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67 Cards in this Set

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Financial management
involves the strategic planning and budgeting of short- and long-term funds for current and future needs
Financial manager
sometimes referred to as Chief Financial Officer (CFO), oversees the financial operations of a company
-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
a financial plan that outlines a company's planned cash flows, expected operating expenses, and anticipated revenues
operating (master) budget
all the operating costs for an entire organization, including inventory, sales, purchases, manufacturing, marketing, and operating expenses
capital budget
a company's long-range plans and outlines the expected financial needs for significant capital purchases
things company owns
cash flow
money that a company receives and spends over a specific period
cash flow budget
short-term budget that estimates cash inflows and outflows and predicts any cash flow gaps for the business
short-term financing
any type of financing that is repaid within a year or less
trade credit
ability to purchase inventory and supplies on credit without interest
commercial banks
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
demand deposit
funds that can be withdrawn at any time without prior notice
line of credit
credit that a manager can access at any time up to an amount agreed on between the bank and the company.
secured loan
requires collateral-the asset that the loan is financing, to guarantee the debt obligation
unsecured loan
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
commercial finance company
a financial institution that makes short-term loans to borrowers who offer tangible assets as collateral
the process of selling accounts receivable for cash
commercial paper
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
long-term financing
provides funds for a period greater than one year
debt financing
occurs when a company borrows money that is legally obligated to repay, with interest, by a specified time.
equity financing
funds generated by the owners of a company rather than an outside lender
debt instruments issued by companies or governments for the purpose of raising capital to finance a large project
secured bonds
bonds that require some form of collateral pledged as security
unsecured bonds aka debenture bonds
bonds issued with no collateral
venture capital
investment in the form of money that includes a substantial amount of risk for investors
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
involves tracking a business's income and expenses by recording its financial transactions
corporate accounting
part of an organization's finance department that is responsible for gathering and assembling data required for key financial statements
managerial accounting
necessary to make good business decisions within a company. responsible for tracking sales and the costs of producing sales.
financial accounting
an area of accounting that produces financial documents to aid decision makers outside an organization in making decisions regarding investments and credibility
area of accounting responsible for reviewing and evaluating the accuracy of financial reports
government and not-for-profit accounting
accounting required for organizations that are not focused on generating a profit, such as legislative bodies and charities
tax accounting
involves preparing taxes and giving advice on tax strategies
generally acceptable accounting principles (GAAP)
standard accounting rules defined by the Financial Accounting Standard Board (FASB), and independent organization
Sarbanes-Oxley Act
created to protect investors from corporate accounting fraud in reaction to companies like WorldCom, Enron, and Tyco that made headlines and fell financially
systematic recording of a company's every financial transaction
fundamental accounting equation
assets=liabilities+ owners' equity
double entry bookkeeping
for every transaction that affects an asset, an equal transaction must also affect either a liability or owners' equity
balance sheet
shows what a company owns and what it has borrowed at a fixed point in time and shows the net worth of a business
income statement
shows how much money is coming into a company and how much money a company is spending over a period
statement of cash flows
shows the exchange of money between a company and everyone else it deals with over a period of time
speed at which assets can be turned into cash
assets in order of most liquidity to least:
1. Current assets
2. Fixed assets
3. Intangible assets
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
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
short-term liabilities aka current liabilities
obligations a company is responsible for paying within a year or less and are listed first on balance sheet
long-term liabilities
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
owners' equity
amount the owners of a business can call their own
retained earnings
accumulated profits a business has held onto for reinvestment into a company
merchandise a business owns but has not sold
ratio analysis
comparison of numbers and therefore is used to compare current data to data from previous years, competitors' data, or industry averages
working capital
measures how financially efficient a company is
current assets- current liabilities
current ratio
measures whether a company can pay its bills
current assets/current liabilities
debt to equity ratio
how much debt a company has relative to its assets
total liabilities/ owners' equity
income statement
shows the profitability of a company by showing how much money a company takes in and how much money it spends
liabilities+owners' equity
income statement=
grouped into four main categories:
revenues-expenses=profit (or loss)
-revenues, cost of goods sold, operating expenses, and net income
net income or (loss)=
[(revenue-cost of goods)-operating expenses] -taxes
amount of money generated by a business by either selling goods or performing services
cost of goods sold (COGS)
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
gross profit=
total sales - COGs
operating expenses
overhead costs incurred with running the business
bottom line
difference of money in and money out, which is profit or loss
Net income is the _____ and stated on the ____ line of an income statement
-bottom line
gross profit margin=
determines a company's profitability of production

=(total revenue-COGs)/total revenue
Operating Profit margin=
determines a company's profitability
=[(Total revenue-COGs)-Operating expenses]/total revenue
earnings per share (EPS)=
portion of a company's profit allocated to stockholders on a per-share basis
Net Income/ outstanding shares
cash flow statement
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