Chapter 16 ) Financial Management and Securities Markets

Comprehensive vocabulary flashcards covering working capital management, cash and marketable securities, credit and inventory terms, long-term financing, CAPEX versus OPEX, and securities markets from Chapter 16.

Working Capital Management

The management of short-term resources and debts, calculated by the formula $\text{Working Capital} = \text{Current Assets} - \text{Current Liabilities}$.

Current Assets

Short-term economic resources owned by a company, including cash, short-term investments, accounts receivable, and inventory.

Current Liabilities

Short-term debts and financial obligations of a business that mature within one year, including accounts payable and short-term debt.

Transaction Balances

Cash kept readily on hand by a company to pay for normal, recurring operating expenses such as employee wages and utility bills.

Lockbox

A designated address, typically at a commercial bank, used to collect customer payments rapidly to speed cash inflows.

Treasury Bills (T-bills)

Short-term marketable debt securities issued by the U.S. government that are considered risk-free.

Commercial Certificates of Deposit (CDs)

Short-term marketable debt instruments issued by commercial banks that are sold in minimum denominations of $\$100{,}000$.

Commercial Paper

Short-term unsecured promissory notes issued by corporations, with riskier firms paying higher interest rates to investors.

Money Market

Short-term interest-bearing accounts or instruments offering a slightly higher interest rate than a regular bank savings account.

Credit Limit

The maximum amount of credit allowed to a buyer; exceeding this limit puts the customer at risk of being placed on credit hold.

2/10 Net 30

A credit payment term allowing a $2\%$ discount on the invoice total if paid within $10$ days; otherwise, full payment is due within $30$ days.

Trade Credit

Short-term financing extended directly by suppliers to a business for the purchase of goods and services, recorded as accounts payable.

Fixed Assets

Long-term productive assets expected to last several years that are critical to operational success and often require substantial capital investments.

Capital Budget

The allocated funds for investing in long-term fixed assets evaluated to generate greater profits than the cost of funding them.

Capital Expenditure (CAPEX)

Long-term investments to purchase physical assets (e.g., buying warehouses, trucks, or equipment) marked by high upfront costs, depreciation, and asset ownership.

Operational Expenditure (OPEX)

Day-to-day operational business expenses (e.g., rent, fuel, salaries) characterized by pay-as-you-go costs, immediate expense recognition, and high flexibility.

Corporate Bonds

Long-term corporate debt obligations (IOUs) issued to investors that can be classified as secured, unsecured, or high-yield (junk) bonds.

Owner's Equity

Long-term capital raised through equity mechanisms, consisting of common stock, preferred stock, and retained earnings.

Initial Public Offering (IPO)

The first public sale of a corporation's stock or debt securities to investors in the primary market.

Primary Market

The securities market where newly created stocks and bonds are offered and sold to the public for the first time.

Secondary Market

The financial market where previously issued securities are traded among investors via stock exchanges and over-the-counter markets.

Over-the-Counter (OTC) Market

A decentralized electronic network of securities dealers used to trade equities not listed on major stock exchanges, such as small or penny stocks.