
- Collection policies: procedures for collecting overdue accounts
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Term
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Definition
- Investments in long-lived assets such as land, buildings, machinery, equipment
- Expected to provide benefits for over a year
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Term
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Definition
| Loan for which borrower does not have to pledge specific assets as security |
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Term
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Definition
| Extension of credit by the seller to buyer between the time the receives the goods/services and when the business is payed |
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Term
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Definition
- Purchases for which buyers have not paid the seller, recorded by the buyer
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Term
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Definition
| Agreement between a bank and a business that specifies the maximum amount of short-term borrowing the bank will make available |
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Term
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Definition
| Line of credit that allows the borrower to have access to funds again once it has been repaid |
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Term
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Definition
| loans for which the borrower is required to pledge specific assets as collateral or security |
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Term
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Definition
| Selling its accounts receivable at a discount to a factor |
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Term
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Definition
| A chance that a firm will be unable to make a schedule interest and principal payments on its debt |
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Term
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Definition
- CFO role expanding
- ERM (Enterprise Risk management): a company-wise strategic approach to identifying, monitoring, managing all elements of a company's risk
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Term
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Definition
- Credit risk, market risk, operational risk
- Exposure to loss as a result of default on a financial transaction
- Reduction in a security;s market value due to declin in credit quality of debt issuer
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Term
Debt to equity or debt to Net Worth |
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Definition
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o total debt/shareholder’s equity (ie. Net worth)
o (current liabilities + longterm liabilities)/((common+ preffered stock) +retained earnings)
o < 1:1
o Better measure w.o current debt liabilities
o Both investors and shareholders prefer greater risk = greater return
o Advantages
§ Long term debt is cheapest form of capital
§ Interest is tax deductible, dividends are not, nor are they required
o Disadvantages
§ Interest is an legal obligation (mandatory), dividends aren’t
§ Greater risk of insolvency
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Term
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Definition
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o Long-term debt / net worth (share equity)
o Measures degree to which a company has locked itself into fixed financial costs
o A given change in sales results in a greater change in profit
o < 0.5:1 low -> low risk, low return, high cost of capital
o 0.5:1 – 1:1 : normal
o > 1:1 high _ high risk, high return, low cost of capital
o Better to have a high operating leverage as long as risk isn’t too high
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