G3 Flashcards by Claire Taladro

Lack of effective long-range planning is a commonly cited reason for financial distress and failure.

Financial Planning

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Is a means of systematically thinking about the future and anticipating possible problems before they occur.

LONG-RANGE PLANNING

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Is a process that at best helps the firm avoid stumbling into the future backward.

PLANNING

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Usually covers the coming 12 months.

SHORT-RUN PLANNING

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Takes to be the coming two to five years.

LONG-RUN PLANNING

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Is the time period, this is the first dimension of the planning process that must be established.

PLANNING HORIZON

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The 2nd dimension of the planning process that needs to be determined.

AGGREGATION

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The plan will have to state explicitly the economic environment in which the firm expects to reside over the life of the plan.

Economic environment assumption

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An externally supplied sales forecast considered the “driver” shall be the “heart” of all financial plans.

Sales forecast

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A firm’s ability to sustain growth depends explicitly on the following factors

DETERMINANTS OF GROWTH RATES

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Is a measure of a company’s earnings related to its revenue. An increase in profit margin will increase the firm’s ability to generate funds internally and thereby increase its sustainable growth.

PROFIT MARGIN

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outlines how a company will distribute its dividends to its shareholders. A decrease in the percentage of net income paid out as dividends will increase the retention ratio. This increases internally generated equity and thus increases sustainable growth.

DIVIDEND POLICY

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Are the rules or principles of your business’s accounting and financial practices.

FINANCIAL POLICY

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Is a financial efficiency ratio that measures a company’s ability to generate sales from its assets.

TOTAL ASSET TURNOVER

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Are financial reports for a business on hypothetical scenarios. These are calculated based on projections and assumptions about future financial results.

Pro forma statement or projected statements

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Refers to a minimum amount one must invest in order to participate in an activity. It describes the projected capital spending and the proposed uses of network capital.

Asset requirement

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Refers to the specific amount of actual or estimated funds needed to carry out a plan, project or program. These are used to purchase assets, goods, raw materials, and for other flows of economic activities.

Financial requirements

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Means that the additional amount of funds that the company needs to carry out its business plan effectively.

Additional funds needed (AFN)

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Are policies and procedures developed by an organization to manage its financial resources and operate efficiently.

FINANCIAL CONTROL

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Is the process of estimating or predicting the future financial performance of a company or project. It is based on historical data, trends and other business intelligence.

FINANCIAL FORECASTING ANALYSIS

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is a plan which sets forth the projected expenditures for a certain activity and explains where the required funds will come from.

BUDGET

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presents a detailed analysis of the required investments in materials, labor, and plant necessary to support the forecasted sales level.

PRODUCTION BUDGET

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Involves finding the optimal levels of cash, marketable securities, accounts receivable and inventory and then financing that working capital at the least cost.

WORKING CAPITAL MANAGEMENT

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The length of time in which the firm purchases or produce inventory, sell it and receive cash.

OPERATING CYCLE

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The length of time funds are tied up in working capital or the length of time between paying for working capital and collecting cash from the sale of inventory.

CASH CONVERSION CYCLE

The average time required to purchase merchandise or to purchase raw materials and convert them into finished goods and then sell them.

Inventory Conversion Period

The average length of time required to convert the firm’s receivables into cash, that is, to collect cash following a sale.

Average Collection Period

The average length of time between the purchase of materials and labor or merchandise and the payment of cash for them.

Payables Deferral Period

This means there should be proper production planning and coordination at all levels of activity. A continuing assessment of the manufacturing cycle, proper maintenance of plant, equipment and infrastructure facilities and improvement of the manufacturing system.

PRODUCTION MANAGEMENT

Here the purchasing manager should ensure the availability of the right type, quantity and quality of materials/merchandise obtained at the right price, time and place through proper logistics management.

PURCHASING MANAGEMENT

The sale and production policies should be synchronized. Production of quality products at lower cost enhances their marketability and salability. Marketing people should strive to continually develop effective advertisement, sales promotion activities, effective salesmanship and appropriate distribution of channels.

MARKETING MANAGEMENT

Sound credit and collection policies will enable the finance manager to minimize investment in working capital particularly on inventory and receivables.

CREDIT AND COLLECTION POLICIES

Here the financial manager should be aware and sensitive to fluctuations in demand, entrants of new competitors, government fiscal and monetary policies, price fluctuations to be able to anticipate and minimize any adverse impact of the changes to the company.

EXTERNAL ENVIRONMENT

also known as treasury management, is a process that involves collecting and managing cash flows.

CASH MANAGEMENT

The primary objective of cash management is to channelize the flow of cash from the surplus to deficit units to maintain the appropriate liquidity position of the organization.

OBJECTIVES OF CASH MANAGEMENT

Refers to scheduling the cash inflow and outflow of an organization over a period of time.

Planning of Cash Flows

Refers to developing equilibrium between inflow and outflow of cash in the business.

Synchronizing Cash Flows

Refers to determining the appropriate amount of cash to be kept in the business to meet the contingency needs.

Optimizing Cash Holding

Refers to utilizing the idle cash kept in the business for short-term investment purposes.

Investing Idle Cash

Cash balance is required to meet the day to day transactions of business. Firms hold cash for making necessary payments for goods and services they acquire.

Transaction Motive

Firms hold cash to meet uncertainties, emergencies, running out of cash and fluctuations in cash balances.

Precautionary Motive

Sometimes, firmahold high cash balances over the precautionary level of cash balance to take advantage of speculative investment opportunities, to exploit discounts for prompt payments, to improve credit rating etc.

Speculative Motive

: The cash balances are held to meet future payment obligations like payment of tax, payment of dividend, purchase of fixed asset, redemption of debentures, repayment of term loan, buy-back of shares etc.

Future Requirements

A firm generally has to hold cash balances to compensate its banker for the services provided.

Compensating Balances

describes the ideal level of cash that a company seeks to hold in reserve at any given point in time.

TARGET CASH BALANCE

this can have a significant impact on a business’s cash flow.

SEASONAL FLUCTUATIONS

If a business offers extended payment terms to customers, it may need to maintain a higher target cash balance to cover its expenses until it receives payment.

PAYMENT TERMS

such as purchase of new equipment or expansion of a facility, can have significant impact on a business’s cash flow.

EXPENDITURES

such as interest rates and inflation. Inflation can increase a business’s expenses, while interest rates can impact the cost of borrowing.

ECONOMIC CONDITIONS

unexpected events, such as natural disasters or a global pandemic, can impact a business’s cash flow.

CONTINGENCY PLANNING

it is a company’s estimation of cash inflows and outflows over a specific period of time, which can be weekly, monthly, quarterly, or annually.

CASH BUDGETING

this involves strategically delaying payments to suppliers, vendors, or creditors without incurring penalties or damaging relationships.

DELAYING DISBURSEMENTS

is the opposite of delaying disbursements.

ACCELERATING COLLECTIONS

involves predicting future cash inflows and outflows based on historical data, market trends, and business activities.

CASH FLOW FORECASTING

Businesses must have contingency plans in place in the event of cash flow shortfalls in order to manage financial challenges effectively.

CASH FLOW SURPLUS INVESTMENT

Managing inventory levels is vital for optimizing cash flow for businesses that deal with physical goods.

MANAGING INVENTORY LEVELS

this is essential to improving cash flow and maintaining relationships with them. Obtaining extended terms or discounts for early payments will improve cash flow and improve relationships with suppliers.

NEGOTIATING WITH SUPPLIERS

involves consolidating cash from various sources into one central account, such as bank accounts or business units.

CASH CONCENTRATION

are specialized banking arrangements that automatically transfer surplus funds from a checking account into an interest-bearing account at the end of each business day.

CASH SWEEP ACCOUNTS

An important element of cash flow contingency planning is to identify potential risks and develop responses to them

CONTINGENCY PLANNING

Businesses can preserve cash by streamlining processes, eliminating waste, and optimizing resources.

COST REDUCTION AND EFFICIENCY

are liquid financial instruments that can be quickly converted into cash at a reasonable price.

MARKETABLE SECURITIES

Is a person who takes care of all the important financial functions of an organization. The person in charge should maintain a far sightedness in order to ensure that the funds are utilized in the most efficient manner.

FINANCIAL MANAGER

In order to meet the obligation of the business it is important to have enough cash and liquidity.

Raising of Funds

The funds should be allocated in such a manner that they are optimally used. In order to allocate funds in the best possible manner the following point must be considered

Allocation of Funds

Refers to proper usage of the profit generated by the firm. Profit arises due to many factors such as pricing, industry competition, state of the economy, mechanism of demand and supply, cost and output.

Profit Planning

Shares of a company are traded on stock exchange and there is a continuous sale and purchase of securities.

Understanding Capital Markets

Are responsible for managing, owning and providing the resources for projects. However, their involvement with projects varies based on the company's organizational structure.

FUNCTIONAL MANAGER

It's important for functional managers to have excellent verbal and written skills.

COMMUNICATION SKILLS

As functional managers lead teams, it's essential they understand how to manage and resolve conflict.

CONFLICT RESOLUTION

refers to the ability to evaluate situations and determine the ideal outcomes. It's an important skill to ensure functional managers determine the best right options to pursue.

CRITICAL THINKING

Functional managers create and manage project budgets. It's important for them to understand how to execute projects using cost-efficient strategies and how to allocate resources properly.

FINANCE MANAGEMENT

enable professionals to unite and motivate a team in an effort to achieve a common goal.

LEADERSHIP SKILLS

help functional managers decide the best resolutions for a variety of concerns.

PROBLEM-SOLVING SKILLS

Functional managers are responsible for creating project timelines and managing the schedules for their team.

TIME MANAGEMENT

Refers to financial behavior or activities that are ethically right or wrong.

ETHICAL BEHAVIOR

Is a market where buyers and sellers trade commodities, financial securities, foreign exchange and other items of value.

FINANCIAL MARKET

The financial market performs the function of price discovery of the different financial instruments traded between the buyers and the sellers on the financial market.

Price Determination

The motivation for persons seeking the funds is dependent on the required rate of return, which the investors demand.

Funds Mobilization

This provides an opportunity for the investors to sell their financial instruments at their fair value prevailing in the market at any time during the working hours of the market.

Liquidity

The financial market performs the function of risk-sharing as the person who is undertaking the investments is different from the persons who are investing their fund in those investments.

Risk sharing

The trader requires various types of information while doing the transaction of buying and selling the securities.

Reduction in Transaction Costs and Provision of the Information

Financial markets provide the channel through which the new investors’ savings flow in the country, which aids in the country’s capital formation.

Capital Formation

allows buyers and sellers of securities to meet, interact, and transact. The markets allow for price discovery for shares of corporations and serve as a barometer for the overall economy.

STOCK MARKET

is a marketplace for buying, selling, and trading raw materials or primary products. often split into two broad categories: hard and soft commodities.

COMMODITY MARKET

refers to a type of financial contract whose value is dependent on an underlying asset, group of assets, or benchmark.

DERIVATIVE MARKET

allows participants, such as banks and individuals, to buy, sell or exchange currencies for both hedging and speculative purposes.

FOREX MARKET

G3 Flashcards

(88 cards)