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CFA Level 1 > Corporate Finance: Working Capital Mgmt > Flashcards

Corporate Finance: Working Capital Mgmt Flashcards

1
Q

Active Strategy

A

Investment strategy characterized by monitoring by and attempting to capitalize on market conditions optimize the risk and return relationship

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2
Q

Aging Schedule

A

A breakdown of accounts into categories of days outstanding

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3
Q

Anticipation stock

A

Excess inventory that is held in anticipation of increased demand in Glen because of seasonal patterns of demand

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4
Q

Asset-based loan

A

A loan secured with company assets

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5
Q

Assignment of accounts receivable

A

The use of accounts receivable as collateral for a loan

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6
Q

Automated Clearing House

A

An electronic payment network available to businesses, individuals and financial institutions in the United States, territories and Canada

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7
Q

Bond Equivalent Yield

A

A calculation that annualized using the ratio of 365 to the number of days to maturity

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8
Q

Captive finance subsidiary

A

A wholly-owner subsidiary of a company that is established to providing financing of the sales of the parent company

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9
Q

Committed lines of credit

A

A bank commitment to extend credit up to a pre spermicides amount; the commitment is considered a short-term liability and is usually in effect for 364 days

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10
Q

Credit scoring model

A

A statistical model used to classify borrowers according to creditworthiness

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11
Q

Credit-worthiness

A

The perceived ability of the borrower to pay what is owed on the borrowing in a timely manner; it represents the ability of a company to withstand adverse impacts on its cash flows

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12
Q

Direct Debit Program

A

An arrangement whereby a customer authorizes a debit a demand account; usually used by company to collect routine payments for services

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13
Q

Disbursement Float

A

The amount of time between check issuance and a checks clearing back against the companies account

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14
Q

Discount interest

A

A procedure for determine the interest in a loan or bond in which the interest is deducted from the face value in advance

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15
Q

Drag on liquidity

A

When receipts lag, creating pressure from the decreased available funds

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16
Q

Economic order quantity-record point

A

An approach to managing inventory based on expected demand and the predictability of demand; should minimize costs associated with inventory

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17
Q

Electronic Funds Transfer

A

The use of computer networks to conduct financial transactions electronicAlly

18
Q

Float

A

The amount of money that is in transit between payments made by customers and the funds usable by the company

19
Q

Float factors

A

An estimate of the average number of days it takes deposited checks to clears; average daily float divided by average daily deposit

20
Q

Giro System

A

An electronic payment system used widely in Europe and Japan

21
Q

Inventory blanket lien

A

The use of inventory as collateral for a loan

22
Q

Just in time method

A

Method of managing inventory that minimizes in-process inventory stock

23
Q

Laddering strategy

A

A form of active strategy which entails scheduling maturities on a systematic basis within the investment portfolio such that investment are spread out equally over the term of the ladder

24
Q

Lockbox system

A

A payment system in which customer payments are mailed to a post office box and the banking institution retrieves and deposits these payments several times a day, enabling the company to have use of the fund sooner than in a centralized system in which customer payments are sent to the company

25
Q

LIBOR Rate

A

Collective name for multiple rates at which a select set of banks believe they could borrow unsecured funds from other banks in the London interbank market for different currencies and different borrowing period ranging from overnight to one year

26
Q

Manufacturing resource planning

A

The incorporation of production planning into inventory management

27
Q

Matching Strategy

A

An active investment strategy that includes intentional matching of the timing of cash outflows with investment maturities

28
Q

Mismatching strategy

A

An active investment strategt whereby the timing of cash outflows is not matched with investment maturities

29
Q

Money market yield

A

A yield on a basis comparable to the quoted yield on an interest-bearing money market instrument that pays interest on a 360day basis

30
Q

Passive strategy

A

In reference to short-term cash management, it is an investment strategy characterized by simple decision rules for making daily investments

31
Q

Point of Sale (POS)

A

System that capture transaction data at the physical locating in which the sale is made

32
Q

Precautionary stocks

A

A level of inventory beyond anticipated needs that provided a cushion in the revenues that it takes longer to replenish is inventory than expected

33
Q

Pull on liquidity

A

When disbursements are paid to quickly or trade credit availability is limited, requiring companies to expend funds before they receive funds from sales that could cover the liability

34
Q

Revolving credit agreements

A

The strongest form of short-term bank borrowing facilities; they are in effect for multiple years (3-5) and may have optional medium-term loan features

35
Q

Safety stock

A

Inventory beyond need

36
Q

Stock out losses

A

Profits lost from not having sufficient inventory on hand to satisfy demand

37
Q

Target balance

A

A minimum level of cash to be held available-estimated in advance and adjusted for known funds transfers, seasonality or other factors

38
Q

Trade credit

A

A spontaneous form of credit in which a purchase of the goods or service is financing its purchase by delaying the date on which payment is made

39
Q

Transactions motive

A

The need for inventory as part of routine production-sales cycle

40
Q

Trust receipt arrangement

A

The use of inventory as collateral for a loan. The inventory is segregated and held in trust and the proceeds of any sale must be remitted to the lender immediately

41
Q

Warehouse receipt arrangement

A

The use of inventory as collateral for a loan; similar to a trust receipt arrangement except there is a 3rd party (warehouse) that supervises inventory

42
Q

Working capital management

A

The management of a companies short term assets and liabilities

CFA Level 1 (50 decks)

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