FINANCIAL MANAGEMENT Flashcards
(41 cards)
What are the learning objectives of the chapter on Financial Management?
At the end of the chapter, students are expected to define financial management, recognize all aspects of finance and financial management, and be interested in business and finance.
What is finance?
Finance refers to the management, creation, and study of money and investments, involving the use of credit, debt, and securities to finance projects using future income flows.
What is the main goal of finance?
The main goal of finance is to maximize profit.
What is financial management?
Financial management is the business function that deals with investing available financial resources to achieve greater business success and return-on-investment (ROI).
What is the role of financial institutions in money flow?
Financial institutions act as intermediaries, lending funds, evaluating investments, and facilitating the flow of money from depositors to borrowers.
Who is a depositor?
A depositor is a person who has money and deposits it in a bank, pooling it with other depositors’ savings.
Who is a borrower?
A borrower is typically a small business owner who needs funds to start or expand a business and evaluates options for investment.
What are financial instruments?
Financial instruments are tools that help businesses manage daily operations and facilitate growth.
What are money market instruments?
Money market instruments are low-risk tools used by governments and financial institutions to raise funds, typically offering higher interest than savings deposits.
What are Treasury Bills?
Treasury Bills are issued by the government, mature within one year, and are generally considered default-free.
What are commercial papers?
Commercial papers are issued by financially sound businesses to fund investments, maturing in about nine months with low default risk.
What are long-term debts?
Long-term debts are available to borrowers for business needs, typically with higher interest rates locked in for the life of the debt.
What is a bond?
A bond is a security representing a debt of a government or business, promising to pay fixed interest for a specified period.
What is a stock?
A stock signifies ownership in a corporation and represents a claim on part of the corporation’s assets and earnings.
What are the two main types of stocks?
The two main types of stocks are preferred stock and common stock.
What is the role of financial institutions in nation building?
Financial institutions support nation building by funding important government projects and providing advisory services.
What are thrift banks?
Thrift banks are deposit-taking institutions that extend credit to consumers, usually focusing on rural areas.
What are commercial banks?
Commercial banks are primarily deposit-taking institutions that extend credit to the retail and consumer market.
What are investment banks?
Investment banks raise funds for large corporations and governments, dealing with significant financial transactions.
What is liquidity?
Liquidity is the ability of a business to pay its currently maturing liabilities as they fall due.
What is solvency?
Solvency is the ability to pay long-term liabilities, which is of interest to long-term creditors.
What is profitability?
Profitability addresses the goal of earning the highest possible profit or return on investment, assessed through cost control and asset utilization.
What is financial planning?
Financial planning involves forecasting a business’s future financing requirements.
What are the steps in the financial planning process?
Steps include forecasting sales, computing dividend payouts, identifying spontaneously-generated funds, and preparing pro forma financial statements.
