Business Chapter 16 – Flashcards
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financial managment
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all of the activities concerned with obtaining money and using it effectively
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chief financial officer (CFO)
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a high level corporate executive who manages a firm's finances and reports directly to the company's chief executive officer or president, must be honest
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short term financing
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money that will be used for one year or less; need include cash flow, speculative production, inventory needs, monthly expenses, short term promotional needs, unexpected emergencies
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cash flow
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the movement of money into and out of an organization, short term financing needs
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speculative production
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the time lag between the actual production of goods when the goods are sold, short term financing need
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long term financing
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money that will be used for longer than 1 year, needs include start up costs, mergers/acquisitions, new product development, long term marketing, replacement of equipment, expansion of facilities
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risk return ratio
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a ratio based on the principle that a high risk decision should generate higher financial returns for a business and more conservative decisions often generate lower returns
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financial plan
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a plan for obtaining and using the money needed to implement an organization's goals and objectives
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budget
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a financial statement that projects income, expenditures, or both over a specified future period
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cash budget
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a financial statement that estimates cash reciepts and expenditures over a specified period
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zero based budgeting
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budgeting approach that every expense in every budget must be justified, eliminates the problem of managers padding budget items
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capital budget
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a financial statement that estimates a firm's expenditures for major assets and its long term financing needs
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equity capital
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money received from the owners or from the sale of shares of ownership in a business
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debt capital
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borrowed money obtained through loans of various types
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CD (certificate of Deposit)
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a document stating that the bank will pay the depositor a guaranteed interest rate on money left on deposit for a specified period of time
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check
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a written order for a bank or other financial institution to pay a stated amount to the business or person indicated on the face
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line of credit
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loan that is approved before the money is actually needed; loan is pre approved and paperwork is completed, so business can obtain the money without delay
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revolving credit agreement
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a guaranteed line of credit; in return for the guarantee, the bank charges a commitment fee
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collateral
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real estate or property pledged as security for a loan, required for most long term loans
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debit card
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a card that electronically subtracts the amount of a customer's purchase from his bank account at the moment the purchase is made
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electronic funds transfer (EFT)
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a means of performing financial transactions through a computer terminal; includes ATMs, automatic clearinghouses (ATH), point of sale (POS) terminals, electronic check conversion (ECC)
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letter of credit
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a legal document issued by a bank or other financial institution guaranteeing to pay a seller a stated amount for a specified period of time (30-60days)
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banker's acceptance
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a written order for a bank to pay a 3rd party a stated amount of money on a specified date, an order to pay with no strings attached
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unsecured financing
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financing that is not backed by collateral
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trade credit
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type of short term financing, extended by a seller who does not require immediate payment after delivery of purchase, delayed payment, most popular
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promissory note
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type of short term financing, written pledge by a borrower to pay a certain sum of money to a creditor at a specified future date, ususally require borrower to pay interest, legally binding, a negotiable instrument
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prime interest rate
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the lowest rate charged by a bank for a short term loan, rate received by borrowers with "best" credit rating
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commercial paper
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type of short term financing, a short term promissory note issued by a large corporation, secured only by the reputation of the issuing firm, interest rate is determined by credit rating and ability to repay
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factor
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type of short term financing, a firm that specializes in buying other firms' accounts receivable; buys at less than face value but collects full dollar amount when due
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initial public offering (IPO)
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when a corporation sells common stock to the general public for the first time, used to increase cash balance
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primary market
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a market in which an investor purchases financial securities (via investment bank) directly form the issuer of those securities
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investment banking firm
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an organization that assists corporations in raising funds, usually by helping to sell new issues of stocks, bonds or other financial securities
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secondary market
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market for existing financial securities that are traded between investors; without this there would be no way to sell shares to other investors, completed through securties exchange
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securities exchange
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a market place where member brokers meet to buy and sell securities, secondary markets competed through this
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over the counter market (OTC)
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a network of dealers who buy and sell the stocks of corporations that are not listed on a securities exchange
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common stock
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stock whose owners may vote on corporate matters but whose claims on profits and assets are subordinate to the claims of others; type of long term financing
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preferred stock
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stock whose members usually do not have voting rights, but whose claims on dividends and assets are paid before those of common stock; type of long term financing
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retained earnings
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the portion of a corporation's profits not distributed to stock holders
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private placement
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occurs when stock and other corporate securities are sold directly to insurance companies, pension funds, or large institutional investors
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financial leverage
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the use of borrowed funds to increase the return on owners' equity , works as long as a firm's earnings are larger than the interest charged on borrowed money
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term loan agreement
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a promissory note that requires a borrower to repay a loan in monthly, quarterly, semiannual, or annual installments
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corporate bond
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a corporation's written pledge that it will repay a specified amount of money with interest, type of long term financing
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maturity date
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date on which corporation is to repay borrowed money
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registered bond
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a bond registered in the owner's name by the issuing company (borrowing company)
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debenture bond
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a bond backed only by the reputation of the issuing corporation
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mortgage bond
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a corporate bond secured by various assets of the issuing firm
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convertible bond
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a bond that can be exchanged at the owner's option for a specified number of shares in the corporation's common stock
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bond indenture
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a legal document that details all the conditions relating to a bond issue
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serial bonds
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bonds of a single issue that mature on different dates, used to ensure that it has sufficient funds available to redeem a bond issue
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sinking fund
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a sum of money to which deposits are made each year for the purpose of redeeming a bond issue, used to ensure that it has sufficient funds available to redeem a bond issue
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trustee
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an individual or independent firm that acts as a bond owner's representative
