Chapter 16: Mastering Financial Management

Front 1

financial management

Back 1

all the activities concerned with obtaining money and using it effectively

Front 2

chief financial officer (CFO)

Back 2

a high-level corporate executive who manages a firm's finances and reports directly to the company's chief executive officer or president

Front 3

short-term financing

Back 3

money that will be used for one year or less

Front 4

cash flow

Back 4

the movement of money into and out of an organization

Front 5

speculative production

Back 5

the time lag between the actual production of goods and when the goods are sold

Front 6

long-term financing

Back 6

money that will be used for longer than one year

Front 7

risk-return ratio

Back 7

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

Front 8

financial plan

Back 8

a plan for obtaining and using the money needed to implement an organization's goals and objectives

Front 9

budget

Back 9

a financial statement that projects income, expenditures, or both over a specified future period

Front 10

cash budget

Back 10

a financial statement that estimates cash receipts and cash expenditures over a specified period

Front 11

zero-base budgeting

Back 11

a budgeting approach in which every expense in every budget must justified

Front 12

capital budget

Back 12

a financial statement that estimates a firm's expenditures for major assets and its long-term financing needs

Front 13

equity capital

Back 13

money received from the owners or from the sale of shares of ownership in a business

Front 14

debt capital

Back 14

borrowed money obtained through loans of various types

Front 15

certified of deposit

Back 15

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

Front 16

check

Back 16

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

Front 17

line of credit

Back 17

a loan that is approved before the money is actually needed

Front 18

revolving credit agreement

Back 18

a guaranteed line of credit

Front 19

collateral

Back 19

real estate or property pledged as security for a loan

Front 20

debit card

Back 20

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

Front 21

electronic funds transfer system (EFT)

Back 21

a means of performing financial transactions through a computer terminal

Front 22

letter of credit

Back 22

a legal document issues by a bank or other financial institution guaranteeing to pay a seller a stated amount for a specified period of time

Front 23

banker's acceptance

Back 23

a written order for a bank to pay a third party a stated amount of money on a specific state

Front 24

unsecured financing

Back 24

financing that is not backed by collateral

Front 25

trade credit

Back 25

a type of short-term financing extended by a seller who does not require immediate payment after delivery of merchandise

Front 26

promissory note

Back 26

a written pledge by a borrower to pay a certain sum of money to a creditor at a specified future date

Front 27

prime interest rate

Back 27

the lowest rate charged by a bank for a short-term loan

Front 28

commercial paper

Back 28

a short-term promissory note issued by a large corporation

Front 29

factor

Back 29

a firm that specializes in buying other firms' accounts receivable

Front 30

initial public offering (IPO)

Back 30

occurs when a corporation sells common stock to the general public for the first time

Front 31

primary market

Back 31

a market in which an investor purchases financial securities (via an investment bank) directly from the issuer of those securities

Front 32

investment banking firm

Back 32

an organization that assists corporations in raising funds, usually by helping to sell new issues of stocks, bonds, or other financial securities

Front 33

secondary market

Back 33

a market for existing financial securities that are traded between investors

Front 34

securities exchange

Back 34

a marketplace where member brokers meet to buy and sell securities

Front 35

over-the-counter (OTC) market

Back 35

a network of dealers who buy and sell the stocks of corporations that are not listed on a securities exchange

Front 36

common stock

Back 36

stock whose owners may vote on corporate matters but whose claims on profits and assets are subordinate to the claims of others

Front 37

preferred stock

Back 37

stock whose owners usually do not have voting rights but whose claims on dividends and assets are paid before those common-stock owners

Front 38

retained earnings

Back 38

the portion of a corporation's profits not distributions to stockholders

Front 39

private placement

Back 39

occurs when stock and other corporate securities are sold directly to insurance companies, pension funds, or large institutional investors

Front 40

financial leverage

Back 40

the use of borrowed funds to increase the return on owners' equity

Front 41

term-loan agreement

Back 41

a promissory note that requires a borrower to repay a loan in monthly, quarterly, semiannual, or annual intallments

Front 42

corporate bond

Back 42

a corporation's written pledge that it will repay a specified amount of money with interest

Front 43

maturity date

Back 43

the date on which a corporation is to repay borrowed money

Front 44

registered bond

Back 44

a bond registered in the owner's name by the issuing company

Front 45

debenture bond

Back 45

a bond backed only by the reputation of the issuing corporation

Front 46

mortgage bond

Back 46

a corporate bond secured by various assets of the issuing firm

Front 47

convertible bond

Back 47

a bond that can be exchanged, at the owner's option, for a specified number of shares of the corporation's common stock

Front 48

bond indenture

Back 48

a legal document that details all the conditions relating to a bond issue

Front 49

serial bonds

Back 49

bonds of a single issue that mature on different dates

Front 50

sinking fund

Back 50

a sum of money to which deposits are made each year for the purpose of redeeming a bond issue

Front 51

trustee

Back 51

an individual or an independent firm that acts as a bond owner's representative