Principles of Business: Chapter 18

The three steps in the financial planning process:

1. forecasting the firm's financial needs 2. developing budgets 3. establishing financial controls

Why might loans obtained from families and friends be problematic?

Because all parties may not understand cash flow.

As a function of financial management, financial managers must understand tax regulations because _______

Businesses want to minimize taxes and they must consider the tax implications of major decisions.

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

Capital

The term used for unsecured notes of $100,00 and up that are due in no more than 270 days is

Commercial paper

What form of financing takes place when the merchant accepts payments immediately from he bank and the customer agrees to repay the bank?

Credit cards

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

Debt financing

Borrowing money the company has a legal obligation to repay is _______

Debt financing

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

False; they deal with credit, loans, and stocks

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

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

Financial control

The amount a business borrows and for how long depends on which of the following? (choose all that apply): A. The length of the long term forecast B. How quickly it can resell the merchandise it purchases with the funds C. The type of business and industry it is in D. The projection of the economic recovery

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

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 _______ allows it to maintain correct levels of stock and product.

Inventory

What are forms of debt financing

Issuing bonds and getting a loan from a bank

Which statements are true about factoring accounts? (choose all that apply): A. It is the accounts receivable of a firm sold for a discount B. Small businesses often use it for financing in the short term C. The firm that buys the accounts receivable collects the amount due D. Factoring is a new business process started in the 1990s

It is the accounts receivable of a firm sold for a discount, small businesses often use it for financing in the short term, and the firm that buys the accounts receivable collects the amount due

Raising needed funds thought borrowing to increase a firm's rate of return is called

Leverage

Money is considered to have a time value because: A. Money has more value in your possession today than at a later point in the future B. Inflation makes money worth more in the future than it is today C. Checks are only valid for a certain period of time D. All currency has a date of manufacture printed on it

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

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

Operating

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

Poor financial management

Accepting credit cards can be useful to small businesses by:

Providing the business with payment more quickly and providing ease of payment for customers

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

Secured

A(n) _______ forecast predicts revenues, costs, and expenses for a period of one year or less

Short-term

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

In factoring, the discount given depends on

The condition of the economy, the age of the accounts receivable, and the nature of the business

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

They save time and cards are accepted in many places

A practice of buying goods and services now and paying for them later is termed

Trade credit

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 dealing

True; Many laid the collapse of the financial markets at the feet of financial managers for failing to do their job effectively. Many made poor investment decisions and engaged in risky financial dealings

True or False: A budget is a tool for financial planning

True; budgets involve money

What are three questions financial managers ask when considering long-term financing?

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

It is better to go to banks instead of family and friends for business loans because:

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

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

credit

Functions of financial management do NOT include _______.

ensuring employees are paid fairly

The three steps in the financial planning process are to forecast the firm's short- and long-term needs, develop budgets, and _______.

establish financial controls

The steps in financial planning:

establish financial controls, develop budgets, and forecasting short term needs

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

What inventory management procedure helps a firm to contorl invenotry costs?

implementing a just-in-time inventory control method

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