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43 terms

Chapter 16 Financial Management

Key Terms
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banker's acceptance
a written order for the bank to pay a third party a stated amount of money on a specific date
bond indenture
a legal document that details all the conditions relating to a bond issue
budget
a financial statement that projects income and/or expenditures over a specified future period
capital budget
a financial statement that estimates a firm's expenditures for major assets and its long-term financing needs
cash budget
a financial statement that projects cash receipts and expenditures over a specified period
cash flow
the movement of money into and out of an organization
certificate of deposit (CD)
a document stating that the bank will pay the depositor a guaranteed interest rate for money left on deposit for a specified period of time.
check
a written order for a bank or other financial institution to pay a stated dollar amount to the business or person indicated on the face of the check
chief financial officer (CFO)
a high-level corporate executive who manages a firm's finances and reports directly to the company's chief executive officer or president
collateral
real estate or property pledged as security for a loan
commercial paper
a short-term promissory note issued by a large corporation
convertible preferred stock
preferred stock that the owner may exchange for a specified number of shares of common stock
corporate bond
a corporation's written pledge that it will repay a specified amount of money with interest
debit card
a card that electronically subtracts the amount of your purchase from your bank account at the moment the purchase is made
debt capital
borrowed money obtained through loans of various types
electronic funds transfer (EFT) system
a means of performing financial transactions through a computer terminal or telephone hookup
equity capital
money received from the owners or from the sale of shares of ownership in a business
factor
a firm that specializes in buying other firms' accounts receivable
financial leverage
the use of borrowed funds to increase the return on owners' equity
financial management
all the activities concerned with obtaining money and using it effectively
financial plan
a plan for obtaining and using the money needed to implement an organization's goals
initial public offering (IPO)
when a corporation sells common stock to the general public for the first time
investment banking firm
an organization that assists corporations in raising funds, usually by helping sell new issues of stocks, bonds, or other financial securities
letter of credit
: a legal document issued by a financial institution guaranteeing to pay a seller a stated amount for a specified period of time
line of credit
: a loan that is approved before the money is actually needed
long-term financing
money that will be used for longer than one year
maturity date
the date on which a corporation is to repay borrowed money
prime interest rate
the lowest rate charged by a bank for a short-term loan
private placement
occurs when stock and other corporate securities are sold directly to insurance companies, pension funds, or large institutional investors
promissory note
a written pledge by a borrower to pay a certain sum of money to a creditor at a specified future date
registered bond
a bond registered in the owner's name by the issuing company
retained earnings
the portion of a business's profits not distributed to stockholders
revolving credit agreement
a guaranteed line of credit
risk-return ratio
a ratio based on the principle that a high-risk decision should generate higher financial returns for a business and more conservative decisions often generate lesser returns
serial bonds
bonds of a single issue that mature on different dates
short-term financing
money that will be used for one year or less
sinking fund
a sum of money to which deposits are made each year for the purpose of redeeming a bond issue
speculative production
the time lag between the actual production of goods and when the goods are sold
term-loan agreement
a promissory note that requires a borrower to repay a loan in monthly, quarterly, semiannual, or annual installments
trade credit
a type of short-term financing extended by a seller who does not require immediate payment after delivery of merchandise
trustee
an individual or an independent firm that acts as a bond owner's representative
unsecured financing
financing that is not backed by collateral
zero-base budgeting
a budgeting approach in which every expense in every budget must be justified