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Corporate financial management

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Definition of Corporate financial management

Corporate Financial Management Image 1

Corporate financial management

The application of financial principals within a corporation to create and
maintain value through decision making and proper resource management.



Related Terms:

Abusive Earnings Management

The use of various forms of gimmickry to distort a company's true financial performance in order to achieve a desired result.


Abusive Earnings Management

A characterization used by the Securities and Exchange
Commission to designate earnings management that results in an intentional and material misrepresentation
of results.


activity-based management (ABM)

a discipline that focuses on the activities incurred during the production/performance process as the way to improve the value received
by a customer and the resulting profit achieved by providing
this value


Asset/liability management

Also called surplus management, the task of managing funds of a financial
institution to accomplish the two goals of a financial institution:
1) to earn an adequate return on funds invested, and
2) to maintain a comfortable surplus of assets beyond liabilities.


Blue Ribbon Committee on Improving the Effectiveness of Corporate Audit Committees

A committee formed in response to SEC chairman Arthur Levitt's initiative to improve the financial
reporting environment in the United States. In a report dated February 1999, the committee
made recommendations for new rules for regulation of financial reporting in the United States that
either duplicated or carried forward the recommendations of the Treadway Commission.



Bottom-up equity management style

A management style that de-emphasizes the significance of economic
and market cycles, focusing instead on the analysis of individual stocks.


Cash management bill

Very short maturity bills that the Treasury occasionally sells because its cash
balances are down and it needs money for a few days.


Corporate Financial Management Image 2

Certified Management Accountant (CMA)

a professional designation in the area of management accounting that
recognizes the successful completion of an examination,
acceptable work experience, and continuing education requirements


Changes in Financial Position

Sources of funds internally provided from operations that alter a company's
cash flow position: depreciation, deferred taxes, other sources, and capital expenditures.


chief financial officer (CFO)

Officer who oversees the treasurer and controller and sets overall financial strategy.


Corporate acquisition

The acquisition of one firm by anther firm.


Corporate bonds

Debt obligations issued by corporations.


Corporate charter

A legal document creating a corporation.


Corporate finance

One of the three areas of the discipline of finance. It deals with the operation of the firm
(both the investment decision and the financing decision) from that firm's point of view.


Corporate financial planning

financial planning conducted by a firm that encompasses preparation of both
long- and short-term financial plans.


Corporate processing float

The time that elapses between receipt of payment from a customer and the
depositing of the customer's check in the firm's bank account; the time required to process customer
payments.


Corporate Financial Management Image 3

Corporate tax view

The argument that double (corporate and individual) taxation of equity returns makes
debt a cheaper financing method.


Corporate taxable equivalent

Rate of return required on a par bond to produce the same after-tax yield to
maturity that the premium or discount bond quoted would.



cost management system (CMS)

a set of formal methods
developed for planning and controlling an organization’s
cost-generating activities relative to its goals and objectives
cost object anything to which costs attach or are related


costs of financial distress

Costs arising from bankruptcy or distorted business decisions before bankruptcy.


Country financial risk

The ability of the national economy to generate enough foreign exchange to meet
payments of interest and principal on its foreign debt.


Demand Management Policy

Fiscal or monetary policy designed to influence aggregate demand for goods and services.


Dupont system of financial control

Highlights the fact that return on assets (ROA) can be expressed in terms
of the profit margin and asset turnover.


Earnings Management

The active manipulation of earnings toward a predetermined target.
That target may be one set by management, a forecast made by analysts, or an amount that is consistent
with a smoother, more sustainable earnings stream. Often, although not always, earnings
management entails taking steps to reduce and “store” profits during good years for use during
slower years. This more limited form of earnings management is known as income smoothing.


External Financial Statements

corporate financial statements that have been reported on by an external independent accountant.


Financial accounting

The production of financial statements, primarily for those interested parties who are external to the business.


financial accounting

a discipline in which historical, monetary
transactions are analyzed and recorded for use in the
preparation of the financial statements (balance sheet, income
statement, statement of owners’/stockholders’ equity,
and statement of cash flows); it focuses primarily on the
needs of external users (stockholders, creditors, and regulatory
agencies)


Financial analysts

Also called securities analysts and investment analysts, professionals who analyze
financial statements, interview corporate executives, and attend trade shows, in order to write reports
recommending either purchasing, selling, or holding various stocks.



Financial assets

Claims on real assets.


financial assets

Claims to the income generated by real assets. Also called securities.


Financial Assistance

Economic assistance provided by unrelated third parties, typically government agencies. They may take the form of loans, loan guarantees, subsidies, tax allowances, contributions, or cost-sharing arrangements.


financial budget

a plan that aggregates monetary details
from the operating budgets; includes the cash and capital
budgets of a company as well as the pro forma financial
statements


Financial control

The management of a firm's costs and expenses in order to control them in relation to
budgeted amounts.


Financial Covenant

A feature of a debt or credit agreement that is designed to protect the lender or creditor. It is common to characterize covenants as either positive or negative covenants.
A positive covenant might require that the debtor maintain a minimum amount of working capital.
A negative covenant might limit dividend payments that may be made.


Financial Covenants

A promise made related to financial conditions or events. Often a promise not to allow certain balance sheet items or ratios to fall below an agreed level. Usually found in loan documents, as a protection mechanism.


Financial distress

Events preceding and including bankruptcy, such as violation of loan contracts.


Financial distress costs

Legal and administrative costs of liquidation or reorganization. Also includes
implied costs associated with impaired ability to do business (indirect costs).


Financial engineering

Combining or dividing existing instruments to create new financial products.


Financial future

A contract entered into now that provides for the delivery of a specified asset in exchange
for the selling price at some specified future date.


financial incentive

a monetary reward provided for performance
above targeted objectives


Financial Incentive

An expression of economic benefit that motivates behavior that might otherwise not take place.


Financial intermediaries

Institutions that provide the market function of matching borrowers and lenders or
traders.


financial intermediary

Firm that raises money from many small investors and provides financing to businesses or other
organizations by investing in their securities.


Financial Intermediary

Any institution, such as a bank, that takes deposits from savers and loans them to borrowers.


Financial Intermediation

The process whereby financial intermediaries channel funds from lender/savers to borrower/spenders.


Financial lease

Long-term, non-cancelable lease.


Financial Lease

Lease in which the service provided by the lessor to the lessee is limited to financing equipment. All other responsibilities related to the possession of equipment, such as maintenance, insurance, and taxes, are borne by the lessee. A financial lease is usually noncancellable and is fully paid out amortized over its term.


Financial leverage

Use of debt to increase the expected return on equity. financial leverage is measured by
the ratio of debt to debt plus equity.


financial leverage

The equity (ownership) capital of a business can serve
as the basis for securing debt capital (borrowing money). In this way, a
business increases the total capital available to invest in its assets and
can make more sales and more profit. The strategy is to earn operating
profit, or earnings before interest and income tax (EBIT), on the capital
supplied from debt that is more than the interest paid on the debt capital.
A financial leverage gain equals the EBIT earned on debt capital
minus the interest on the debt. A financial leverage gain augments earnings
on equity capital. A business must earn a rate of return on its assets
(ROA) that is greater than the interest rate on its debt to make a financial
leverage gain. If the spread between its ROA and interest rate is unfavorable,
a business suffers a financial leverage loss.


financial leverage

Debt financing amplifies the effects of changes in operating income on the returns to stockholders.


Financial leverage clientele

A group of investors who have a preference for investing in firms that adhere to
a particular financial leverage policy.


Financial leverage ratios

Related: capitalization ratios.


Financial market

An organized institutional structure or mechanism for creating and exchanging financial assets.


financial markets

Markets in which financial assets are traded.


Financial Numbers Game

The use of creative accounting practices to alter a financial statement
reader's impression of a firm's business performance.


Financial objectives

Objectives of a financial nature that the firm will strive to accomplish during the period
covered by its financial plan.


Financial plan

A financial blueprint for the financial future of a firm.


Financial planning

The process of evaluating the investing and financing options available to a firm. It
includes attempting to make optimal decisions, projecting the consequences of these decisions for the firm in
the form of a financial plan, and then comparing future performance against that plan.


Financial Position

Status of a firm's assets, liabilities, and equity accounts as of a certain time, as shown in its financial statement.


Financial press

That portion of the media devoted to reporting financial news.


Financial ratio

The result of dividing one financial statement item by another. Ratios help analysts interpret
financial statements by focussing on specific relationships.


financial reports and statements

financial means having to do with
money and economic wealth. Statement means a formal presentation.
financial reports are printed and a copy is sent to each owner and each
major lender of the business. Most public corporations make their financial
reports available on a web site, so all or part of the financial report
can be downloaded by anyone. Businesses prepare three primary financial
statements: the statement of financial condition, or balance sheet;
the statement of cash flows; and the income statement. These three key
financial statements constitute the core of the periodic financial reports
that are distributed outside a business to its shareowners and lenders.
financial reports also include footnotes to the financial statements and
much other information. financial statements are prepared according to
generally accepted accounting principles (GAAP), which are the authoritative
rules that govern the measurement of net income and the reporting
of profit-making activities, financial condition, and cash flows.
Internal financial statements, although based on the same profit
accounting methods, report more information to managers for decision
making and control. Sometimes, financial statements are called simply
financials.


Financial reports or statements

The Profit and Loss account, Balance Sheet and Cash Flow statement of a business.


Financial risk

The risk that the cash flow of an issuer will not be adequate to meet its financial obligations.
Also referred to as the additional risk that a firm's stockholder bears when the firm utilizes debt and equity.


financial risk

Risk to shareholders resulting from the use of debt.


financial slack

Ready access to cash or debt financing.


Financial Trend Analysis

Process of analyzing financial statements of a company for any continuing relationship.


Financial year

The accounting period adopted by a business for the production of its financial statements.
Finished goods Inventory that is ready for sale, either having been purchased as such or the result of a conversion from raw materials through a manufacturing process.


Fraudulent Financial Reporting

Intentional misstatements or omissions of amounts or disclosures
in financial statements done to deceive financial statement users. The term is used interchangeably
with accounting irregularities. A technical difference exists in that with fraud, it
must be shown that a reader of financial statements that contain intentional and material misstatements
must have used those financial statements to his or her detriment. In this book, accounting
practices are not alleged to be fraudulent until done so by an administrative, civil, or
criminal proceeding, such as that of the Securities and Exchange Commission, or a court.


Future-Oriented Financial Information

Information about prospective results of operations, financial position and/or changes in financial position, based on assumptions about future economic conditions and courses of action. Future-oriented financial information is presented as either a forecast or a projection.


Institute of Management Accountants (IMA)

an organization composed of individuals interested in the field of management accounting; it coordinates the Certified management
Accountant program through its affiliate organization
(the Institute of Certified management Accountants)


London International Financial Futures Exchange (LIFFE)

A London exchange where Eurodollar futures
as well as futures-style options are traded.


London International Financial Futures Exchange (LIFFE)

London exchange where Eurodollar futures as well as futures-style options are traded.


Long-term financial plan

financial plan covering two or more years of future operations.


Management

management refers to the individuals in an entity that have the authority and the responsibility to manage the entity. The positions of these individuals, and their titles, vary from one entity to another and, to some extent, from one country to another depending on the local laws and customs. Thus, when the context requires it, the term includes the board of directors or committees of the board which are designated to oversee certain matters (e.g., audit committee).


Management accounting

The production of financial and non-financial information used in planning for the future; making decisions about products, services, prices and what costs to incur; and ensuring that plans are implemented and achieved.


management accounting

a discipline that includes almost
all manipulations of financial information for use by managers
in performing their organizational functions and in
assuring the proper use and handling of an entity’s resources;
it includes the discipline of cost accounting


Management Accounting Guidelines (MAGs)

pronouncements of the Society of management Accountants of
Canada that advocate appropriate practices for specific
management accounting situations


Management buyout (MBO)

Leveraged buyout whereby the acquiring group is led by the firm's management.


management buyout (MBO)

Acquisition of the firm by its own management in a leveraged buyout.


Management/closely held shares

Percentage of shares held by persons closely related to a company, as
defined by the Securities and exchange commission. Part of these percentages often is included in
Institutional Holdings -- making the combined total of these percentages over 100. There is overlap as
institutions sometimes acquire enough stock to be considered by the SEC to be closely allied to the company.


management control

This is difficult to define in a few words—indeed, an
entire chapter is devoted to the topic (Chapter 17). The essence of management
control is “keeping a close watch on everything.” Anything can
go wrong and get out of control. management control can be thought of
as the follow-through on decisions to ensure that the actual outcomes
happen according to purposes and goals of the management decisions
that set things in motion. Managers depend on feedback control reports
that contain very detailed information. The level of detail and range of
information in these control reports is very different from the summarylevel
information reported in external income statements.


management control system (MCS)

an information system that helps managers gather information about actual organizational occurrences, make comparisons against plans,
effect changes when they are necessary, and communicate
among appropriate parties; it should serve to guide organizations
in designing and implementing strategies so that
organizational goals and objectives are achieved


management expense ratio (MER)

The total expenses expressed as an annualized percentage of daily average net assets. MER does not include brokerage fees and commissions, which are also payable by the Fund.


Management fee

An investment advisory fee charged by the financial advisor to a fund based on the fund's
average assets, but sometimes determined on a sliding scale that declines as the dollar amount of the fund increases.


management fee

The fee paid to the fund’s manager for supervising the administration of the fund.


management information system (MIS)

a structure of interrelated elements that collects, organizes, and communicates
data to managers so they may plan, control, evaluate
performance, and make decisions; the emphasis of the
MIS is on internal demands for information rather than external
demands; some or all of the MIS may be computerized
for ease of access to information, reliability of input
and processing, and ability to simulate outcomes of
alternative situations


management style

the preference of a manager in how he/she interacts with other stakeholders in the organization;
it influences the way the firm engages in transactions and
is manifested in managerial decisions, interpersonal and
interorganizational relationships, and resource allocations


Money management

Related: Investment management.


Non-financial services

Include such things as freight, insurance, passenger services, and travel.


Notes to the financial statements

A detailed set of notes immediately following the financial statements in
an annual report that explain and expand on the information in the financial statements.


open-book management

a philosophy about increasing a firm’s performance by involving all workers and by ensuring
that all workers have access to operational and financial
information necessary to achieve performance improvements


Operational Earnings Management

management actions taken in the effort to create stable
financial performance by acceptable, voluntary business decisions. An example: a special discount
promotion to increase flagging sales near the end of a quarter when targets are not being met.


Passive investment management

Buying a well-diversified portfolio to represent a broad-based market
index without attempting to search out mispriced securities.


Perfectly competitive financial markets

Markets in which no trader has the power to change the price of
goods or services. Perfect capital markets are characterized by the following conditions: 1) trading is costless,
and access to the financial markets is free, 2) information about borrowing and lending opportunities is freely
available, 3) there are many traders, and no single trader can have a significant impact on market prices.


performance management system

a system reflecting the entire package of decisions regarding performance measurement and evaluation


Portfolio management

Related: Investment management


Pro forma financial statements

financial statements as adjusted to reflect a projected or planned transaction.


Published Financial

financial statements and financial information made public.



 

 

 

 

 

 

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