A financial plan that sets forth management's expectations, and, on the basis of those expectations, allocates the use of specific resources throughout the firm
Capital budget
A budget that highlights a firm's spending plans for major asset purchases that often require large sums of money
Capital expenditures
Major investments in either tangible long-term assets such as land, buildings, and equipment or intangible assets such as patents, trademarks, and copyrights
Cash budget
A budget that estimates cash inflows and outflows during a particular period like a month or a quarter
Cash flow forecast
Forecast that predicts the cash inflows and outflows in future periods, usually months or quarters
Cost of capital
The rate of return a company must earn in order to meet the demands of its lenders and expectations of its equity holders
Debt financing
Funds raised through various forms of borrowing that must be repaid
Equity financing
Money raised from within the firm, from operations or through the sale of ownership in the firm (stock or venture capital)
Factoring
The process of selling accounts receivable for cash
Finance
The function in a business that acquires funds for the firm and manages those funds within the firm
Financial control
A process in which a firm periodically compares its actual revenues, costs, and expenses with its budget
Financial management
The job of managing a firm's resources so it can meet its goals and objectives
Financial managers
Managers who examine financial data prepared by accountants and recommend strategies for improving the financial performance of the firm
Leverage
Raising needed funds through borrowing to increase a firm's rate of return
Line of credit
A given amount of unsecured short-term funds a bank will lend to a business, provided the funds are readily available
Operating (or master) budget
The budget that ties together the firm's other budgets and summarizes its proposed financial activities
Promissory note
A written agreement with a promise to pay a supplier a specific sum of money at a definite time
Risk/return trade-off
The principle that the greater the risk a lender takes in making a loan, the higher the interest rate required
Secured loan
A loan backed by collateral (something valuable, such as property)
Term-loan agreement
A promissory note that requires the borrower to repay the loan in specified installments
Trade credit
The practice of buying goods and services now and paying for them later
Unsecured loan
A loan that doesn't require any collateral
Venture capital
Money that is invested in new or emerging companies that are perceived as having great profit potential
Banker's acceptance
A promise that the bank will pay some specified amount at a particular time
Barter
The direct trading of goods or services for other goods or services
Certificate of deposit (CD)
A time-deposit (savings) account that earns interest to be delivered at the end of the certificate's maturity date
Commercial bank
A profit-seeking organization that receives deposits from individuals and corporations in the form of checking and savings accounts and then uses some of these funds to make loans
Credit unions
Nonprofit, member-owned financial cooperatives that offer the full variety of banking services to their members
Debit card
An electronic funds transfer tool that serves the same function as checks: it withdraws funds from a checking account
Demand deposit
The technical name for a checking account; the money in a demand deposit can be withdrawn anytime on demand from the depositor
Discount rate
The interest rate that the Fed charges for loans to member banks
Electronic funds transfer (EFT) system
A computerized system that electronically performs financial transactions such as making purchases, paying bills, and receiving paychecks
Federal Deposit Insurance Corporation (FDIC)
An independent agency of the U.S. government that insures bank deposits
International Monetary Fund (IMF)
Organization that assists the smooth flow of money among nations
Letter of credit
A promise by the bank to pay the seller a given amount if certain conditions are met
1
Money that can be accessed quickly and easily (coins and paper money, checks, traveler's checks, etc.)
2
Money included in M-1 plus money that may take a little more time to obtain (savings accounts, money market accounts, mutual funds, certificates of deposit, etc.)
3
2 plus big deposits like institutional money market funds
Money
Anything that people generally accept as payment for goods and services
Money supply
The amount of money the Federal Reserve Bank makes available for people to buy goods and services