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34 terms

Financial Planning Test #1

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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