Foundations of Business chapter 16 – Flashcards
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financial management
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all 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
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short-term financing
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money that will be used for one year or less
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cash flow
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the movement of money into and out of an organization
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speculative production
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the time lag between the actual production of goods and when the goods are sold
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long term financing
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money that will be used for longer than one year
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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 receipts and cash expenditures over a specified period
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zero-base budgeting
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a budgeting approach in which every expense in every budget must be justified
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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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certificate of deposit (CD)
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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 dollar amount to the business or person indicated on the face of the check
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line of credit
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a loan that is approved before the money is actually needed
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revolving credit agreement
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a guaranteed line of credit
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collateral
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real estate or property pledged as security for a loan
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debit card
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a card that electronically subtracts the amount of a customer's purchase from her or his bank account at the moment the purchase is made
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electronic funds transfer (EFT) system
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a means of performing financial transactions through a computer terminal
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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
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banker's acceptance
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a written order for a bank to pay a third party a stated amount of money on a specific state
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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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a type of short-term financing extended by a seller who does not require immediate payment after delivery of merchandise
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promissory note
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a written pledge by a borrower to pay a certain sum of money to a creditor at a specified future date
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prime interest rate
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the lowest rate charged by a bank for a short-term loan
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commercial paper
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a short-term promissory note issued by a large corporation
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factor
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a firm that specializes in buying other firms' accounts receivable
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initial public offering (IPO)
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occurs when a corporation sells common stock to the general public for the first time
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primary market
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a market in which an investor purchases financial securities (via an investment bank) directly from 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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a market for existing financial securities that are traded between investors
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securities exchange
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a marketplace where member brokers meet to buy and sell securities
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over-the-counter (OTC) market
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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
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preferred stock
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stock whose owners usually do not have voting rights but whose claims on dividends and assets are paid before those of common-stock owners
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retained earnings
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the portion of a corporation's profits not distributed to stockholders
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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
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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 will repay a specified amount of money with interest
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maturity date
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the date on which a 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
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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 of 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
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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
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trustee
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an individual or an independent firm that acts as a bond owner's representative
