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