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Finance
The function in a business that acquires funds for a firm and manages them within the firm Finance activities include: Preparing budgets Creating cash flow analyses Planning for expenditures TERM 2
Financial Management
DEFINITION 2 The job of managing a firms resources to meet its goals and objectives TERM 3
Financial
Managers
DEFINITION 3 Examine financial data and recommend strategies for improving financial performance Two key responsibilities: Obtain funds Effectively control the use of those funds Other responsibilities: paying bills, overdue collections, staying abreast of tax law, and internal auditing of financials (lots of accounting overlap) TERM 4
Financial planning
DEFINITION 4 involves analyzing short-term and long-term money flows to and from the company (to optimize profitability and make best use of its money) Three key steps of financial planning: 1.Forecasting the firms short-term and long-term financial needs 2.Developing budgets to meet those needs 3.Establishing financial controls to see if the company is achieving its goals TERM 5
Short-Term Forecast
DEFINITION 5 Predicts revenues, costs and expenses for a period of one year or less
Cash-Flow Forecast
Predicts the cash inflows and outflows in future periods, usually months or quarters TERM 7
Long-Term Forecast
DEFINITION 7 Predicts revenues, costs, and expenses for a period longer than one year and sometimes as long as five or ten years TERM 8
Budget
DEFINITION 8 Sets forth managements expectations for revenues and allocates the use of specific resources throughout the firm Budgets depend heavily on the balance sheet, income statement, statement of cash flows and short-term and long- term financial forecasts The budget is the guide for financial operations and expected financial needs TERM 9
Capital Budget
DEFINITION 9 Highlights a firms spending plans for major asset purchases that often require large sums of money TERM 10
Cash Budget
DEFINITION 10 Estimates cash inflows and outflows during a particular period like a month or quarter
Trade
Credit
The practice of buying goods or services now and paying for them later- the most widely used/least expensive/most convenient source of short-term funding Businesses often get terms 2/10 net 30 when receiving trade credit TERM 17
Promissory Note
DEFINITION 17 A written contract agreeing to pay a supplier a specific sum of money at a definite time (used for firms with bad/no credit) TERM 18
Secured Loans
DEFINITION 18 Backed by collateral (e.g., auto loan) TERM 19
Unsecured Loans
DEFINITION 19 Dont require collateral from the borrower (not every firm gets these) TERM 20
Line of
Credit
DEFINITION 20 A given amount of money the bank will provide so long as the funds are available (speeds up the loan process)
Revolving Credit
Agreement
A line of credit thats guaranteed but comes with a fee TERM 22
SETTING LONG-TERM FINANCING OBJECTIVES
DEFINITION 22 Three questions of financial managers in setting long-term financing objectives: 1.What are the organizations long-term goals and objectives? 2.What funds do we need to achieve the firms long-term goals and objectives? 3.What sources of long-term funding (capital) are available, and which will best fit our needs? TERM 23
Term-Loan Agreement
DEFINITION 23 A promissory note that requires the borrower to repay the loan with interest in specified monthly or annual installments TERM 24
Indenture Terms
DEFINITION 24 The terms of agreement in a bond issue TERM 25
Secured Bond
DEFINITION 25 A bond issued with some form of collateral (i.e. real estate)
