CH 18. Financial Management
Place the three steps in the financial planning process in order from beginning to end with the first step at the top
1. Forecasting the firm's financial needs 2. Developing budgets 3. Establishing financial controls
Is it more common for a firm to fail due to lack of sales or poor financial management?
Poor financial management
True or false: A financial plan is key to the success of a business.
True because without a financial plan, a firm has little chance of survival.
What short-term forecast predicts the money coming into and going out of a company in future periods—usually months or quarters?
a cash flow forecast
A_____ is a financial plan that sets forth management's expectations and, on the basis of those expectations, allocates the use of specific resources throughout the system.
budget
When a company allocates the use of specific resources throughout the firm based on a financial plan indicating management's expectations, then the company is using a ______ as the basis for making decisions.
budget
Capital, cash, and operating are three types of
budgets
Select those items that are considered to be a capital expenditure. (Select all that apply) Multiple select question. inventory and materials buildings and equipment patents and copyrights land
buildings and equipment patents and copyrights land
A ____ budget summarizes a firm's spending plans for major asset purchases that often require large sums of money.
capital
A firm that makes a major investment in a long-term asset has made a _____ expenditure.
capital
What are the three most common types of budgets in a firm's financial plan? cash budget master budget depreciation budget capital budget sales budget
cash budget master budget capital budget
An _____ _____ forecast is concerned with all cash inflows and outflows in future periods.
cash flow
Needs for operating funds include ______. (Select all that apply) controlling credit operations increases in stock price making capital expenditures acquiring needed inventory
controlling credit operations making capital expenditures acquiring needed inventory
Unless special conditions have been agreed upon, there is usually no management influence in ____ financing
debt
With regard to tax considerations in financing, the fact that interest is tax deductible is a sign of ______ financing.
debt
When a corporation finances expansion with_____, there is usually no influence on management. If they use______financing by selling stock, the common stockholders have voting rights.
debt equity
There is a maturity date for ____ financing whereas there is no maturity date for _____ financing
debt equity
Select the steps in financial planning. (Select all that apply) develop budgets forecasting short term needs define the firms organizational chart recruit employees establish financial controls
develop budgets forecasting short term needs establish financial controls
A feature of ______ financing is that stockholders have voting rights.
equity
With regard to repayment in financing, financing that has no repayment date is a sign of _____ financing
equity
In any business, funds come into and go out of a business. What business function acquires funds for the firm and then manages those funds on a day-to-day basis?
finance
The function of acquiring and managing funds within a firm is referred to as_____
finance
To meet a firm's goals and objectives, _______ managers must focus on the management of a firm's resources.
financial
In financial planning, what is the process in which a firm periodically compares its actual revenues, costs, and expenses, with its budget?
financial control
Financial management primarily involves managing a firm's ______.
financial resources
A capital budget is ______.
for spending plans on major purchases
A financial plan is important to business because it ______.
greatly increases the firm's chance of success
What inventory management procedure helps a firm to control inventory costs?
implementing a just-in-time inventory control method
What are the three most common reasons firms fail financially? inadequate expense control inaccurate sales forecasts too many customers poor control over cash flow undercapitalization
inadequate expense control poor control over cash flow undercapitalization
Firms will leverage (raise needed funds through borrowing) because it will ______.
increase a firm's rate of return on ownership's investment
Careful control of a firm's ______ costs allows it to maintain correct levels of stock and product.
inventory
_____ means to raise funds through borrowing to increase a firm's rate of return.
leverage
______ funds are typically needed to manage day to day needs of a business as well as acquiring needed inventory.
operating
The finance function of business includes activities such as ______. (Select all that apply) planning for major expenditures of funds performing cash flow analysis creating sales forecasts preparing budgets
planning for major expenditures of funds performing cash flow analysis preparing budgets
Finance activities include preparing budgets, doing cash flow analysis, and ______.
planning for the expenditure of funds
Financial control is a process through which a firm periodically compares its budget to which of the following? (Select all that apply) revenues market share costs stock price expenses
revenues costs expenses
A_____-term forecast is usually for one year or less.
short
Small business managers are more concerned with ______-term funds.
short
Short-term financing is more important to a small business than long-term financing because ______.
small businesses are more concerned with funding day to day operations
Short-term forecasts generally cover up to a ______.
year