Comm 1800 Flash Cards Chapter 18

Front 1

finance

Back 1

the function in a business that acquires funds for the firm and manages those funds within the firm

Front 2

financial management

Back 2

the job of managing a firm's resources so it can meet its goals and objectives

Front 3

financial managers

Back 3

managers who examine financial data prepared by accountants and recommend strategies for improving the financial performance of the firm

Front 4

what financial managers do

Back 4

auditing, planning, budgeting, obtaining funds, controlling funds, managing taxes, advising top management on financial matters

Front 5

short term forecast

Back 5

forecast that predicts revenues, costs, and expenses for a period of one year or less

Front 6

cash flow forecast

Back 6

forecast that predicts the cash infows and outflows in future periods, usually in months or quarters

Front 7

long term forecast

Back 7

forecast that predicts revenues, costs, and expenses for a period longer than 1 year, and sometimes as far as 5 or 10 years into the future

Front 8

budget

Back 8

a financial plan that sets forth management's expectations and on the basis of those expectations, allocates the use of specific resources through out the firm

Front 9

capital budget

Back 9

budget that highlights firm's spending plans for major asset purchases that often require large sums of money

Front 10

cash budget

Back 10

budget that estimates cash inflow and outflows during a particular period like a month or quarter

Front 11

operating budget

Back 11

master budget, ties together the firm's other budgets and summarizes its proposed financial activities.

Front 12

financial control

Back 12

a process in which a firm periodically compares its actual revenues, costs, and expenses with its budget

Front 13

capital expenditures

Back 13

major investments in either tangible long term assets such as land, buildings, and equipment, intangible assets such as patents.

Front 14

debt financing

Back 14

fund raised through various forms of borrowing that must repaid

Front 15

equity financing

Back 15

money raised from within the firm, from operations or through the sale of ownership in the firm (stock)

Front 16

short term financing

Back 16

refers to funds needed for a year or less. small businesses focus on this

Front 17

longer term financing

Back 17

covers funds needed for more than a year (usually 2-10 years)

Front 18

trade credit

Back 18

practice of buying goods and services now and paying for them later. most widely used source of short term funding, least expensive, and most convenient. small business rely upon this.

Front 19

promissory note

Back 19

written contract with a promise to pay a supplier a specific sum of money at a definite time. form of a contract

Front 20

secured loan

Back 20

a loan backed by collateral, something valuable such as property. lender can take possession of collateral.

Front 21

accounts receivable

Back 21

are company assets often used as collateral for a loan

Front 22

pledging

Back 22

a % of the value of a firm's accounts receivable pledged is advanced to the borrowing firm. As customers pay off their accounts, the funds received are forwarded to the lender in repayment of the funds that were advanced.

Front 23

unsecured loan

Back 23

a loan that doesn't require any collateral

Front 24

line of credit

Back 24

a given amount of unsecured short term funds a bank will lend to a business provided the funds are readily available.

Front 25

revolving credit agreement

Back 25

a line of credit that's guaranteed but usually comes with a fee

Front 26

commercial finance companies

Back 26

organizations that make short term loans to borrowers who offer tangible assets as collateral

Front 27

factoring

Back 27

the process of selling accounts receivable for cash. Ex. firm sells many products on credit to consumers, creating accounts receivable. some consumers are slow on paying bills.

Front 28

factor

Back 28

a market intermediary that agrees to buy the firm's accounts receivable at a discount for cash

Front 29

commercial paper

Back 29

unsecured promissory notes of 100,000 (come due) and up that mature in 270 days of less. only financially stable firms do this

Front 30

credit cards

Back 30

provide a readily available line of credit that can save time and likely embarrassment of being rejected for a bank loan. they are extremely risky and costly

Front 31

term loan agreement

Back 31

a promissory note that requires the borrower to repay the loan in specified installments. advantage interest is tax deductible. lenders assume more risk and require more collateral

Front 32

risk/return trade off

Back 32

the principle that the greater the risk a lender takes in making a loan, the higher the interest rate required

Front 33

bonds

Back 33

bond is like a IOU wiht a promise to repay the amount borrowed, with interest on a certain date

Front 34

indenture terms

Back 34

the terms of agreement in a bond issue

Front 35

secured bond

Back 35

bond issued with some form of collateral

Front 36

unsecured bond

Back 36

bond backed only by the reputation of the issuer: also called a debenture bond

Front 37

equity financing

Back 37

makes funds available when the owners of the firm sell shares of ownership to outside investors in the form of stock, when they reinvest company earnings in the business. or obtain funds from venture capitalists.

Front 38

initial public offering

Back 38

IPO, the first time a company offers to sell its stock to the general public, this is an event. there is common or preferred stock

Front 39

retained earnings

Back 39

major source of long term funds, especially for small businesses. they often have fewer financing alternatives. create no new ownership of firm

Front 40

venture capital

Back 40

money that is invested in new or emerging companies that are perceived as having great profit potential

Front 41

leverage

Back 41

raising needed funds through borrowing to increase a firm's rate of return

Front 42

cost of capital

Back 42

the rate of return a company must earn in order to meet the demands of its lenders and expectations of its equity holders

Front 43

unsecured bond

Back 43

bond backed only by the reputation of the issuer: also called a debenture bond

Front 44

equity financing

Back 44

makes funds available when the owners of the firm sell shares of ownership to outside investors in the form of stock, when they reinvest company earnings in the business. or obtain funds from venture capitalists.

Front 45

initial public offering

Back 45

IPO, the first time a company offers to sell its stock to the general public, this is an event. there is common or preferred stock

Front 46

retained earnings

Back 46

major source of long term funds, especially for small businesses. they often have fewer financing alternatives. create no new ownership of firm

Front 47

venture capital

Back 47

money that is invested in new or emerging companies that are perceived as having great profit potential

Front 48

leverage

Back 48

raising needed funds through borrowing to increase a firm's rate of return

Front 49

cost of capital

Back 49

the rate of return a company must earn in order to meet the demands of its lenders and expectations of its equity holders