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Busn 101 Ch 16

Chapter 16

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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