Finance 2 – Flashcards
33 test answers
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working capital
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a firms investment in short term assets; cash, marketable securities, inventory, and accounts receivable.
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relaxed fat cat current asset investment policy
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when large amounts of cash and marketable securities and inventories are carried and under which sales are stimulated by a liberal credit policy that results in a high level of receivables
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maturity matching approach
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a financing policy that matches asset and liability maturities. This would be considered a moderate current asset financing policy.
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credit policy
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a set of decisions that includes a firms credit standards, terms, methods used to collect credit accounts, and credit monitoring procedures.
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days sales outstanding
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how long it takes to collect accounts receivable
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aging schedule
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a report showing how long accounts receivables have been outstanding.
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work in process
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inventory in various stages of completion. Process of raw materials to finished goods.
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trade credit
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the credit created when one firm buys on credit from another firm. accounts payable
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blanket liens
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a lien on all inventory. gives the lending institution a legal claim against the borrowers entire inventory.
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sales forecast
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a forecast of a firms unit and dollar sales for some future peroid
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operating leverage
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how much assets your using to leverage your business
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lumpy assets
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assets that cannot be acquired in small increments, but in large amounts
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marketable securities
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securities that can be sold on short notice without loss of principal or investment
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fixed costs
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costs that remain unchanged in total amount over a wide range of production levels
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cash budget
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a schedule showing cash receipts, cash disbursements, and cash balances for a firm over a specified peroid of time.
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variable costs
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costs that are fixed per unit and change in total amount as production volume changes
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term loan
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a contract negotiated directly with a bank in which the borrower agrees to make a series of interest and principal payments on specific dates to the bank
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junk bonds
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high-risk, high-yield bonds used to finance mergers, leveraged buyouts and failing companies
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dividends and retained earnings
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the net income that a firm earns can either be paid out to shareholders as dividends or can be reinvested in the company as retained earnings
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how do shareholders exert control of the management of a firm?
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vote annually on board of directors
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identify and explain types of cash flows used in making a decision to accept or reject a project
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relevant cost, after tax cost, incremental cost, direct cost, opportunity cost
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what is included in the calculation of the initial investment outlay of a project?
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shipping and installation costs associated with the purchase of an asset
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what is the formula for net working capital
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current assets- current liabilities
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what are 4 reasons a business holds cash balances?
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emergency for rainy days and low sales, transactions with another company, speculative cash for purchasing new assets, and compansating for bills.
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describe a promissory note
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a fany IOU. A promise to pay a balance owed.
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describe in detail factoring and pledging of accounts receivable.
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Factoring= selling accounts receivable Pledging= using as collateral on a loan
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define operating breakeven point
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operating income is 0. enough to cover cost
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describe 5 major points of the cash conversion cycle
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order and receive materials, add labour and finish goods, sales, pay accounts payable and pay wages, and collect accounts receivable.
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ways to eliminate any problems that slow the cash conversion cycle down
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speed up assembly line, hold off on paying accounts payable, and decreasing price will increase sales
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