Financial Planning Test #1

34 terms by sipatterson

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Sole Proprietorship

form of organization represents single-person ownership and offers the advantages of simplicity of decision making and low organizational and operating costs. Major drawback is that there is unlimited liability to the owner

Partnership

similar to a sole proprietorship except there are two or more owners

Articles of Partnership

agreement btwn participants that most partnerships are formed by. Specifies the ownership interest, the methods for distributing profits, and the means for w/drawing from the partnership

Limited Partnership

one or more partners are designated general partners and have unlimited liabilty for the debts of the firm; other partners are designated limited partners and are liable only for their initial contribution

Corporation

unique--it is a legal entity unto itself; owned by shareholders who enjoy the privelege of limited liability; key feature is the easy divisibility of the ownership interest by issuing shares of stock

Money Market

refers to those markets dealing w/ short-term securities that have a life of one year or less

Capital Markets

markets where securities have a life of more than one year

Income Statement

device to measure the profitability of a firm over a period of time

Balance Sheet

indicates what the firm owns and how these assets are financed in the form of liabilities or ownership interest

Financial Ratios

used to weigh and evaluate the operating performance of a firm--used to compare performance record against similar forms in the industry--analyzing ratios and numerical calculations--such data is provided by various organizations

Profitability Ratios

measurement of the firm's ability to earn an adequate return on: sales, assets, and invested capital

Asset Utilization Ratios

measures the speed at which the firm is turning over accounts receivable--receivables, inventory

Liquidity Ratios

emphasizes the firm's ability to pay off short term obligations as and when due

Debt Utilization Ratios

estimates the overall debt position of the firm; evaluates in the light of asset base and earning power

Financial Forecasting

ability to plan ahead and make necessary changes before actual events occur

Pro Forma Income Statement

provides projection on the anticipation of profits over a subsequent period

Actual Budget

difference btwn monthly receipts and payments

Pro Forma Balance Sheet

represents the cumulative changes over time

Percent of Sales Method

based on the assumption that: accounts on the balance sheet will maintain a given %age relationship to sales--notes payable, common stock, and retained earnings do not maintain a direct relationship w/ sales volume

Working Capital Management

the financing and management of the current assets of a firm - crucial to achieving long-term objectives of the firm or its failure--requires immediate action

Liquidity Premium Theory

long-term rates should be highe than short-term rates

Market Segmentation Theory

treasury securities are divided into market segments by the various financial institutions investing in the market

Expectations

yields on long-term securities is a function of short-term rates

Tight Money Periods

capital is scarce making s/t financing difficult to find or may ensure very high rates--inadequate financing may mean loss of sales or financial embarassment

Expected Value

represents the sum of the expected outcomes under both conditions

Cash Management

financial managers actively attempt to keep cash (non-earning asset) to a minimum

Cash Flow Cycle

ensure that cash inflows and outflows are synchronized for transaction purposes

Float

difference btwn firm's recorded amount and amount credited to the firm by a bank

Mail Float

arises due to the time it takes to deliver a check

Clearing Float

arises due to the time it takes to clear a check once the payment is made

Cost Benefit Analysis

allows companies to analyze the benefits, received by investing on an efficiently maintained cash management program-- lockbox - money goes directly to the bank

Treasury Bills

s/t obligations of the gov't

Certificate of Deposit

offered by commercial banks, savings, and other financial institutions

Commercial Paper

represents unsecured promissory notes issued by large business organizations

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