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