Financial Managers - Answer- Examine financial data and recommend strategies for
improving financial performance
Financial managers are responsible for: - Answer- - Paying company bills
- Collecting payments
- Assuring accounting accuracy
- Keeping the company afloat
________________________ involves analyzing short-term and long-term money flows
to and from the company. - Answer- Financial planning
3 Key Steps of Financial Planning: - Answer- -Forecasting the firm's short-term and
long-term financial needs
-Developing budgets (plans) to meet those needs.
- Establishing spending controls to ensure the company is achieving its goals and not
overspending.
Budget - Answer- A plan that sets forth management's expectations for revenues and
allocates the use of specific resources ($$) throughout the firm
The ____________ is the guide for financial operations and expected financial needs. -
Answer- Budget
Pro forma statement - Answer- A projection, prediction of revenues, expenses, and
profits, into the future (5 years, etc.)
If we have $100,000 now, what will we have in 5 years, etc.?
Capital Budget - Answer- Highlights a firm's spending plans for major asset purchases
that often require large sums of money (big, expensive stuff)
Cash Budget - Answer- Estimates cash inflows and outflows during a particular period
like a month or quarter
Operating (Master) Budget - Answer- Ties together all the firm's other budgets and
summarizes its proposed financial activities
,Financial Managers are typically focused on the ___________ side of the balance
sheet. - Answer- RIGHT
What is on the right side of the balance sheet? - Answer- Liabilities, owner's equity
External Financing - Answer- Stock, loans, etc.
Why is external financing needed? - Answer- Firms (like individuals) cannot usually pay
for big ticket items- cars, houses, new facilities, etc.- with the funds generated by day-
to-day operations
Short term financing - Answer- Funds needed for a year or less
Long term financing - Answer- Funds needed for more than a year.
Debt Financing - Answer- The funds raised through various forms of borrowing that
must be repaid
Equity Financing - Answer- The funds raised from within the firm from operations or
through the sale of ownership in the firm (such as stock)
Each type of ______________ has different benefits and COSTS!!! - Answer- Financing
Balance Sheet - Answer- Total amount of assets, liabilities, and owners' equity as of a
certain date
We are now focusing on the liabilities and owners' equity side of things for this chapter. -
"The Sources"
Liabilities - Answer- Debts, payables, what we owe 9the interest on the debt is tax
deductible)
Owners' Equity- Contributed capital; proceeds from sale of stock
What are benefits and disadvantages of liabilities and owners' equity? - Answer-
Liabilities- Interest on debt is a "business expense" and is tax deductible, ca build credit
(or bring it down), don't have to give up ownership, - the main disadvantage is actually
needing to pay off a loan
Owners' Equity- No loans, but you give up ownership of company
The best thing to do is a little mix of both debt and equity
Conditions for types of financing (debt and equity) - Answer- Management influence
Debt- There's usually none unless special conditions have been agreed upon
Equity- Common stockholders have voting rights
Repayment
, Debt- Debt has a maturity date; principal must be repaid
Equity- Stock has no maturity date; the company is never required to repay equity
Yearly obligations
Debt- Payment of interest is a contractual obligation
Equity- The firm isn't legally liable to pay dividends
Tax benefits
Debt- Interest is tax deductible
Equity- Dividends are paid from after-tax income and aren't deductible
Leverage - Answer- The amount of debt used to finance a firm's assets
You use the borrowed money like a lever to make more money (hopefully)
A firm that has significantly more debt compared to the amount of equity is said to be
__________________. - Answer- "Highly leveraged"
One of the main tasks of financial managers. - Answer- Finding the OPTIMAL
combination of debt and equity.
Optimal - Answer- Lowest total cost of borrowing
The PROPORTION of Debt vs Equity financing at any given time is known as the
______________________ of the firm. - Answer- CAPITAL STRUCTURE
Capital structure is measured by the ____________________________. - Answer-
Debt to equity ratio (or "D/E Ratio")
Debt to equity ratio is a measure of a firm's ____________________. - Answer- Capital
structure
A company that has more ________ than equity is "highly leveraged". - Answer- Debt
Firms use CONSTANTLY CHANGING _______________ of Debt and Equity
Financing. - Answer- COMBINATIONS
The proportional mix of debt and equity financing is known as the
___________________ of the firm. - Answer- Capital Structure
There are different benefits and costs to using each type of financing, and this ratio
fluctuates constantly in each firm; financial managers seek the ideal mix!
Firms are constantly tweaking this mix to achieve the LOWEST POSSIBLE COST OF
____________!! - Answer- CAPITAL
Capital Structure - Answer- The proportion of debt vs. equity financing of a firm at any
given time
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller Scholarsstudyguide. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for £10.51. You're not tied to anything after your purchase.
