Shared Flashcard Set

Details

Module 9 (Chapter 17)
Financial Management
58
Business
Undergraduate 1
11/09/2015

Additional Business Flashcards

 


 

Cards

Term
Finance is...
Definition
The function in a business that acquires funds for the firm and manages those funds within the firm.
Term
Financial management is...
Definition
The job of managing a firm's resources so it can meet its goals and objectives.
Term
Financial managers are...
Definition
Managers who make recommendations to top executives regarding strategies for improving the financial strength of a firm.
Term
Short-term forecast is...
Definition
Forecast that predicts revenues, costs, and expenses for a period of one year or less.
Term
Cash flow forecast is...
Definition
Forecast that predicts the cash inflows and outflows in future periods, usually months or quarters.
Term
Long-term forecast is...
Definition
Forecast that predicts revenues, costs, and expenses for a period longer than one year, and sometimes as far as five or ten years into the future.
Term
Budget is...
Definition
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.
Term
Operating (master) budget is...
Definition
The budget that ties together all of a firm's other budgets.
Term
What is the operating (master) budget?
Definition
The projection of dollar allocations to various costs and expenses needed to run or operate the business, given projected revenues.
Term
Capital budget is...
Definition
A budget that highlights a firm's spending plans for major asset purchases that often require large sums of money.
Term
Cash budget is...
Definition
A budget that estimates a firm's projected cash inflows and outflows that the firm can use to plan for any cash shortages or surpluses during a given period.
Term
Financial control is...
Definition
A process in which a firm periodically compares its actual revenues, costs, and expenses with its projected ones.
Term
Capital expenditures are...
Definition
Major investments in either tangible long-term assets such as land, buildings, and equipment, or intangible assets such as patents, trademarks, and copyrights.
Term
Debt financing is...
Definition
Funds raised through various forms of borrowing that must be repaid.
Term
Equity financing is...
Definition
Fund raised from operations within the firm or through the sale of ownership in the firm.
Term
Short-term financing is...
Definition
Borrowed funds that are needed for one year or less.
Term
Long-term financing is...
Definition
Borrowed funds that are needed for a period longer than one year.
Term
Trade credit is...
Definition
The practice of buying goods and services now and paying for them later.
Term
A promissory note is...
Definition
A written contract with a promise to pay.
Term
Secured loan is...
Definition
A loan backed by something valuable, such as property.
Term
Unsecured loan is...
Definition
A loan that's not backed by any specific assets.
Term
Line of credit is...
Definition
A given amount of unsecured funds a bank will lend to a business.
Term
Revolving credit agreement is...
Definition
A line of credit that is guaranteed by the bank.
Term
Commercial finance companies...
Definition
Organizations that make short-term loans to borrowers who offer tangible assets as collateral.
Term
Factoring is...
Definition
The process of selling accounts receivable for cash.
Term
Commercial paper is...
Definition
Unsecured promissory notes of $100,000 and up that mature (come due) in 365 days or less.
Term
Term-loan agreement...
Definition
A promissory note that requires the borrowers to repay the loan in specified installments.
Term
Risk/return trade-off is...
Definition
The principle that the greater the risk a lender takes in making a loan, the higher the interest rate required.
Term
A bond is...
Definition
A corporate certificate indicating that a person has lent money to a firm.
Term
Institutional investors are...
Definition
Large organizations -- such as pension funds, mutual funds, insurance companies, and banks -- that invest their own funds or the funds of others.
Term
Interest is...
Definition
The payment the issuer of the bond makes to the bondholders for use of the borrowed money.
Term
Maturity date is...
Definition
The exact date the issuer of a bond must pay the principal to the bondholder.
Term
Debenture bonds are...
Definition
Bonds that are not unsecured (i.e., not backed by any collateral such as equipment).
Term
Sinking fund is...
Definition
A reserve account in which the issuer of a bond periodically retires some part of the bond principal prior to maturity so that enough capital will be accumulated by the maturity date to pay off the bond.
Term
Stocks are...
Definition
Shares of ownership in a company.
Term
Initial public offering (IPO) is...
Definition
The first public offering of a corporation's stock.
Term
Venture capital is...
Definition
Money that is invested in new or emerging companies that are perceived as having great profit potential.
Term
Stock certificate is...
Definition
Evidence of stock ownership that specifies the name of the company, the number of shares it represents, and the type of stock being issued.
Term
Dividends are...
Definition
Part of a firm's profits that may be distributed to shareholders as either cash payments or additional shares of stock.
Term
Common shares are...
Definition
The most basic form of ownership in a in a firm.
Term
What is the purpose of common shares?
Definition
To confer voting rights and the right to share in the firm's profits through dividends, if offered by the firm's board of directors.
Term
Preferred shares are...
Definition
Stock that gives its owners preference in the payment of dividends and an earlier claim on assets than common shareholders if the company is forced out of business and its assets are sold.
Term
Finance comprises...
Definition
Functions in a business responsible for acquiring funds for the firm, managing funds within the firm, and planning for the expenditure of funds on various assets.
Term
What are the most common ways in which firms fail financially?
Definition
1) undercapitalization
2) poor control over cash flow
3) inadequate expense control
Term
What do financial managers do?
Definition
Plan, budget, control funds, obtain funds, collect funds, audit, manage taxes, and advise top management on financial matters.
Term
Financial planning involves...
Definition
Forecasting short-term and long-term needs, budgeting, and establishing financial controls.
Term
Shift considerably
Definition
During the course of a business's life, its financial needs...
Term
What is the difference between short-term and long-term financing?
Definition
Short-term financing refers to funds that will be repaid in less than one year, whereas long-term financing refers to funds that will be repaid over a specific time period of more than one year.
Term
What are the major financial needs for firms?
Definition
1) managing day-by-day needs of the business
2) controlling credit operations
3) acquiring needed inventory
4) making capital expenditures
Term
What is the difference between debt financing and equity financing?
Definition
Debt financing refers to funds raised by borrowing (going into debt), whereas equity financing is raised from within the firm (through retained earnings) or by selling ownership in the company to venture capitalists or by issuing shares to other investors.
Term
Why should business use trade credit?
Definition
Trade credit is the least expensive and most convenient form of short-term financing. Businesses can buy goods today and pay for them sometime in the future.
Term
What are the two major forms of long-term financing?
Definition
1) selling bonds
2) borrowing from individuals, banks, and other financial institutions
Term
What is the difference between a secured loan and an unsecured loan?
Definition
An unsecured loan has no collateral backing it. Secured loans have collateral backed by assets such as accounts receivable, inventory, or other property of value.
Term
Sources of short-term financing include...
Definition
Trade credit, promissory notes, family and friends, commercial banks and other financial institutions, factoring, and commercial paper.
Term
One of the important functions of a finance manager is to...
Definition
Obtain long-term financing
Term
No, factoring means selling accounts receivable at a discounted rate to a factor (an intermediary that pays cash for those accounts).
Definition
Is factoring a form of secured loan?
Term
Bonds can be secured by...
Definition
Some form of collateral or can be unsecured. The same is true of loans.
Term
What are the three budgets of finance?
Definition
1) The operating (master) budget
2) The capital budget
3) The cash balance
Supporting users have an ad free experience!