Managing Financial Resources

  1. The recording, classifying, summarizing and interpreting of financial events and transactions to provide management and other interested parties the information they need to make good decisions
  2. Accounting used to provide information and analyses to managers inside the organization to assist them in decision making
    Managerial Accounting
  3. A professional accountant who has met certain educational and experience requirements, passed a qualifying exam, and been certified by the Institute of Certified Management Accountants
    Certified Management Accountant (CMA)
  4. Accounting information and analyses prepared for people outside the organization
    Financial Accounting
  5. A yearly statement of the financial condition, progress and expectations of an organization
    Annual Report
  6. An accountant who works for a single firm, government agency or nonprofit organization
    Private Accountant
  7. An accountant who provides accounting services to individuals or businesses on a fee basis
    Public Accountant
  8. An accountant who passes a series of examinations established by the American Institute of Certified Public Accountants (AICPA)
    Certified Public Accountant (CPA)
  9. The job of reviewing and evaluating the information used to prepare a company's financial statements
  10. An evaluation and unbiased opinion about the accuracy of a company's financial statements
    Independent Audit
  11. An accountant who has a bachelor's degree and two years of experience in internal auditing and who has passed an exam administered by the Institute of Internal Auditors
    Certified Internal Auditor (CIA)
  12. An accountant trained in tax law and responsible for preparing tax returns or developing tax strategies
    Tax Accountant
  13. Accounting system for organizations whose purpose is not generating a profit but serving ratepayers, taxpayers and others according to a duly approved budget
    Government and Not-For-Profit Accounting
  14. A six-step procedure that results in the preparation and analysis of the major financial statements
    Accounting Cycle
  15. The recording of business transactions
  16. The record book or computer program where accounting data are first entered
  17. The practice of writing every business transaction in two places
    Double-Entry Bookkeeping
  18. A specialized accounting book or computer program in which information from accounting journals is accumulated into specific categories and posted so that managers can find all the information about one account in the same place
  19. A summary of all the financial data in the account ledgers that ensures the figures are correct and balanced
    Trial Balance
  20. A summary of all the transactions that have occurred over a particular period
    Financial Statement
  21. Assets = Liabilities + Owner's equity; this is the basis for the balance sheet
    Fundamental Accounting Equation
  22. Financial statement that reports a firm's financial condition at a specific time and is composed of three major accounts: assets, liabilities and owners' equity
    Balance Sheet
  23. Economic resources (things of value) owned by a firm
  24. The ease with which an asset can be converted into cash
  25. Items that can or will be converted into cash within one year
    Current Assets
  26. Assets that are relatively permanent, such as land, buildings and equipment
    Fixed Assets
  27. Long-term assets that have no real physical form but do have value
    Intangible Assets
  28. What the business owes to others (debts)
  29. Current liabilities are bills the company owes to others for merchandise or services purchased on credit but not yet paid for
    Accounts Payable
  30. Short-term or long-term liabilities that a business promises to repay by a certain date
    Notes Payable
  31. Long-term liabilities that represent money lent to the firm that must be paid back
    Bonds Payable
  32. The amount of the business that belongs to the owners minus any liabilities owed by the business
    Owners' Equity
  33. The accumulated earnings from a firm's profitable operations that were reinvested in the business and not paid out to stockholders in dividends
    Retained Earnings
  34. The financial statement that shows a firm's profit after costs, expenses and taxes; it summarizes all of the resources that have come into the firm (revenue), all the resources that have left the firm, and the resulting net income
    Income Statement
  35. Revenue left over after all costs and expenses, including taxes, are paid
    Net Income or Net Loss
  36. A measure of the cost of merchandise sold or cost at raw materials and supplies used for producing items for resale
    Costs of Goods Sold (or cost of goods manufactured)
  37. How much a firm earned by buying (or making) and selling merchandise
    Gross Profit (or gross margin)
  38. Costs involved in operating a business, such as rent, utilities and salaries
    Operating Expenses
  39. The systematic write-off of the cost of a tangible asset over its estimated useful life
  40. Financial statement that reports cast receipts and disbursements related to a firm's three major activities: operations, investments and financing
    Statement of Cash Flows
  41. The assessment of a firm's financial condition using calculations and interpretations of financial ratios developed from the firm's financial statements
    Ratio Analysis
  42. The function in a business that acquires funds for the firm and manages those funds within the firm
  43. The job of managing a firm's resources so it can meet its goals and objectives
    Financial Management
  44. Managers who examine financial data prepared by accountants and recommend strategies for improving the financial performance of the firm
    Financial Managers
  45. Forecast that predicts revenues, costs and expenses for a period of one year or less
    Short-term Forecast
  46. Forecast that predicts the cash inflows and outflows in future periods, usually months or quarters
    Cash Flow Forecast
  47. Forecast that predicts revenues, costs and expenses for a period longer than 1 year, and sometimes as far as 5 or 10 years into the future
    Long-term Forecast
  48. 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
  49. A budget that highlights a firm's spending plans for major assets purchases that often require large sums of money
    Capital Budget
  50. A budget that estimates cash inflows and outflows during a particular period like a month or a quarter
    Cash Budget
  51. The budget that ties together the firm's other budgets and summarizes its proposed financial activities
    Operating (or master) Budget
  52. A process in which a firm periodically compares its actual revenues, costs and expenses with its budget
    Financial Control
  53. Major investments in either tangible long-term assets such as lang, buildings and equipment or intangible assets such as patents, trademarks and copyrights
    Capital Expenditures
  54. Funds raised through various forms of borrowing that must be repaid
    Debt Financing
  55. Money raised from within the firm, from operations or through the sale of ownership in the firm (stock)
    Equity Financing
  56. Funds needed for a year or less
    Short-Term Financing
  57. Funds needed for more than a year (usually 2 to 10 years)
    Long-Term Financing
  58. The practice of buying goods and services now and paying for them later
    Trade Credit
  59. A written contract with a promise to pay a supplier a specific sum of money at a definite time
    Promissory Note
  60. A loan backed by collateral, something valuable such as property
    Secured Loan
  61. A loan that doesn't require any collateral
    Unsecured Loan
  62. A given amount of unsecured short-term funds a bank will lend to a business, provided the funds are readily available
    Line of Credit
  63. A line of credit that's guaranteed but usually comes with a fee
    Revolving Credit Agreement
  64. Organizations that make short-term loans to borrowers who offer tangible assets as collateral
    Commercial Finance Companies
  65. The process of selling accounts receivable for cash
  66. Unsecured promissory notes of $100,000 and up that mature (come due) in 270 days or less
    Commercial Paper
  67. A promissory note that requires the borrower to repay the loan in specified installments
    Term-Loan Agreement
  68. The principle that the greater the risk a lender takes in making a loan, the higher the interest rate required
    Risk/Return Trade-Off
  69. The terms of agreement in a bond issue
    Indenture Terms
  70. A bond issued with some form of collateral
    Secured Bond
  71. A bond backed only by the reputation of the issuer; also called a debenture bond
    Unsecured Bond
  72. Money that is invested in new or emerging companies that are perceived as having great profit potential
    Venture Capital
  73. Raising needed funds through borrowing to increase a firm's rate of return
  74. The rate of return a company must earn in order to meet the demands of its lenders and expectations of its equity holders
    Cost of Capital
  75. The first public offering of a corporation's stock
    Initial Public Offering (IPO)
  76. Specialists who assist in the issue and sale of new securities
    Investment Bankers
  77. Large organizations - such as pension funds, mutual funds and insurance companies - that invest their own funds or funds of others
    Institutional Investors
  78. An organization whose members can buy and sell (exchange) securities for companies and individual investors
    Stock Exchange
  79. Exchange that provides a means to trade stocks not listed on the national exchanges
    Over-the-Counter (OTC) Market
  80. A nationwide electronic system that links dealers across the nation so that they can buy and sell securities electronically
  81. Federal agency that has responsibility for regulating the various stock exchanges
    Securities and Exchange Commission (SEC)
  82. A condensed version of economic and financial information that a company must file with the SEC before issuing stock
  83. Shares of ownership in a company
  84. Evidence of stock ownership that specifies the name of the company, the number of shares it represents and the type of stock being issued
    Stock Certificate
  85. Part of a firm's profits that the firm may distribute to stockholders as either cash payments or additional shares of stock
  86. The most basic form of ownership in a firm; it confers voting rights and the right to share in the firm's profits through dividends, if approved by the firm's board of directors
    Common Stock
  87. Stock that gives its owners preference in the payment of dividends and an earlier claim on assets than common stockholders if the company is forced out of business and its assets sold
    Preferred Stock
  88. A corporate certificate indicating that a person has lent money to a firm (or a government)
  89. The exact date that issuer of a bond must pay the principal to the bondholder
    Maturity Date
  90. The payment the issuer of the bond makes to the bondholders for use of the borrowed money
  91. Bonds that are unsecured
    Debenture Bonds
  92. A reserve account in which the issuer of a bond periodically retires some part of the bond principal prior to maturity so that enough capital will be accumulated by the maturity date to pay off the bond
    Sinking Fund
  93. A registered representative who works as a market intermediary to buy and sell securities for clients
  94. Buying several different investment alternatives to spread the risk of investing
  95. The positive difference between the purchase price of a stock and its sale price
    Capital Gains
  96. An action by a company that gives stockholders two or more shares of stock for each one they own
    Stock Splits
  97. Purchasing stocks by borrowing some of the purchase cost from the brokerage firm
    Buying Stock on Margin
  98. High-risk, high-interest bonds
    Junk Bonds
  99. An organization that buys stocks and bonds and then sells shares in those securities to the public
    Mutual Fund
  100. Collections of stocks and bonds that are traded on exchanges but are traded more like individual stocks than like mutual funds
    Exchange-Traded Funds (ETFs)
  101. The average cost of 30 selected industrial stocks, used to give an indication of the direction (up or down) of the stock market over time
    Dow Jones Industrial Average (the Dow)
  102. Giving instructions to computers to automatically sell if the price of a stock dips to a certain point to avoid potential losses
    Program Trading
  103. 1) Analyze source documents
    2) Record transactions in journals
    3) Transfer (post) journal entries to ledger
    4) Take a trial balance
    5) Prepare financial statements
    6) Analyze financial statements
    Steps in the Accounting Cycle
  104. Balance Sheet - reports the firm's financial condition on a specific date
    Income Statement - summarizes revenues, cost of goods and expenses for a specific period and highlights the total profit or loss the firm experienced during that period
    Statement of Cash Flows - provides a summary of money coming into and going out of the firm that tracks a company's cash receipts and payments
    Key Financial Statements of a Business
  105. Measures the speed with which inventory moves through the firm and gets converted into sales
    Inventory Turnover Ratio
  106. Measures the amount of profit earned for each share of outstanding common stock, but also considers stock options, warrants, preferred stock and convertible debt securities the firm can convert into common stock
    Diluted Earnings Per Share (EPS)
  107. Helps determine the amount of profit a company earned for each share of outstanding common stock
    Basic Earnings Per Share Ratio (basic EPS)
  108. The ratio of a firm's current assets to its current liabilities
    Current Ratio
  109. Measures the cash, marketable securities (such as stocks and bonds) and receivables of a firm, compared to its current liabilities
    Acid-Test (Quick Ratio)
  110. Measures the degree to which the company is financed by borrowed funds that it must repay
    Debt to Owners' Equity Ratio
  111. 1) Planning
    2) Auditing
    3) Managing Taxes
    4) Advising top management on financial matters
    5) Collecting funds (credit management)
    6) Controlling funds (funds management)
    7) Obtaining funds
    8) Budgeting
    What Financial Managers do
  112. 1) Undercapitalization (insufficient funds to start the business)
    2) Poor control over cash flow
    3) Inadequate expense control
    3 common reasons a firm fails financially
  113. 1) Managing day-by-day needs of the business
    2) Controlling credit operations
    3) Acquiring needed inventory
    4) Making capital expenditures
    Operational needs for which they need funds
  114. A percentage of the value of a firm's accounts receivable pledged is advanced to the borrowing firm
  115. A market intermediary that agrees to buy the firm's accounts receivable, at a discount, for cash
  116. 1) What are our organization's long-term goals and objectives?
    2) What funds do we need to achieve the firm's long-term goals and objectives?
    3) What sources of long-term funding (capital) are available, and which will best fit our needs?
    3 questions financial managers ask when setting long-term financing objectives
  117. 1) As owners of the business, stockholders never have to be repaid their investment
    2) There's no legal obligation to pay dividends to stockholders; therefore, the firm can reinvest income to finance future needs
    3) Selling stock can improve the condition of a firm's balance sheet since issuing stock creates no debt
    Advantages to a firm of issuing stock
  118. 1) As owners, stockholders have the right to vote for the company's board of directors. Issuing new shares of stock can thus alter the control of the firm
    2) Dividends are paid from profit after taxes and are not tax-deductible
    3) The need to keep stockholders happy can affect managers' decisions
    Disadvantages of issuing stock
  119. 1) Bondholders are creditors of the firm, not owners. They seldom vote on corporate matters; thus, management maintains control over the firm's operations
    2) Bond interest is tax-deductible to the firm
    3) Bonds are a temporary source of funding. They're eventually repaid and the debt obligation is eliminated
    4) Bonds can be repaid before the maturity date if they contain a call provision They can be converted to common stock
    Financing advantages for offering long-term bonds
  120. 1) Bonds increase debt (long-term liabilities) and may adversely affect the market's perception of the firm
    2) Paying interest on bonds is a legal obligation. If interest is not paid, bondholders can take legal action to force payment
    3) The face value must be repaid on the maturity date. Without careful planning, this obligation can cause cash flow problems when the repayment comes due
    Drawbacks of bonds
  121. 1) They provide for an orderly retirement (repayment) of a bond issue
    2) They reduce the risk the bond will not be repaid
    3) They support the market price of the bond because they reduce the risk the bond will not be repaid
    Reasons sinking funds are attractive
  122. Permits the bond issuer to pay off the principal before its maturity date
    Callable Bond
  123. 1) Investment risk - the chance that an investment will be worth less at some future time than its worth now
    2) Yield - the expected rate of return on an investment, such as interest or dividends, usually over a period of one year
    3) Duration - the length of time your money is committed to an investment
    4) Liquidity - how quickly you can get back your invested funds if you want or need them
    5) Tax Consequences - how the investment will affect your tax situation
    5 Key Criteria when selecting investment options
  124. Charges investors a commission to buy or sell its shares
    Load Fund
  125. Charges no commission
    No-Load Fund
  126. Mutual funds; will accept the investments of any interested investors
    Open-End Funds
  127. Limit the number of shares; once the fund reaches its target number, no new investors can buy into the fund
    Closed-End Funds
Card Set
Managing Financial Resources
Chapter 17-19