Understanding Business Chapter 18 Flashcards Preview

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Flashcards in Understanding Business Chapter 18 Deck (33):
1

Finance

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

2

Financial Management

The job of managing a firm's resources so it can meet its goals and objectives.

3

Financial Managers

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

4

Short-term forecast

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

5

Cash Flow Forecast

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

6

Long-term Forecast

Forecast that predicts revenues. costs. and expenses for a period longer that 1 year. and sometimes as far as 5 or 10 years into the future.

7

Budget

A financial plan that sets forth management's expectations and. on the basis of those expectations. allocates the use of specific resources throughout the firm.

8

Capital Budget

A budget that highlights a firm's spending plans for major asset purchases that ofter require large sums of money.

9

Cash Budget

A budget that estimates cash inflows and outflows during a particular period like a month or a quarter.

10

Operating (or master) Budget

The budget that ties together the firm's other budgets and summarizes its proposed financial activities.

11

Financial Control

A process in which a firm periodically compares its actual revenues. costs. and expenses with its budget.

12

Capital Expenditures

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

13

Debt Financing

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

14

Equity Financing

Money raised from within the firm. from operations or through the sale of ownership in the firm (stock or venture capital).

15

Short-term Financing

Funds needed for a year or less.

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Long-term Financing

Funds needed for more than a year (usually 2 to 10 years).

17

Trade Credit

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

18

Promissory Note

A written contract with a promise to pay a supplier a specific sum of money at a definite time.

19

Secured Loan

A loan backed by collateral. something valuable such as property.

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Unsecured Loan

A loan that doesn't require any collateral.

21

Line of Credit

A given amount of unsecured short-term funds a bank will lend to a business. provided the funds are readily available.

22

Revolving Credit Agreement

A line of credit that's guaranteed but usually comes with a fee.

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Commercial Finance Companies

Organizations that make short-term loans to borrows who offer tangible assets as collateral.

24

Factoring

The process of selling accounts receivable for cash.

25

Commercial Paper

Unsecured promissory notes of $100.000 and up that mature (come due) in 270 days or less.

26

Term-loan Agreement

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

27

Risk/Return Trade-off

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

28

Indenture Terms

The terms of agreement in a bond issue.

29

Secured Bond

A bond issued with some form of collateral.

30

Unsecured Bond

A bond backed only by the reputation of the issuer. also called a debenture bond.

31

Venture Capital

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

32

Leverage

Raising needed funds through borrowing to increase a firm's rate of return.

33

Cost of Capital

The rate of return a company must earn in order to meet the demands of its lenders and expectations of its equity holders.