Intro To Business Chapter 15

Front 1

Financial management

Back 1

involves the strategic planning and budgeting of short- and long-term funds for current and future needs

Front 2

Financial manager

Back 2

sometimes referred to as Chief Financial Officer (CFO), oversees the financial operations of a company
responsibilities:
-developing plans that outline a company's financial short-term and long-term needs
-defining the sources and uses of funds that are needed to reach goals
-monitoring the cash flow of a company to ensure that obligations are paid in a timely and efficient manner
-investing any excess funds
-raising capital for future growth and expansion

Front 3

budget

Back 3

a financial plan that outlines a company's planned cash flows, expected operating expenses, and anticipated revenues

Front 4

operating (master) budget

Back 4

all the operating costs for an entire organization, including inventory, sales, purchases, manufacturing, marketing, and operating expenses

Front 5

capital budget

Back 5

a company's long-range plans and outlines the expected financial needs for significant capital purchases

Front 6

assets

Back 6

things company owns

Front 7

cash flow

Back 7

money that a company receives and spends over a specific period

Front 8

cash flow budget

Back 8

short-term budget that estimates cash inflows and outflows and predicts any cash flow gaps for the business

Front 9

short-term financing

Back 9

any type of financing that is repaid within a year or less

Front 10

trade credit

Back 10

ability to purchase inventory and supplies on credit without interest

Front 11

commercial banks

Back 11

financial institutions that raise funds from businesses and individuals in the form of checking and savings accounts and use those funds to make loans to businesses and individuals

Front 12

demand deposit

Back 12

funds that can be withdrawn at any time without prior notice

Front 13

line of credit

Back 13

credit that a manager can access at any time up to an amount agreed on between the bank and the company.

Front 14

secured loan

Back 14

requires collateral-the asset that the loan is financing, to guarantee the debt obligation

Front 15

unsecured loan

Back 15

loan that does not require collateral-the asset that the loan is financing. for firms with good credit history and solid relationship with lending institution

Front 16

commercial finance company

Back 16

a financial institution that makes short-term loans to borrowers who offer tangible assets as collateral

Front 17

factoring

Back 17

the process of selling accounts receivable for cash

Front 18

commercial paper

Back 18

an unsecured short-term debt instrument of 100,000 or more, typically issued by a corporation to bridge a cash flow gap created by large accounts receivable, inventory, or payroll

Front 19

long-term financing

Back 19

provides funds for a period greater than one year

Front 20

debt financing

Back 20

occurs when a company borrows money that is legally obligated to repay, with interest, by a specified time.

Front 21

equity financing

Back 21

funds generated by the owners of a company rather than an outside lender

Front 22

bonds

Back 22

debt instruments issued by companies or governments for the purpose of raising capital to finance a large project

Front 23

secured bonds

Back 23

bonds that require some form of collateral pledged as security

Front 24

unsecured bonds aka debenture bonds

Back 24

bonds issued with no collateral

Front 25

venture capital

Back 25

investment in the form of money that includes a substantial amount of risk for investors

Front 26

leverage

Back 26

amount of debt used to finance a firm's assets with the intent that the rate of return on the assets is greater than the cost of the debt

Front 27

accounting

Back 27

involves tracking a business's income and expenses by recording its financial transactions

Front 28

corporate accounting

Back 28

part of an organization's finance department that is responsible for gathering and assembling data required for key financial statements

Front 29

managerial accounting

Back 29

necessary to make good business decisions within a company. responsible for tracking sales and the costs of producing sales.

Front 30

financial accounting

Back 30

an area of accounting that produces financial documents to aid decision makers outside an organization in making decisions regarding investments and credibility

Front 31

auditing

Back 31

area of accounting responsible for reviewing and evaluating the accuracy of financial reports

Front 32

government and not-for-profit accounting

Back 32

accounting required for organizations that are not focused on generating a profit, such as legislative bodies and charities

Front 33

tax accounting

Back 33

involves preparing taxes and giving advice on tax strategies

Front 34

generally acceptable accounting principles (GAAP)

Back 34

standard accounting rules defined by the Financial Accounting Standard Board (FASB), and independent organization

Front 35

Sarbanes-Oxley Act

Back 35

created to protect investors from corporate accounting fraud in reaction to companies like WorldCom, Enron, and Tyco that made headlines and fell financially

Front 36

bookkeeping

Back 36

systematic recording of a company's every financial transaction

Front 37

fundamental accounting equation

Back 37

assets=liabilities+ owners' equity

Front 38

double entry bookkeeping

Back 38

for every transaction that affects an asset, an equal transaction must also affect either a liability or owners' equity

Front 39

balance sheet

Back 39

shows what a company owns and what it has borrowed at a fixed point in time and shows the net worth of a business

Front 40

income statement

Back 40

shows how much money is coming into a company and how much money a company is spending over a period

Front 41

statement of cash flows

Back 41

shows the exchange of money between a company and everyone else it deals with over a period of time

Front 42

liquidity

Back 42

speed at which assets can be turned into cash

Front 43

assets in order of most liquidity to least:
1. Current assets
2. Fixed assets
3. Intangible assets

Back 43

1. Current assets-assets that can be turned into cash within a year. ie-cash, accounts receivable, inventory, and short-term investments, such as money market accounts
2. Fixed assets-assets that have more long-term use. ie- real estate, buildings, machinery, and equipment
3. Intangible assets-do not have physical characteristics but have value. ie-trademarks, patents, copyrights, strong brand recognition

Front 44

liabilities

Back 44

all debts and obligations owed by a business to outside creditors, suppliers, or other vendors. they are listed in balance sheets in order on which they will come due

Front 45

short-term liabilities aka current liabilities

Back 45

obligations a company is responsible for paying within a year or less and are listed first on balance sheet

Front 46

long-term liabilities

Back 46

include debts and obligations that are owed by a company that are due more than one year from the current date. ie-mortgage for land or buildings

Front 47

owners' equity

Back 47

amount the owners of a business can call their own

Front 48

retained earnings

Back 48

accumulated profits a business has held onto for reinvestment into a company

Front 49

inventory

Back 49

merchandise a business owns but has not sold

Front 50

ratio analysis

Back 50

comparison of numbers and therefore is used to compare current data to data from previous years, competitors' data, or industry averages

Front 51

working capital

Back 51

measures how financially efficient a company is
current assets- current liabilities

Front 52

current ratio

Back 52

measures whether a company can pay its bills
current assets/current liabilities

Front 53

debt to equity ratio

Back 53

how much debt a company has relative to its assets
total liabilities/ owners' equity

Front 54

income statement

Back 54

shows the profitability of a company by showing how much money a company takes in and how much money it spends

Front 55

assets=

Back 55

liabilities+owners' equity

Front 56

income statement=
grouped into four main categories:

Back 56

revenues-expenses=profit (or loss)
-revenues, cost of goods sold, operating expenses, and net income

Front 57

net income or (loss)=

Back 57

[(revenue-cost of goods)-operating expenses] -taxes

Front 58

Revenue

Back 58

amount of money generated by a business by either selling goods or performing services

Front 59

cost of goods sold (COGS)

Back 59

variable expenses a company incurs to manufacture and sell a product, including price of raw materials used in creating the good along with labor costs

Front 60

gross profit=

Back 60

total sales - COGs

Front 61

operating expenses

Back 61

overhead costs incurred with running the business

Front 62

bottom line

Back 62

difference of money in and money out, which is profit or loss

Front 63

Net income is the _____ and stated on the ____ line of an income statement

Back 63

-bottom line
-last

Front 64

gross profit margin=

Back 64

determines a company's profitability of production

=(total revenue-COGs)/total revenue

Front 65

Operating Profit margin=

Back 65

determines a company's profitability
=[(Total revenue-COGs)-Operating expenses]/total revenue

Front 66

earnings per share (EPS)=

Back 66

portion of a company's profit allocated to stockholders on a per-share basis
Net Income/ outstanding shares

Front 67

cash flow statement

Back 67

displays cash transactions
organizes and reports cash generated in 3 business components:
-operating activities-measure cash used or provided by the core business of a company
-investing activities-represent cash involved in the purchase or sale of investments or income-producing assets like buildings
-financing activities-show cash exchanged between a firm and its owners and creditors, including dividend payments and debt service