CHAPTER 18 FOUNDATIONS OF BUSINESS

Role of Financial Managers

Plan, budget, control funds, obtain funds, collect funds, conduct audits, manage taxes, and advise top management on financial matters.

Common Financial Problems

Undercapitalization, poor control over cash flow, and inadequate expense control.

Capital Budget

The spending plan for expensive assets such as property, plant, and equipment.

Cash Budget

Projected cash balance at the end of a given period.

Operating (Master) Budget

The ________ budget summarizes the information in the other two budgets and projects dollar allocations to various costs and expenses given various revenues.

Major Financial Needs of Businesses

______ includes managing day-to-day operations, controlling credit operations, acquiring needed inventory, and making capital expenditures.

Debt Financing

______ financing raises funds by borrowing.

Equity Financing

_____ financing raises funds from within the firm through retained earnings or sale of stock.

Short-term Financing

______ financing raises funds to be repaid in less than a year.

Long-term Financing

_______ financing raises funds to be repaid over a longer period.

Trade Credit

_________ is the least expensive and most convenient form of short-term financing, allowing businesses to buy goods and pay later.

Line of Credit

A _____________ is an agreement by a bank to lend a specified amount of money to the business at any time if the money is available.

Secured Loan vs. Unsecured Loan

________ is backed by assets of value; _________ has no collateral

Factoring

______ is selling accounts receivable at a discounted rate to a factor, not a secured loan.

Commercial Paper

________ is a corporation's unsecured promissory note maturing in 270 days or less.

Sources of Long-term Financing

______-term financing includes debt financing through bonds and long-term loans, and equity financing through stock sales and retained earnings.

Forms of Debt Financing

Forms of _________ comes from selling bonds and borrowing from financial institutions.

Leverage

________ is borrowing funds to invest in expansion, major asset purchases, or research and development.