BUS 202 Chapter Notes - Chapter 16: Investment, Capital Budgeting, Retained Earnings

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BUS Chapter 16
Managing Current Assets !
-Primary goal of financial managers who focus on current assets and
liabilities is to maximize the return to the business on cash, temporary
investments of idle cash, accounts receivable, and inventory !
-Must manage cash to ensure that sucient funds (but not excessive)
are on hand to meet a company’s obligations !
-Transaction balances: cash kept on hand by a firm to pay normal daily
expenses such as employee wages and bills for utilities and supplies!
-Marketable securities: temporary investment of “extra” cash by
organizations for up to one year in U.S. treasury bills, CDs, commercial
paper, or eurodollars!
-Companies invest in marketable securities to make money on their
excess money!
-1 day - 1 year!
-Treasury bills are issued by the U.S. gov’t to raise money!
-CDs are issued by commercial banks and brokerage companies!
-Unlike private CDs which need to mature, commercial CDs may be
traded prior to maturity !
-Commercial paper is a written promise from one company to another to
pay a specific amount of money !
-Sales are restricted to only the largest and most financially stable
companies!
-Accounts receivable are accounts you expect to be paid in the future!
-Inventory purchases must be managed with cash flows!
-If a firm attempt to produce its goods just in time to meet sales demand,
the level of inventory will be relatively low !
-Optimal levels of inventory are decided by the method of production!
Managing Current Liabilities !
-Trade credit: credit extend by suppliers for the purchase of their goods
and services !
-Line of credit is similar to a credit card, there is an expectation that the
amount will be paid back!
-Secured loans are loans backed by collateral !
-Unsecured loans are backed by reputation!
-Principal is the amount of money barred; interest is the percentage of
the principal that the bank charges for the use of its money!
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Document Summary

Primary goal of nancial managers who focus on current assets and liabilities is to maximize the return to the business on cash, temporary investments of idle cash, accounts receivable, and inventory. Must manage cash to ensure that su cient funds (but not excessive) are on hand to meet a company"s obligations. Transaction balances: cash kept on hand by a rm to pay normal daily expenses such as employee wages and bills for utilities and supplies. Marketable securities: temporary investment of extra cash by organizations for up to one year in u. s. treasury bills, cds, commercial paper, or eurodollars. Companies invest in marketable securities to make money on their excess money. Treasury bills are issued by the u. s. gov"t to raise money. Cds are issued by commercial banks and brokerage companies. Unlike private cds which need to mature, commercial cds may be traded prior to maturity.

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