Skip to main content

Financial Glossary 1

Financial Resources
Resources which have a monetary value

Financial Management
is planning, organizing and controlling the acquisition and use of financial resources for the purposes of achieving organisational goals.

Financing
is the process of determining the appropriate forms and sources of finance

Financing strategy
is the determination of the type of finance used to purchase assets, and the resulting mix between equity, short term debt and long term debt

Investment
is the use of finance to acquire an asset which will yield a required return

Investment strategy
is the determination of the appropriate mix of a business's assets

Asset
Item of value which is owned by an organisation

Accounts receivable
(Short term/ current asset) - customer who owes the business money for buying goods/services on credit

Inventory
stock - Items manufactured or purchased by the business for sale to the customers

Financial Intermediaries
Are organisations which facilitate the flow of funds from individuals and organisations wanting to save, to individuals and organisations wanting to borrow.

Factoring
is a financial transaction where a struggling business sells its accounts receivable at a discount to another business.


Leasing
is an agreement between businesses detailing that the lessor allows the lessee the use of an asset for a certain period of time, in return of a payment or series of payments.

Debt Finance
is a liability and represents money owed to parties outside the business - may be short or long term

Equity finance
Represents the monetary value of the owner's stake in the business - is considered long-term

Liability
Amounts owed by a business to external parties

Prospectus
Legal document intended to fully and accurately inform the public about the company and its prospects

Mortgage loan
is a long term debt, secured by a specific property of the borrower.

Bank overdraft
is a short term debt, it is a facility provided by the bank which allows a business to have a negative balance in its cheque account

Capital expenditure
Outlays made to purchase long term assets

Payback period
is the length of time it takes to recover the initial outlay

Net present value (NPV)
is the sum of the discounted after tax cash flows over the life of the investment

Capital Structure
is the mix between the various finance sources and depends on where a business is in its life cycle

Under- capitalisation
when the business does not have enough funds to run efficiently



Labels:

Comments

Post a Comment

Popular posts from this blog

Money Markets Instruments

Money Market Securities in India The money market includes instruments for raising and investing funds for periods ranging from one day up to one year. Money market securities consist of repos/reverse repos, CBLOs ( collateralized borrowing and lending obligations),certificates of deposits, treasury bills, and commercial paper. All these securities are issued at a discount and redeemed at par, and are zero coupon in structure.  Money markets also include inter-bank call markets that are overnight lending transactions between banks, inter- bank terms markets that  are long term deposits between banks, and interoperate deposits, which are short term lending between companies. These transactions do not involve creation of a debt security and are therefore not included here. The Participants in the money market include banks, primary dealers, financial institutions, mutual funds, provident and pension funds, companies and the government. The purpose of the money market is to e...
Post a Comment
Read more

A Summary of Behavioral Finance

The central assumption of the traditional finance model is that people are rational. The behavioral finance model , however , argues that people suffer from cognitive and emotional biases and act in a seemingly irrational manner. The important heuristic-driven biases and cognitive errors that impair judgment are : representativeness, overconfidence, anchoring, aversion to ambiguity, and innumeracy. The form used to describe a problem has a bearing on decision making, Frame dependence stems from a mix of cognitive and emotional factors. The prospects theory describes how people frame and value a decision involving uncertainty. People feel more for a pain from a loss than the pleasure from an equal gain-about two and half times as strongly. This phenomenon is referred to as loss aversion . People tend to  separate their money into various mental accounts and treat a rupee in one account differently from a rupee in another because each account has a different significance...
Post a Comment
Read more

NPV-Net Present Value :Capital Budgeting Concepts

DEFINITION OF 'NET PRESENT VALUE - NPV' Net Present Value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows. NPV is used in   capital budgeting   to analyze the profitability of a projected   investment   or project.  The following is the formula for calculating NPV:  where C t  = net cash inflow during the period t C o  = total initial investment costs r =   discount rate , and t = number of time periods  A positive net present value indicates that the projected   earnings   generated by a project or investment (in present dollars) exceeds the anticipated costs (also in present dollars). Generally, an investment with a positive NPV will be a profitable one and one with a negative NPV will result in a   net loss . This concept is the basis for the   Net Present Value Rule , which dictates that the only investments that should be made are th...
Post a Comment
Read more