Chapter 16 Notes

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Chapter 16 business notes
Financial Management and Securities Markets
Managing current assets and liabilities
Working capital management- the managing of short term assets and liabilities Managing Current Assets
The chief goal of financial managers who focus on current assets and liabilities is to maximize the return to the business by 1) Managing cash
Transaction balances- cash kept on hand by a firm to pay normal daily expenses, such as employee wages and bills for supplies and utilities. Lockbox- an address, usually a commercial bank, at which a company receives payments in order to speed collections from customers. 2) Investing idle cash

Marketable securities- temporary investment of “extra” cash by organizations for up to one year in U.S. Treasury bills, certificates of deposit, commercial paper, or Eurodollar loans. Treasury bills (T-bills) - short term debt obligations the U.S. government sells to raise money. Commercial certificates of deposit (cd’s)- certificates of deposit issued by commercial banks and brokerage companies, available in minimum amounts of 100,000$, which may be traded prior to maturity. Commercial paper- a written promise from one company to another to pay a specific amount of money. Eurodollar market- a market centered in London for trading U.S. dollars in foreign countries. 3) Maximizing accounts receivable

4) Optimizing inventory

Managing current liabilities
1) Accounts payable
Trade credit- credit extended by suppliers for the purchase of their goods and services. 2) Bank loans
Line of credit- an arrangement by which a bank agrees to lend a specified amount of money to an organization upon request. Secured loans- loans backed by collateral that the bank can claim if the borrowers do not repay them. Unsecured loans- loans backed only by the borrowers’ good reputation and previous credit rating Prime rate- the interest rate that commercial banks charge their best customers (usually large corporations)...
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