Chapter 16 Flashcards
(41 cards)
financial management
Planning for a firm’s money needs and managing the allocation and spending of funds.
risk/return trade-off
The balance of potential risks against potential rewards.
financial plan
A document that outlines the funds needed for a certain period of time, along with the sources and intended uses of those funds.
accounts receivable
Amounts that are currently owed to a firm.
accounts payable
Amounts that a firm currently owes to other parties.
zero-based budgeting
A budgeting approach in which each department starts from zero every year and must justify every item in the budget rather than simply adjusting the previous year’s budget amounts.
budget
A planning and control tool that reflects expected revenues, operating expenses, and cash receipts and outlays.
debt financing
Arranging funding by borrowing money.
equity financing
Arranging funding by selling ownership shares in the company, publicly or privately.
capital structure
A firm’s mix of debt and equity financing.
short-term financing
Financing used to cover current expenses (generally repaid within a year).
long-term financing
Financing used to cover long- term expenses such as assets (generally repaid over a period of more than one year).
cost of capital
The average rate of interest a firm pays on its combination of debt and equity.
secured loans
Loans backed up with assets that the lender can claim in case of default, such as a piece of property.
trade credit
Credit obtained by a purchaser directly from a supplier.
leverage
The technique of increasing the rate of return on an investment by financing it with borrowed funds.
collateral
A tangible asset a lender can claim if a borrower defaults on a loan.
unsecured loans
Loans that require a good credit rating but no collateral.
line of credit
An arrangement in which a financial institution makes money available for use at any time after the loan has been approved.
commercial paper
Short-term promissory notes, or contractual agreements, to repay a borrowed amount by a specified time with a specified interest rate.
factoring
Obtaining funding by selling accounts receivable.
lease
An agreement to use an asset in exchange for regular payment; similar to renting.
bonds
A method of funding in which the issuer borrows from an investor and provides a written promise to make regular interest payments and repay the borrowed amount in the future.
private equity
Ownership assets that aren’t publicly traded; includes venture capital.
