Business Finance 16

-operating activities -financing activities

Which activities are primary to short-term finance?

wages and taxes payments of accounts payable capital expenditures

Which of the following are examples of cash disbursements?

-a longer receivables period -a longer inventory period

Which of the following increase the cash cycle?

accounts receivable

The operating cycle equals the sum of the inventory period and the ____ period.

-accounts receivable period -inventory period

The operating cycle is composed of which periods?

operating

The primary concerns in short-term finance are the firm's short-run ______ and financing activities.

cash budget

The primary tool in short-term financial planning is the _____

-inventories -accounts receivable

The shorter the cash cycle, the lower the firm's investment in _____

cash cycle

The time between paying cash for inventory and receiving cash from selling a product is called the _____.

sources of cash

Those firm activities that increase cash are called_____

-requires frequent financing -is risky

The main problems with maturity mismatching (financing long-term assets with short-term debt) are that it ____.

higher receivables and bad debt risk

The marketing manager may want easier credit terms to increase sales, but the credit manager may worry about____.

-a relatively large pool of marketable securities -cash surpluses

A flexible short-term financing strategy implies ____

-lost customer goodwill -lost sales

A lack of safety reserves can lead to which of the following?

receivable

A product begins its accounting life as inventory and is converted to a(n)____ when it is sold on credit.

flexible

A short-term financial policy involving a higher proportion of long-term debt than short-term debt is classified as a(n)____policy.

unsecured

A(n)____ bank loan requires no security or collateral

30

Between the 1960s and the present time, current liabilities have risen from about 20% of total liabilities to almost _____%.

rise

Carrying costs ____ with the level of investment in current assets

opportunity costs

Carrying costs involve______.

a year

Current liabilities are firm obligations that will require cash payment within_____

credit sales

Ending accounts receivables equals starting accounts receivable plus____ minus collections.

-cash management -inventory management

For U.S. corporations, current assets have fallen from 50% of total assets in the 1960s to 40% of total assets today primarily because of more efficient_____.

365

Inventory period equals_______ days divided by the inventory turnover.

cash manager----->marketable securities credit manager---->accounts receivable purchasing manager-->inventory payables manager------>accounts payable

Match the titles with the duties of short-term financial managers.

-dividend policy -capital structure -capital budgeting

Short-term finance is concerned with current assets and current liabilities, whereas long-term finance is concerned with _____

-current liabilities -current assets

Short-term finance is primarily concerned with_____

net working capital plus fixed assets equals long-term debt plus equity.

The balance sheet identity says:

equity

The basic balance sheet identity can be written as Net working capital + Fixed assets = Long-term debt+____

accounts payable

The cash cycle is equal to the operating cycle minus the ____period

Short-term debt and long-term debt used to finance current assets

The financing of current assets is measured by the proportion of _____

-the financing of current assets -the size of the firm's investment in current assets

The two major elements of a firm's short-term financial policy are_____

sources of cash

Those firm activities that increase cash are called____

False

True or false: Cash collections equal beginning cash times sales.

False

True or false: Current assets are cash and other assets that are expected to convert to cash within one to five years.

true

True or false: The cash cycle is equal to the operating cycle minus the accounts payable period.

False

True or false: The collection cycle is the difference between disbursement and collection of cash.

False

True or false: The operating cycle equals current assets minus current liabilities.

False

True or false: the collection cycle is the difference between disbursement and collection of cash.

-noncash current asset -fixed asset

Uses of cash can involve increasing a(n)____ account.

On average, inventory sat for about 111 days before it was sold.

What does an inventory period of 111 days mean?

financing fixed assets with long-term financing and inventories with short-term financing

What does maturity hedging involve?

1. Order inventory 2. Sell the finished product 3. Collect cash from the sale

What is the order of the operating cycle?

maturities of one year or more

Which of the following is not a characteristic of commercial paper?

-new short-term borrowing -a minimum cash balance -short-term borrowing repaid

a short term financial plan will include____

-borrow money -default on debt -sell marketable securities

being low on cash can force a firm to _____

one year

current liabilities are firm obligations hat will require cash payment within_____

long-term financing expenses

dividend payments belong to the category of ____

inventory

the ___ cycle is the time from when inventory is acquired until cash is collected from the sale of the product.

carrying

the opportunity costs of holding current assets are called ____ costs.

inventory

the time it takes to acquire and sell inventory is called the ______ period.

assignment and factoring

the two types of accounts receivable financing are ___ and ___

-the receivables are sold at a discount -the collection the receivables is the factor's responsibility

under a conventional factoring_____

short term

unsecured bank loans are_____

accounts payable

The time from the acquisition of inventory to when the inventory is paid for is called the ____ period.

accounts receivable

The time taken to collect on credit sales is called the ____period.