Business 101: Chapter 9 – Flashcards
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Asset Management Ratios
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Financial ratios that measure how effectively a firm is using its assets to generate revenues or cash.
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Budgeted Balance Sheet
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A projected financial statement that forecasts the types and amounts of assets a firm will need to implement its future plans and how the firm will finance those assets. (Also called a pro forma balance sheet.)
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Budgeted Income Statement
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A projection showing how a firm's budgeted sales and costs will affect expected net income. (Also called a pro forma income statement.)
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Capital Budgeting
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The process a firm uses to evaluate long-term investment proposals.
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Capital Structure
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The mix of equity and debt financing a firm uses to meet its permanent financing needs.
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Cash Equivalents
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Safe and highly liquid assets that many firms list with their cash holdings on their balance sheet.
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Certificate of Deposit (CD)
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An interest-earning deposit that requires the funds to remain deposited for a fixed term. Withdrawal of the funds before the term expires results in a financial penalty.
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Commercial Paper
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Short-term (and usually unsecured) promissory notes issued by large corporations.
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Debt Financing
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Funds provided by lenders (creditors).
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Dodd-Frank Act
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A law enacted in the aftermath of the financial crisis of 2008-2009 that strengthened government oversight of financial markets and placed limitations on risky financial strategies such as heavy reliance on leverage.
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Equity Financing
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Funds provided by the owners of a company.
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Factor
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A company that provides short-term financing to firms by purchasing their accounts receivables at a discount.
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Finance
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The functional area of business that is concerned with finding the best sources and uses of financial capital.
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Financial Capital
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The funds a firm uses to acquire its assets and finance its operations.
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Financial Leverage
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The use of debt in a firm's capital structure.
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Financial Ratio Analysis
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Computing ratios that compare values of key accounts listed on a firm's financial statements.
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Leverage Ratios
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Ratios that measure the extent to which a firm relies on debt financing in its capital structure.
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Line of Credit
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A financial arrangement between a firm and a bank in which the bank pre-approves credit up to a specified limit, provided that the firm maintains an acceptable credit rating.
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Liquid Asset
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An asset that can quickly be converted into cash with little risk of loss.
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Liquidity Ratios
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Financial ratios that measure the ability of a firm to obtain the cash it needs to pay its short-term debt obligations as they come due.
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Money Market Mutual Funds
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A mutual fund that pools funds from many investors and uses these funds to purchase very safe, highly liquid securities.
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Present Value
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The amount of money that, if invested today at a given rate of interest (called the discount rate), would grow to become some future amount in a specified number of time periods.
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Profitability Ratios
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Ratios that measure the rate of return a firm is earning on various measures of investment.
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Retained Earnings
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The part of a firm's net income it reinvests.
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Revolving Credit Agreement
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A guaranteed line of credit in which a bank makes a binding commitment to provide a business with funds up to a specified credit limit at any time during the term of the agreement.
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Risk
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The degree of uncertainty regarding the outcome of a decision.
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Risk-Return Tradeoff
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The observation that financial opportunities that offer high rates of return are generally riskier than opportunities that offer lower rates of return.
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Spontaneous Financing
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Financing that arises during the natural course of business without the need for special arrangements.
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Time Value of Money
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The principle that a dollar received today is worth more than a dollar received in the future.
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Trade Credit
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Spontaneous financing granted by sellers when they deliver goods and services to customers without requiring immediate payment.
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U.S.Treasury Bills (T-Bills)
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Short-term marketable IOUs issued by the U.S. federal government.
