Chapter 15 (15.1-15.4) Flashcards
Finance involves four key responsibilities:
Determine a firm’s long-term investments
Obtain funds to pay for those investments
Conduct the firm’s everyday financial activities
Help manage the risks that a firm takes
The Financial Manager
responsible for planning and overseeing the financial resources of a firm
cash-flow management
financial planning
financial control
Cash-Flow Management
Managing the pattern of cash inflows (revenues) and outflows (debt payments)
Financial Control
Checking performance against strategic plans
Making adjustments
Preparing budgets to ensure that sufficient cash is on hand to meet operational and debt-service needs
Financial Planning
a plan to achieve a desired financial status:
projections of revenue flows
sources and planned uses of funds to meet both short- and long-term goals
timing of when funds will be required
Short-Term (Operating) Expenses
accounts payable
accounts receivable
credit policy
inventory
raw materials
work in process
Long-Term (Capital) Expenditures
funding fixed assets that have a long life and a lasting value
land, buildings, machinery
Short-Term Funds
allows firms to cover operational expenses and implement short-term plans
trade credit
secured loans
unsecured loans
factoring accounts receivable
Trade Credit
the granting of credit by a selling firm to a buying firm
Open-book credit
Promissory note
Trade draft
Secured Short-Term Loans
a short-term loan for which the borrower is required to put up collateral
Unsecured Short-Term Loans
Line of Credit
Revolving Credit Agreements
Commercial Paper
Long-Term Funds
Debt Financing
Equity Financing
Hybrid Financing
Risk-Return Relationship
Debt Financing
Long-Term Loans
borrowing money for 3 to 10 years at a fixed or floating rate
Corporate Bonds
a promise by the borrower to pay the lender an amount of money on the maturity date
Bonds
Secured
Unsecured (debentures)
Registered bonds
Bearer (coupon) bonds
