Term
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Definition
| The function in a business that acquires funds for the firm and manages those funds within the firm. |
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Term
| Financial management is... |
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Definition
| The job of managing a firm's resources so it can meet its goals and objectives. |
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Term
| Financial managers are... |
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Definition
| Managers who make recommendations to top executives regarding strategies for improving the financial strength of a firm. |
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Term
| Short-term forecast is... |
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Definition
| Forecast that predicts revenues, costs, and expenses for a period of one year or less. |
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Term
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Definition
| Forecast that predicts the cash inflows and outflows in future periods, usually months or quarters. |
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Term
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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. |
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Term
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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. |
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Term
| Operating (master) budget is... |
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Definition
| The budget that ties together all of a firm's other budgets. |
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Term
| What is the operating (master) budget? |
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Definition
| The projection of dollar allocations to various costs and expenses needed to run or operate the business, given projected revenues. |
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Term
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Definition
| A budget that highlights a firm's spending plans for major asset purchases that often require large sums of money. |
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Term
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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. |
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Term
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Definition
| A process in which a firm periodically compares its actual revenues, costs, and expenses with its projected ones. |
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Term
| Capital expenditures are... |
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Definition
| Major investments in either tangible long-term assets such as land, buildings, and equipment, or intangible assets such as patents, trademarks, and copyrights. |
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Term
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Definition
| Funds raised through various forms of borrowing that must be repaid. |
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Term
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Definition
| Fund raised from operations within the firm or through the sale of ownership in the firm. |
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Term
| Short-term financing is... |
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Definition
| Borrowed funds that are needed for one year or less. |
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Term
| Long-term financing is... |
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Definition
| Borrowed funds that are needed for a period longer than one year. |
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Term
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Definition
| The practice of buying goods and services now and paying for them later. |
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Term
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Definition
| A written contract with a promise to pay. |
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Term
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Definition
| A loan backed by something valuable, such as property. |
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Term
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Definition
| A loan that's not backed by any specific assets. |
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Term
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Definition
| A given amount of unsecured funds a bank will lend to a business. |
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Term
| Revolving credit agreement is... |
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Definition
| A line of credit that is guaranteed by the bank. |
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Term
| Commercial finance companies... |
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Definition
| Organizations that make short-term loans to borrowers who offer tangible assets as collateral. |
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Term
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Definition
| The process of selling accounts receivable for cash. |
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Term
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Definition
| Unsecured promissory notes of $100,000 and up that mature (come due) in 365 days or less. |
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Term
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Definition
| A promissory note that requires the borrowers to repay the loan in specified installments. |
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Term
| Risk/return trade-off is... |
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Definition
| The principle that the greater the risk a lender takes in making a loan, the higher the interest rate required. |
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Term
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Definition
| A corporate certificate indicating that a person has lent money to a firm. |
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Term
| Institutional investors are... |
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Definition
| Large organizations -- such as pension funds, mutual funds, insurance companies, and banks -- that invest their own funds or the funds of others. |
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Term
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Definition
| The payment the issuer of the bond makes to the bondholders for use of the borrowed money. |
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Term
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Definition
| The exact date the issuer of a bond must pay the principal to the bondholder. |
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Term
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Definition
| Bonds that are not unsecured (i.e., not backed by any collateral such as equipment). |
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Term
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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. |
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Term
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Definition
| Shares of ownership in a company. |
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Term
| Initial public offering (IPO) is... |
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Definition
| The first public offering of a corporation's stock. |
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Term
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Definition
| Money that is invested in new or emerging companies that are perceived as having great profit potential. |
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Term
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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. |
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Term
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Definition
| Part of a firm's profits that may be distributed to shareholders as either cash payments or additional shares of stock. |
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Term
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Definition
| The most basic form of ownership in a in a firm. |
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Term
| What is the purpose of common shares? |
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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. |
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Term
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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. |
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Term
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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. |
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Term
| What are the most common ways in which firms fail financially? |
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Definition
1) undercapitalization
2) poor control over cash flow
3) inadequate expense control |
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Term
| What do financial managers do? |
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Definition
| Plan, budget, control funds, obtain funds, collect funds, audit, manage taxes, and advise top management on financial matters. |
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Term
| Financial planning involves... |
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Definition
| Forecasting short-term and long-term needs, budgeting, and establishing financial controls. |
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Term
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Definition
| During the course of a business's life, its financial needs... |
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Term
| What is the difference between short-term and long-term financing? |
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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. |
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Term
| What are the major financial needs for firms? |
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Definition
1) managing day-by-day needs of the business
2) controlling credit operations
3) acquiring needed inventory
4) making capital expenditures |
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Term
| What is the difference between debt financing and equity financing? |
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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. |
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Term
| Why should business use trade credit? |
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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. |
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Term
| What are the two major forms of long-term financing? |
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Definition
1) selling bonds
2) borrowing from individuals, banks, and other financial institutions |
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Term
| What is the difference between a secured loan and an unsecured loan? |
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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. |
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Term
| Sources of short-term financing include... |
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Definition
| Trade credit, promissory notes, family and friends, commercial banks and other financial institutions, factoring, and commercial paper. |
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Term
| One of the important functions of a finance manager is to... |
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Definition
| Obtain long-term financing |
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Term
| No, factoring means selling accounts receivable at a discounted rate to a factor (an intermediary that pays cash for those accounts). |
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Definition
| Is factoring a form of secured loan? |
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Term
| Bonds can be secured by... |
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Definition
| Some form of collateral or can be unsecured. The same is true of loans. |
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Term
| What are the three budgets of finance? |
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Definition
1) The operating (master) budget
2) The capital budget
3) The cash balance |
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