Chapter 18 Flashcards
(52 cards)
financial management
the art and science of managing a company’s money so that it can meet its goals
cash flows
the inflows and outflows of cash for a company
return
the opportunity for profit
risk
the potential for loss or the chance that an investment will not achieve the expected level of return
risk-return trade-off
a basic principle in finance that holds that the higher the risk, the greater the return required
short-term forecasts
projections of revenues, costs of goods, and operating expenses over a one-year period
long-term forecasts
projections of a company’s activities and the funding for those activities over a period that is longer than a year, typically 2 to 10 years
budgets
formal written forecasts of revenues and expenses that set spending limits based on operational forecasts; include cash budgets, capital budgets, and operating budgets
cash budgets
budgets that forecast a company’s cash inflows and outflows and help the company plan for cash surpluses and shortages
capital budgets
budgets that forecast a company’s outlays for fixed assets (plant and equipment), typically covering a period of several years
operating budgets
budgets that combine sales forecasts with estimates of production costs and operating expenses to forecast profits
cash management
the process of making sure that a company has enough cash on hand to pay bills as they are due and to meet unexpected expenses
commercial paper
unsecured short-term debt - an IOU - issued by a financially strong corporation
marketable securities
short-term investments that are easily converted into cash
accounts receivable
sales for which a company has not yet been paid
capital expenditures
investments in long-lived assets, such as land, buildings, machinery, and equipment, that are expected to provide benefits extending beyond one year
capital budgeting
the process of analyzing long-term projects and selecting those that offer the best returns while maximizing the company’s value
unsecured loans
loans for which the borrower does not have to pledge specific assets as security
trade credit
the extension of credit by the seller to the buyer between the time the buyer receives the goods or services and when it pays for them
accounts payable
a purchase for which a buyer has not yet paid the seller
line of credit
an agreement between a bank and a business or person that specifies the maximum amount of short-term borrowing the bank will make available to that business or person
revolving credit agreement
a line of credit that allows the borrower to have access to funds again once it has been repaid
secured loans
loans for which the borrower is required to pledge specific assets as collateral, or security
factoring
a form of short-term financing in which a company sells its accounts receivable outright, at a discount, to a factor
