Chapter 18. Financial Management

Which statements are true regarding trade credit? (Select all that apply)

- It is used by large and small businesses - It is usually more convenient than bank loans - It is the most widely used source of short-term funds

The amount a business borrows and for how long depends on which of the following? (Select all that apply)

- The type of business and industry it is in - How quickly it can resell the merchandise it purchases with the funds

Which are questions financial managers ask when considering long-term financing? (Select all that apply)

- What sources of long-term funding (capital) are available, and which will best fit our needs? - What funds do we need to achieve the firm's long-term goals and objectives? - What are the organization's long-term goals and objectives?

Needs for operating funds include ______. (Select all that apply)

- acquiring needed inventory - making capital expenditures - controlling credit operations

It is better to go to banks instead of family and friends for business loans because ______. (Select all that apply)

- banks can assist the business in analyzing problems - loans from family can hurt family relationships

Select those items that are considered to be a capital expenditure. (Select all that apply)

- buildings and equipment - land - patents and copyrights

As a function of financial management, financial managers must understand tax regulations because ______. (Select all that apply)

- businesses want to minimize taxes - they must consider the tax implications of major decisions

Advantages of using a credit card in small business financing include that ______.

- cards are accepted in many places - they save time

Determinants of how much money a firm should borrow include:

- cash flow forecasts - speed with which they can turn the borrowed funds into cash

Financial control is a process through which a firm periodically compares its budget to which of the following? (Select all that apply)

- costs - revenues - expenses

In financial planning, what is the process in which a firm periodically compares its actual revenues, costs, and expenses, with its budget?

- financial control

Select the steps in financial planning. (Select all that apply)

- forecasting short term needs - establish financial controls - develop budgets

Which are forms of debt financing?

- issuing bonds - getting a loan from a bank

During the recent financial collapse, financial managers failed to do their job effectively because of:

- poor investment decisions - risky financial decisions

Accepting credit cards can be useful to small businesses by

- providing the business with payment more quickly - providing ease of payment for customers

In factoring, the discount given depends on ______. (Select all that apply)

- the condition of the economy - the age of the accounts receivable - the nature of the business

What are the three most common reasons firms fail financially?

- undercapitalization - inadequate expense control - poor control over cash flow

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

__________ financing is funding raised through various forms of borrowing that must be repaid.

Debt

True or false: Financial management is only concerned with items involving cash.

False

__________ funds are typically needed to manage day to day needs of a business as well as acquiring needed inventory.

Operating

True or false: The financial crisis that began in 2008 was due, in large part, to financial managers making poor investment decisions and engaging in risky financial dealings.

True

Why can loans obtained from families and friends be problematic?

because all parties may not understand cash flow

A(n) _________ 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(n) __________ as the basis for making decisions.

budget

A firm that makes a major investment in a long-term asset has made a(n) _________ expenditure.

capital

During tough economic times, customers are happy when firms extend _________ for purchases.

credit

_________ _________ are a form of financing where the merchant accepts payment immediately from the bank and the customer agrees to repay the bank.

credit card

___________ ___________ are a form of financing where the merchant accepts payment immediately from the bank and the customer agrees to repay the bank.

credit cards

A financial institution or commercial bank that purchases a business' accounts receivable at a discount and then keeps what they collect is a(n) ______.

factor

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

Finance is the function of acquiring and management of ______.

funds

What inventory management procedure helps a firm to control inventory costs?

implementing a just-in-time inventory control method

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

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

Money is considered to have a time value because ______.

money has more value in your possession today than at a later point in the future

Debt financing refers to funds that ______.

must be repaid

Dimitri owns stock in a U.S. publicly traded company. As a stockholder, Dimitri is a(n) ______ of the corporation.

owner

Stockholders are the _________ of a public corporation.

owners

Is it more common for a firm to fail due to lack of sales or poor financial management?

poor financial management

How much money a firm will borrow often depends on how long it takes to convert inventory into __________.

revenue

A firm that puts something of value, like a piece of property, up for collateral is applying for a(n) __________ loan.

secured

A loan backed by collateral, something valuable like property, is called a __________ loan.

secured

In a public corporation, the ownership is held by __________.

stockholders

The _________ value of money is the idea that money in your possession today is worth more than money that will be in your possession in the future.

time

Short-term forecasts generally cover up to a ______.

year

Compared to a bank, the interest on commercial paper is ______.

lower

Small business managers are more concerned with ______-term funds.

short

The term used for unsecured notes of $100,000 and up that are due in no more than 270 days is __________ __________.

commercial paper

A company that takes out a loan from a bank is using which type of financing?

debt financing

When considering __________-__________ financing options a financial manager must consider the organization's financial goals and objectives.

long-term

A _________-term forecast is usually for one year or less.

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

The practice of buying goods and services now and paying for them later is termed __________ __________.

trade credit

Because a majority of small business are rejected for traditional business loans, many ______ for short-term financing.

use credit cards