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Busn 101 Ch 16
Chapter 16
| Question | Answer |
|---|---|
| Current Assets | short term resources: cash, investments, accounts receivable, inventory |
| current liabilities | short term debts: accounts payable, accrued salaries, accrued taxes, short-term bank loans |
| Ways to manage current assets | manage cash, invest idle cash, maximize accts receivable, and optimize inventory |
| managing cash | effectively managing the firms cash flow is crucial -transaction balances -lockbox systems -electronic funds transfer |
| Investing Idle Cash | marketable securities US treasury bills (T-bills) commercial certificates of deposit (CDs) Commercial Paper International Investments- the eurodollar |
| maximizing accounts receivable | money owed to a business by a credit customer -due within 30, 60, 90 days -1-2% discount if paid b/w 10 & 30 days -1-1.5% penalty charge if paid late |
| optimizing inventory | the objective is to maximize inventory investment without productions cutbacks because of materials shortfalls or lost sales due to insufficient finished goods inventories |
| How to maximize current liabilities | through accounts payable, bank loans and non-bank liabilities |
| accounts payable | money an organization owed to suppliers for goods and services -trade credits- or trade discounts for paying sooner |
| Bank Loans | line of credit, secured loan, unsecured loans, prime rate |
| line of credit | an arrangement by which a bank agrees to lend a specified amount of money to an organization upon request |
| secured loan | loans backed by collateral that the bank can claim if the borrowers to not repay the debt |
| unsecured loan | loans backed only by the borrowers' good reputation and previous credit rating |
| prime rate | interest rates commercial banks charge their best customers (usually large corporations) for short-term loans |
| non-bank liabilities | -short-term loans from insurance companies, pension funds, money market funds, or finance companies -factoring organization- purchases accounts receivable at a discount -taxes and employees' wages |
| long-term fixed assets | plants, offices, equipment, heavy machinery, automobiles |
| capital budgeting | the process of analyzing the needs of business and selecting the assets that will maximize its value |
| things to consider when pricing long-term money | -how much cash will be generated -cost of financing -supply of funds available for investment -accurately identifying opportunities with the greatest potential for ROI |
| long term liabilities | debts repaid oer a number of years -long term loans -bond issues |
| Bonds: corporate IOUs | debt instruments that larger companies sell to raise long-term funds |
| indenture | the bond contract specifying all terms of agreement between bondholder and the issuing organization |
| annual interest rate | the annual percentage rate specified on the bond certificate |
| maturity date | the year in which the issuer will repay bondholders the face value of each bond |
| current yield | percentage return from interest based on the closing price |
| volume | the number of bonds traded during the day |
| close | the closing price of bonds |
| dividend | the annual cash dividend paid to stockholders |
| dividend yield | the dividend return on one share of common stock |
| unsecured bonds | debentures or bonds that are not backed by specific collateral |
| secured bonds | bonds that are backed by specific collateral that must be fortified in the even the issuing firm defaults |
| serial bonds | a sequence of small bond issues of progressively longer maturity |
| floating- rate bonds | bonds with interest rates that change with the current interest rates otherwise available in the economy |
| junk bonds | special type of high interest rate bond that carries higher inherent risks |
| owners equity | the owners investment in an organization |
| Financing with OE | through common stock, preferred stock, and retained earnings |
| investment banking | the sale of stocks and bonds for corporations |
| investment banking primary market | new issue or initial public offering (IPO) |
| investment banking secondary market | stock exchanges and OTC markets where investors trade securities with each other |
| the securities market | securities markets provide a mechanism for buying and selling securites |
| organized exchanges | central locations where investors buy and sell securities |
| over the counter market (OTC) | a network of dealers all over the country, and world, linked by computers, telephones, and teletype machines |
| measuring market performance | indexes, averages, bull market (good) , bear market (bad) |
| Dow Jones Industrial average : stocks | 3M, alcoa, altria, american express, american international group, at&t, boeing, caterpillar, citigroup, coca-cola, du pont, exxon mobil, general electric, general motors, hewlett-packard, home depot, honeywell, IBM, intel, Johnson and johnson etc.. |
| Dow Milestone in 2000 | climbed from 860 in Aug 1982 to a high of 11,497 at beginning of 2000 |
| worst drop in history | September 17, 2001 (684.81 points) after markets closed for 4 days following terrorist attacks on sept 11 |
Created by:
slstrong90
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