ch.16
______represent sales for which the firm has not yet been paid.
Accounts receivable
is the balance of money due to a firm for goods or services delivered but not yet paid for by customers
Accounts receivable (AR)
Another national stock exchange, the ___________, lists the securities of more than 700 corporations but handles only 4 percent of the annual share volume of shares traded on U.S. securities exchanges.
American Stock Exchange (AMEX)
are a form of financing (borrowing), but it might be confusing because they are sold.
Bonds
are long-term debt obligations (liabilities) of corporations and governments.
Bonds
_____ is important in all types of companies.
Cash management
is a security that represents an ownership interest in a corporation.
Common stock
they may be secured or unsecured , include special provisions for early retirement, or be convertible to common stock.
Debentures
Creditors typically have none, unless the borrower defaults on payments. Creditors may be able to place restraints on management in event of default.
Debt Financing
Debt holders rank ahead of equity holders. Payment of interest and principal is a contractual obligation of the firm.
Debt Financing
Interest is a tax-deductible expense.
Debt Financing
has a stated maturity and requires repayment of principal by a specified date.
Debt Financing
are payments to stockholders from a corporation's profits
Dividends
can be paid in cash or in stock.
Dividends
are similar to mutual funds because they hold a broad basket of stocks with a common theme, giving investors instant diversification.
ETFs
Common stockholders have voting rights.
Equity Financing
Dividends are not tax-deductible and are paid from after-tax income.
Equity Financing
Equity owners have a residual claim on income (dividends are paid only after paying interest and any scheduled principal) and no obligation to pay dividends.
Equity Financing
The company is not required to repay equity, which has no maturity date.
Equity Financing
______ is the process of raising capital through the sale of shares
Equity financing
is widely used in the clothing, furniture, and appliance industries.
Factoring
the art and science of managing a firm's money so that it can meet its goals—is not just the responsibility of the finance department.
Financial management
They work with the firm's other department managers to determine how available funds will be used and how much money is needed.
Financial managers
The key activities of the financial manager are:
Financial planning, Investment,Financing
Obtaining funding for the firm's operations and investments and seeking the best balance between debt (borrowed funds) and equity (funds raised through the sale of ownership in the business).
Financing (raising money)
bonds are backed by the full faith and credit (and taxing power) of the issuing government.
General obligation
_____ investment bonds: Also considered very safe bonds, although not quite as safe as Aaa/AAA issues; Aa/AA bonds are safer (have less risk of default) than single As.
High-grade
The ___________ greatly increased the penalties for illegal insider trading and gave the SEC more power to investigate and prosecute claims of illegal actions.
Insider Trading and Fraud Act of 1988
are investment professionals who are paid to manage other people's money.
Institutional investors
Investing the firm's funds in projects and securities that provide high returns in relation to their risks.
Investment (spending money)
_____ bonds: Provide little protection against default; viewed as highly speculative.BB
Junk
is used to finance long-term (capital) expenditures.
Long-term debt
investment bonds: Lowest of investment-grade issues; seen as lacking protection against adverse economic conditions.BBB
Medium-grade
are attractive to investors because interest earned on them is exempt from federal income tax.
Municipal bonds
are issued by states, cities, counties, and other state and local government agencies.
Municipal bonds
_____bonds: Either in default or very close to it. CCC
Poor-quality
is more expensive than debt financing,
Preferred stock
_______investment bonds: Highest rating assigned; indicates extremely strong capacity to pay. AAA
Prime-quality
_________ rules are much less strict than for the NYSE.
Regional exchange membership
are profits that have been reinvested
Retained earnings
are repaid only from income generated by the specific project being financed.
Revenue bonds
The ___________ formally gave the SEC power to regulate securities exchanges.
Securities Exchange Act of 1934
plays a big role in helping companies improve their credit and collections performance.
Technology
what is Retained earnings advantage over other sources of equity capital?
They do not incur underwriting costs.
analyze a company's value and risk, then taking on that risk on behalf of the company.
Underwriters
The buyer enters the credit on its books as an ________
account payable
The two segments of the secondary markets are _______ and ________.
broker markets and dealer markets
Companies with overseas operations face even greater _____ challenges.
cash management
risk and return factors when making investment and financing decisions:
changing patterns of market demand, interest rates, general economic conditions, market conditions, and social issues
Now, under certain conditions, ______ stop trading for a 15-minute cooling-off period to limit the amount the market can drop in one day.
circuit breakers
A secured loan is a loan backed by _________ that can be used as payment to the lender if the company cannot pay back the loan.
collateral
Corporations issue ________ in multiples of $100,000 for periods ranging from 3 to 270 days.
commercial paper
is an unsecured short-term debt—an IOU—issued by a financially strong corporation.
commercial paper
If the cash inflows (sales) and outflows (bills) are _____, the financial manager may arrange a longer-term payment schedule.
cyclical
The risks of outsourcing financial processes include:
data breaches and lack of monitoring
The risks are high when financial and other sensitive corporate data are transferred to an outside computer system:
data could be compromised or lost, or rivals could steal corporate data
Unlike broker markets, ________ do not operate on centralized trading floors but instead use sophisticated telecommunications networks that link dealers throughout the United States.
dealer markets
A ________ is the distribution of some of a company's earnings to a class of its shareholders.
dividend
One outsourcing area that has attracted many clients is international trade, which has regulations that differ from country to country and requires huge amounts of _________.
documentation
gives common stockholders voting rights that provide them with a voice in management.
equity financing
Another form of short-term financing using accounts receivable is _____.
factoring
is considered both a science and an art.
financial management
The _____ arranges loans to cover any shortfalls.
financial manager
The main goal of the ______ is to maximize the value of the firm to its owners.
financial manager
_____ balance the needs and the financial impacts.
financial manager
The _____ goal is to collect money owed to the firm as quickly as possible while offering customers credit terms attractive enough to increase sales.
financial manager's
tend to be involved in accounts receivable, because the incoming funds lead to the cash flow.
financial managers
The major advantage of debt financing is the deductibility of interest expense for income tax purposes
income tax purposes
The appeal of _________ as collateral depends on how easily it can be sold at a fair price.
inventory
raw materials or finished goods
inventory
Techniques for reducing the investment in inventory are
inventory management, the just-in-time system, and materials requirement planning
For retail firms, inventory management is a critical area for financial managers, who closely monitor ______.
inventory turnover ratios
Surpluses are invested temporarily in _________, short-term investments that are easily converted into cash.
marketable securities
A _______ is a long-term loan made against real estate as collateral.
mortgage loan
loans that investors make to local governments.
municipal bonds
It's also harder to monitor an _____ than your own employees.
outside provider
The _________ markets refer to those other than the organized exchanges described above.
over-the-counter (OTC)
Unlike common stock, _____ usually has a dividend amount that is set at the time the stock is issued.
preferred stock
In the _______, the issuer of the security gets the proceeds from the transaction.
primary market
The ______ is where new securities are sold to the public, usually with the help of investment bankers.
primary market
financial managers want the least inventory possible without harming ____ or _____.
production efficiency or sales
The top ________ are the Boston, Chicago, Philadelphia, and National (formerly the Cincinnati) exchanges.
regional exchanges
Another bank loan, the __________, is basically a guaranteed line of credit that carries an extra fee in addition to interest.
revolving credit agreement
Later transactions take place in the _______, where old (already issued) securities are bought and sold, or traded, among investors.
secondary market
Bonds can be bought and sold in the _________.
securities markets
The primary difference between broker and dealer markets is the way each executes ______.
securities trades
Both _______ and _________ regulate the securities markets.
state and federal governments
In _______, a customer can purchase goods on account without paying cash up front, paying the supplier at a later scheduled date.
trade credit
This is an example of ______: the seller extends credit to the buyer between the time the buyer receives the goods or services and when it pays for them.
trade credit
The three main types of unsecured short-term loans are :
trade credit, bank loans, and commercial paper.
If the ______ is too high, it means the company does not have enough inventory of products on hand to satisfy customer needs, which means they could take their business elsewhere.
turnover ratio number
In addition to stocks and bonds, investors can buy mutual funds, a very popular investment category, or exchange-traded funds (ETFs)
types of securities
The _______ buys a certain amount of securities and then resells them to the public.
underwriter
An ________ is a loan that is issued and supported only by the borrower's creditworthiness, rather than by any type of collateral.
unsecured loan
This type of financing is especially popular among high-tech companies that need large sums of money.
venture capital
have no collateral backing, so they rely on the creditworthiness and reputation of the issuer for support.
Debentures
_____ must track how money is flowing into and out of the firm
Financial managers
Preparing the financial plan, which projects revenues, expenditures, and financing needs over a given period
Financial planning
The U.S. Treasury sells three major types of federal debt securities:
Treasury bills, Treasury notes, and Treasury bonds.
Three of the most popular marketable securities:
Treasury bills, certificates of deposit, and commercial paper.
are made on the basis of the firm's creditworthiness and the lender's previous experience with the firm.
Unsecured loans
It is most often used by small and growing firms that aren't big enough to sell securities to the public.
venture capital
_______ require the borrower to pledge specific assets as collateral, or security.
Secured loans
are investment certificates that represent either equity (ownership in the issuing organization) or debt (a loan to the issuer).
Securities
______ are the costs and payments associated with continuing the day-to-day operations of the company.
Short-term expenses
________often called operating expenses, are outlays used to support current production and selling activities.
Short-term expenses
can include manufacturing costs, wages, some utility-type resources
Short-term expenses
is shown as a current liability on the balance sheet and is used to finance current assets and support operations. S
Short-term financing
can be unsecured or secured.
Short-term loans
are payments in the form of more stock.
Stock dividends
An important duty of the financial manager is _______, or making sure that enough cash is on hand to pay bills as they come due and to meet unexpected expenses.
cash management
assets owned by the company
collateral
it is both a short-term investment and a financing option for major corporations.
commercial paper
generally allow the bondholder to exchange each bond for a specified number of shares of common stock.
convertible bonds
A _____ has a long-term maturity (repayment) timeline, and is issued by banks, insurance companies, pension funds, and other entities.
term loan
A _______ is a business loan with a maturity of more than one year.
term loan