Managerial finance -- Chapter 14 -- terms

working capital and current assets Management

Short-term financial management -- management of current assets and current liabilities
working capital -- current assets, which represent the portion of investments that circulates from one form to another in the ordinary conduct of business
networking capital -- the difference between the firm's current assets and its current liabilities; can be positive or negative
profitability -- the relationship between revenues and costs generated by using the firm's assets, both current and fixed, and productive activities
risk (of technical insolvency) -- the probability that a firm will be unable to pay its bills as they come due
technically insolvent -- describes a firm that is unable to pay its bills as they come due
operating cycle (OC) -- the time from the beginning of the production process to the collection of cash from the sale of the finished product
cash conversion cycle (CCC) -- the amount of time a firm's resources are tied up; calculated by subtracting the average payment. From the operating cycle
permanent funding requirement -- a constant investment in operating assets resulting from constant sales over time
seasonal funding requirement -- an investment in operating assets that varies over time as result of cyclic sales
aggressive funding strategy -- a funding strategy under which the firm funds at seasonal requirements was short-term debt and its permanent requirements of long-term debt
conservative funding strategy -- a funding strategy under which the firm funds both its seasonal and its permanent requirements with long-term debt
ABC inventory system -- inventory management technique that divides inventory into three groups -- A,B, and C, in descending order of importance and level of monitoring, on the basis of the dollar investments in each
two bin method -- on sophisticated inventory monitoring technique that is typically applied to C group items and involves reordering inventory when one of two bins is empty
economic order quantity (EOQ) model -- inventory management technique for determining an item's optimal order size, which is the size that minimizes the total of its order costs and carrying costs
order costs -- the fixed clerical costs of placing and receiving an inventory order
carrying costs -- the variable costs per unit of holding an item in inventory for specific period of time
total cost of inventory -- the sum of order costs and carrying costs of inventory
reorder point -- the point at which to reward her inventory, expressed as days of lead time X daily usage
safety stock -- extra inventory that is held to prevent stock outs of important items
just in time (JIT) system -- inventory management technique that minimizes inventory investment by having materials arrive at exactly the time they are needed for production
materials requirement planning (MRP) system -- inventory management technique that applies EOQ concepts and computer to compare production needs to available inventory balances in a terminal and order should be placed for various items on a product's bill of materials
manufacturing resource planning II (MRP II) -- a sophisticated computerized system that integrates data from numerous areas such as finance, accounting, marketing, engineering, and manufacturing and generates production plans as well as numerous financial and management reports
enterprise resource planning (ERP) -- a computerized system that electronically integrates external information about the firm suppliers and customers with the firm's departmental data so that information on all available resources, human and material, can be instantly obtained in a fashion that eliminates production delays and controls costs
credit standards -- the firm's minimum requirements for extending credit to a customer
five Cs of credit -- the five key dimensions -- character, capacity, capital, collateral, and conditions -- used by credit analysts to provide a framework for in-depth credit analysis
credit scoring -- a credit selection method commonly used with high-volume/small dollar credit requests; relies on a credit score determined by applying statistically derived weights to a credit applicants scores on key financial and credit characteristics
credit terms -- the terms of sale for customers who have been extended credit by the firm
Cash discount -- a percentage deduction from the purchase price; available to the credit customer who pays its account within a specified time
Cash discount period -- the number of days after the beginning of the credit period during which the Cash discount is available
credit period -- the number of days after the beginning of the credit period until full payment of the account is due
credit monitoring -- the ongoing review of a firm's accounts receivable to determine whether customers are paying according to the stated credit terms
aging schedule -- a credit monitoring technique that breaks down accounts receivable into groups on the basis of their time and origin; it shows the percentages of the total accounts receivable balance that have been outstanding for specified periods of time
float -- funds that have been sent by the payor but are not yet usable funds by the payee
mail float -- the time delay between when payment is placed in the mail and what is received
processing float -- the time between receipt of a payment and its deposit into the firm's account
clearing float -- the time between deposit of a payment and when spendable funds become available to the firm
lockbox system -- a collection procedure in which customers mail payments to a P.O. Box that is emptied regularly by the firm's bank, which processes the payments and deposits them in the firm's account. This system speeds up collection time by reducing processing time as well as mail and clearing time
controlled disbursing -- the strategic use of mailing points and bank accounts to lengthen mail float and clearing float, respectively
Cash concentration -- the process used by the firm to bring lockbox and other deposits together into one bank, often called the concentration bank
depository transfer check (DTC) -- an unsigned check drawn on one of the firm's bank accounts and deposited in another
ACH (automated clearinghouse) transfer -- preauthorized electronic withdrawal from the payor's account in deposit into the payee's account via a settlement among banks by the automated clearinghouse
wire transfer -- an electronic communication that, via bookkeeping entries, removes funds in the payor's bank and deposits them in the payee's bank
zero balance account (ZBA) -- a disbursement account that always has an end of day balance of zero because the firm deposits money to cover checks drawn on the account only as they are presented for payment each day