| Term | Definition |
|---|
| Net working capital | Current assets - current liabilites |
| Relaxed current asset policy | relatively large amounts of cash marketable securities and inventories are carried and liberal credit policy results in a high level of receivables |
| Restricted current asset policy | holdings of cash; marketable securities; inventories; and receivables are constrained |
| Moderate current asset policy | between relaxed and restricted policies |
| Maturity matching | "Self-Liquidating"; calls for matching asset and liability maturities; moderate approach |
| Current Asset Finance Policy | the way current assets are financed |
| Temporary Current Assets | CA that fluctuate with seasonal or cyclical variations in sales |
| Permanent Current Assets | CA that firm must carry even at the trough of its cycles |
| Aggressive Approach | finance some of it permanent assets with short-term debt |
| Conservative Approach | Long-term capital is used to finance all permanent current assets |
| Cash conversion cycle | =Inventory Conversion Period + Avg. Collection Period - Payables deferral period |
| Average collection period | collect cash following sales |
| Payables deferral period | purchase of material and labor and the payment of cash for them |
| Inventory Conversion Period | convert raw materials into finished goods and then sell them |
| Cash budget | shows cash receipts; disbursement; and balances over some period |
| Target Cash Balance | desired cash balance a firm plans to maintain in order to conduct business |
| Lockbox | P.O. Box operated by bank to which payments are sent. Speed up effective receipt of cash |
| Accounts Receivables | funds due from customer |
| Credit policy | set of rules that include frim's credit period; discounts; credit standard and collection procedures offered |
| Credit period | length of time customers have to pay for purchases |
| Credit standards | financial strength customers must exhibit to qualify for credit |
| Collection policy | degree of toughness in enforcing credit terms |
| Discounts | price reductions given for early payment |
| Credit terms | statement of credit terms and any discounts offered |
| Credit score | score from 0 to 10; likelihood a person or business will pay on time |
| Trade credit | debt arising from credit sales and recorded as an account receivable by the seller and as an account payable by the buyer |
| Promissory note | a document specifying the terms and conditions of a loan; including the amount; interest rate; and repayment schedule |
| Free Trade Credit | credit received during the discount period |
| Costly Trade Credit | credit taken in excess of free trade credit; whose cost is equal to the discound lost |
| Line of credit | an arrangement in which a bank agrees to lend up to a specified maximum amount of funds during a designated period |
| Revolving credit | a formal; committed line of credit extended by a bank or another lending institution |
| Prime Rate | a published interest rate charged by commercial banks to large; strong borrowers |
| Commercial paper | unsecured short-term promissory notes of large firms; usually issued in denomination of 100,000 or more with an interest rate somewhat below the prime rate |
| Spontaneous funds | funds that are generated spontaneiously as the firm expands |
| Secured loan | loan backed by collateral; often inventories or accouts receivables |
| Compensating balances | balance that banks require business to have under loan agreements |
| Point | 1% |
Combine with other sets
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