Chapter 19: Recognizing the Basics of Financial Management Flashcards Preview

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Flashcards in Chapter 19: Recognizing the Basics of Financial Management Deck (35)
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1

consists of all activities related to generating and raising money and using it effectively

financial management

2

must ensure that funds are available when needed, that they are obtained at the lowest possible cost, and that they are used efficiently

financial manager

3

profits of the company that are distributed to the shareholders

dividends

4

- money that is typically used to fund projects that are long-term in nature (more than 1 year)
- can seem "unreal"

long-term financing

5

money raised that will have to be repaid within 1 year

short-term financing

6

the movement of money into and out of an organization

cash flow

7

a short-term financing source where a company takes delivery of goods but pays for them at a later time

trade credit

8

even profitable companies can experience short-term cash shortages due to

1. negative cash flow cycle
2. seasonality of revenues

9

a plan for obtaining and using the money needed to implement an organization's strategic and operational plans

financial plan

10

a budget of expected revenue and expenses from ongoing operations

operating budget

11

a budget of expected investments in new assets (factories, equipment, etc.)

capital budget

12

is essentially a projected income statement

operating budget

13

used to create a projected balance sheet

capital budget

14

a business can raise external funds by:

1. borrowing money
2. selling a portion of the company to investors

15

an estimate of cash receipts and expenditures over a specified time period

cash budget

16

2 basic funding options

1. debt financing
2. equity financing

17

5 key factors impacting the financing choice

amount, term, cost, influence on company operations and external forces

18

1. financing of all sizes
2. both short and long term
3. depends on interest rate. The higher the interest rate, the higher the debt servicing cost
4. debt must be repaid
5. economic conditions affect the level of interest rates and availability

Dept financing

19

1. usually for raising larger amounts
2. long term
3. management can elect how to distribute profits
4. does not need to be repaid
5. economic conditions can affect the availability

equity financing

20

potential investors would want to know at a minimum

net worth and earnings

21

pledge of specific assets by the borrower to the lender that becomes the lender's if the borrower defaults on the repayment of the loan

collateral

22

short-term loans from a bank or financing company that are not secured by collateral

unsecured loans

23

a flexible borrowing option between a financial institution and its customers that allow customers to access funds at any time

line of credit

24

short-term loans from a bank that are secured by collateral

secured loans

25

short-term financing options all fall under the category of

debt financing

26

short-term financing is usually easier to obtain than long-term financing for 3 reasons:

1. shorter repayment period = less risk of default
2. the $ amounts are usually lower
3. a close working relationship exists between short-term borrower and lender

27

a company seeking short-term financing has 3 common options

trade credit, unsecured loans or secured loans

28

3 primary forms of long-term financing are

long-term loans, corporate bonds, and shares

29

a loan made by a bank or other financial institutions that must be repaid with interest

long-term loan

30

long-term debt obligations issued by corporations that promise to make payments over a specified period

corporate loans