Chapter 17 Financial Management

Question 1

Financial Management

Answer 1

The job of managing a firm resources to meet its goals and objectives

Question 2

Financial Managers

Answer 2

Managers who examine the financial data prepared by accountants and recommended strategies for improving the financial performance of the firm

Question 3

Short-Term Forcast

Answer 3

Forecast that predicts revenues, costs and expenses for a period of one year or less

Question 4

Cash Flow Forecast

Answer 4

Forecast that predicts the cash inflows and outflows in future periods, usually months or quarters

Question 5

Long-Term Forecast

Answer 5

Forecast that predicts revenues, costs, and expenses for a period longer than one year and as far as five or ten years in the future

Question 6

Budget

Answer 6

A financial plan that sets forth managements expectations and allocates the use of specific resources throughout the firm

Question 7

Operating Budget

Answer 7

The budget that ties together all of a firms other budgets and summarizes the businesses proposed financial activites

Question 8

Capital Budget

Answer 8

A budget that highlights a firms spending plans for major asset purchases that often require large sums of money

Question 9

Cash Budget

Answer 9

A budget that estimates a firms cash inflows and outflows during a particular period

Question 10

Financial Control

Answer 10

A process in which a firm periodically compares its actual revenues, costs and expenses with projected ones

Question 11

Capital Expenditures

Answer 11

Major investments in either tangible long-term assets such as land, buildings and equipment or intangible assets such as patents, trademarks and copyrights

Question 12

Debt Financing

Answer 12

Funds are raised through various forms of borrowing that must be repaid

Question 13

Equity Financing

Answer 13

Funds are raised from operations within the firm or through sole ownership in the firm

Question 14

Short-term Financing

Answer 14

Borrowed funds that are needed for one year or less

Question 15

Long-term Financing

Answer 15

Borrowed funds needed for a period longer than one year

Question 16

Trade Credit

Answer 16

The practice of buying goods and services now and paying for them later

Question 17

Promissory Note

Answer 17

A written contract with a promise to pay

Question 18

Secured Loan

Answer 18

A loan backed by collateral, something valuable such as property

Question 19

Unsecured Loan

Answer 19

A loan that does not require collateral

Question 20

Line of Credit

Answer 20

A given amount of unsecured funds a bank will lend to a business

Question 21

Revolving Credit Agreement

Answer 21

A line of credit that is guaranteed but usually comes with a fee

Question 22

Commercial Finance Companies

Answer 22

Organizations that make short-term loans to borrowers who offer tangible assets of selling accounts

Question 23

Factoring

Answer 23

The process of selling accounts receivable for cash

Question 24

Commercial Paper

Answer 24

Unsecured promissory notes of $100,000 and up that mature in 365 days or less

Question 25

Term-loan Agreement

Answer 25

A promissory note that requires the borrower to repay loan in specified installments

Question 26

Risk/Return Tradeoff

Answer 26

The principle that the greater the risk a lender takes in making a loan the higher the interest rate required

Question 27

Bond

Answer 27

A long-term legal obligation of a corporation or government to make regular interest payments during the term of the bond and to repay the entire bond principle at the prescribed date

Question 28

Maturity Date

Answer 28

The exact date the issuer of a bond must pay the principle to the bond holder

Question 29

Debenture Bonds

Answer 29

Bonds that are unsecured (no collateral)

Question 30

Sinking Fund

Answer 30

A reserve account in which the issuer of a bond periodically sets aside some part of the bond principle prior to the maturity date so that enough capital will be accumulated by the maturity date to pay-off the bond

Question 31

Stocks

Answer 31

Shares of ownership in a company

Question 32

Initial Public Offer (IPO)

Answer 32

The first public offering of a corporations stock

Question 33

Stock Certificate

Answer 33

Evidence of stock ownership that specifies the name of the company, number of share and type of stock being issued

Question 34

Dividends

Answer 34

Part of a firms profits that may be distributed to shareholders as either cash payments or additional shares of stock

Question 35

Common Shares

Answer 35

The most basic form of ownership in a firm; its confers voting rights and the right to share in the firms profits through dividends, if offered by the firms board of directors

Question 36

Preferred Shares

Answer 36

Stock that gives its owners preference in the payment of the dividends and the earlier claim on assets than common shareholders if the company is forced out of business and its assets are sold

Question 37

Venture Capitalists

Answer 37

Money that is invested in new or emerging companies that are perceived as having great profit potential

Question 38

Leverage

Answer 38

Raising needed funds through borrowing to increase a firms rate of return

Question 39

Finance

Answer 39

The function in a business that acquires funds for the firm and manages them within the firm