Chapter 16: Mastering Financial Management
debenture bond
a bond backed only by the reputation of the issuing corporation
registered bond
a bond registered in the owner's name by the issuing company
convertible bond
a bond that can be exchanged, at the owner's option, for a specified number of shares of the corporation's common stock
zero-base budgeting
a budgeting approach in which every expense in every budget must be justified
debit card
a card that electronically subtracts the amount of a customer's purchase from her or his bank account at the moment the purchase is made
mortgage bond
a corporate bond secured by various assets of the issuing firm
corporate bond
a corporation's written pledge that it will repay a specified amount of money with interest
capital budget
a financial statement that estimates a firm's expenditures for major assets and its long-term financing needs
cash budget
a financial statement that estimates cash receipts and cash expenditures over a specified period
budget
a financial statement that projects income and expenditures or both over a specified future period
factor
a firm that specializes in buying other firms' accounts receivable
revolving credit agreement
a guaranteed line of credit
chief financial officer (CFO)
a high-level corporate executive who manages a firm's finances and reports directly to the company's chief executive officer or president
letter of credit
a legal document issued by a bank or other financial institution guaranteeing to pay a seller a stated amount for a specified period of time
bond indenture
a legal document that details all the conditions relating to a bond issue
line of credit
a loan that is approved before the money is actually needed
secondary market
a market for existing financial securities that are traded between investors
primary market
a market in which an investor purchases financial securities (via an investment bank) directly from the issuer of those securities
securities exchange
a marketplace where member brokers meet to buy and sell securities
electronic funds transfer (EFT) system
a means of performing financial transactions through a computer terminal or telephone hookup
over-the-counter (OTC) market
a network of dealers who buy and sell the stocks of corporations that are not listed on a securities exchange
financial plan
a plan for obtaining and using the money needed to implement an organization's goals
term-loan agreement
a promissory note that requires a borrower to repay a loan in monthly, quarterly, semiannual, or annual installments
risk-return ratio
a ratio based on the principle that a high-risk decision should generate higher financial returns for a business and more conservative decisions often generate lower returns
commercial paper
a short-term promissory note issued by a large corporation
sinking fund
a sum of money to which deposits are made each year for the purpose of redeeming a bond issue
trade credit
a type of short-term financing extended by a seller who does not require immediate payment after delivery of merchandise
check
a written order for a bank or other financial institution to pay a stated dollar amount to the business or person indicated on the face of the check
banker's acceptance
a written order for a bank to pay a third party a stated amount of money on a specific date
promissory note
a written pledge by a borrower to pay a certain sum of money to a creditor at a specified future date
financial management
all of the activities concerned with obtaining money and using it effectively
trustee
an individual or an independent firm that acts as a bond owner's representative
investment banking firm
an organization that assists corporations in raising funds, usually by helping to sell new issues of stocks, bonds, or other financial securities
serial bonds
bonds of a single issue that mature on different dates
debt capital
borrowed money obtained through loans of various types
certificate of deposit (CD)
document stating that the bank will pay the depositor a guaranteed interest rate on money left on deposit for a specified period of time
unsecured financing
financing that is not backed by collateral
equity capital
money received from the owners or from the sale of shares of ownership in a business
long-term financing
money that will be used for longer than one year
short-term financing
money that will be used for one year or less
initial public offering (IPO)
occurs when a corporation sells common stock to the general public for the first time
private placement
occurs when stock and other corporate securities are sold directly to insurance companies, pension funds, or large institutional investors
collateral
real estate or property pledged as security for a loan
common stock
stock whose owners may vote on corporate matters but whose claims on profits and assets are subordinate to the claims of others
preferred stock
stock whose owners usually do not have voting rights but whose claims on dividends and assets are paid before those of common-stock owners
maturity date
the date on which a corporation is to repay borrowed money
prime interest rate
the lowest rate charged by a bank for a short-term loan
cash flow
the movement of money into and out of an organization
retained earnings
the portion of a corporation's profits not distributed to stockholders
speculative production
the time lag between the actual production of goods and when the goods are sold
financial leverage
the use of borrowed funds to increase the return on owners' equity