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Flashcards in Chapter 18 Deck (52):
1

financial management

the art and science of managing a company's money so that it can meet its goals

2

cash flows

the inflows and outflows of cash for a company

3

return

the opportunity for profit

4

risk

the potential for loss or the chance that an investment will not achieve the expected level of return

5

risk-return trade-off

a basic principle in finance that holds that the higher the risk, the greater the return required

6

short-term forecasts

projections of revenues, costs of goods, and operating expenses over a one-year period

7

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

8

budgets

formal written forecasts of revenues and expenses that set spending limits based on operational forecasts; include cash budgets, capital budgets, and operating budgets

9

cash budgets

budgets that forecast a company's cash inflows and outflows and help the company plan for cash surpluses and shortages

10

capital budgets

budgets that forecast a company's outlays for fixed assets (plant and equipment), typically covering a period of several years

11

operating budgets

budgets that combine sales forecasts with estimates of production costs and operating expenses to forecast profits

12

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

13

commercial paper

unsecured short-term debt - an IOU - issued by a financially strong corporation

14

marketable securities

short-term investments that are easily converted into cash

15

accounts receivable

sales for which a company has not yet been paid

16

capital expenditures

investments in long-lived assets, such as land, buildings, machinery, and equipment, that are expected to provide benefits extending beyond one year

17

capital budgeting

the process of analyzing long-term projects and selecting those that offer the best returns while maximizing the company's value

18

unsecured loans

loans for which the borrower does not have to pledge specific assets as security

19

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

20

accounts payable

a purchase for which a buyer has not yet paid the seller

21

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

22

revolving credit agreement

a line of credit that allows the borrower to have access to funds again once it has been repaid

23

secured loans

loans for which the borrower is required to pledge specific assets as collateral, or security

24

factoring

a form of short-term financing in which a company sells its accounts receivable outright, at a discount, to a factor

25

financial risk

the chance that a company will be unable to make scheduled interest and principal payments on its debt

26

term loan

a business loan with an initial maturity of more than one year; can be unsecured or secured

27

bonds

long-term debt obligations (liabilities) issued by corporations and governments

28

mortgage loan

a long-term loan made against real estate as collateral

29

common shares

a security that represents an ownership interest in a corporation

30

dividends

payments to shareholders from a corporation's profits

31

share or stock dividends

payments to shareholders in the form of more shares; can replace or supplement cash dividends

32

retained earnings

profits that have been reinvested in a company

33

preferred shares

equity securities for which the dividend amount is set at the time the shares are issues

34

risk management

the process of identifying and evaluating risks and selecting and managing techniques to adapt to risk exposures

35

peril

a hazard or source of danger

36

speculative risk

the chance of either loss or gain, without insurance against the possible loss

37

insurance

the promise of compensation for certain financial losses

38

insurance policy

a written agreement that defines what the insurance covers and the risks that the insurance company will bear for the insured party

39

underwriting

a review process of all insurance applications and the selection of those who meet the standards

40

insurable interest

an insurance applicant's chance of loss if a particular peril occurs

41

insurable risk

a risk that an insurance company will cover.
It must meet certain criteria

42

law of large numbers

insurance companies' prediction of the likelihood that a peril will occur; used to calculate premiums

43

deductibles

the amounts that an insurance company must pay before insurance benefits begin

44

employment insurance

payment of benefits to laid-off workers while they seek new jobs

45

workers' compensation

payments to cover the expenses of job-related injuries and diseases, including medical costs, rehabilitation, and job retraining if necessary

46

Canadian Pension Plan

insurance that provides retirement, disability, death, and health benefits

47

provincial health care

health insurance programs provided by the provinces

48

key person life insurance

a term insurance policy that names the company as beneficiary

49

business interruption insurance

covers the costs such as rental of temporary facilities, wage and salary payments to employees, payments for leased equipment, fixed payments, and profits that would have been earned during that period

50

theft insurance

a broad insurance coverage that protects businesses against losses from an act of stealing

51

professional liability insurance

insurance designed to protect top corporate management, who have been the target of malpractice lawsuits

52

enterprise risk management (ERM)

a company-wide, strategic approach to identifying, monitoring, and managing all elements of a company's risk