Unit II Study Sheet - Unit II Study Sheet 1 Know what Finance and Financial Management are Finance The function in a business that acquires funds for

Unit II Study Sheet - Unit II Study Sheet 1 Know what...

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Unit II Study Sheet 1. Know what Finance and Financial Management are. Finance: The function in a business that acquires funds for the firm and manages those funds within the firm. Financial Management: The job of managing a firm’s resources so it can meet its goals and objectives. 2. Know what the 3 most common ways that businesses fail financially are. Undercapitalization (lacking enough funds to start the business). Poor control over cash flow. Inadequate expense control. 3. What are the 3 steps involved in financial planning? 1. Managing day-by-day needs of the business. 2. Controlling credit operations 3. Acquiring needed inventory. 4. Making capital expenditures. 5. Know the difference between a secured loan and an unsecured loan. A secured loan is backed by something valuable, such as property. An unsecured loan is not backed by any specific assets. 6. Know about debt financing. Debt financing involves borrowing money that the company has a legal obligation to repay. (debt financing by borrowing money from lending institutions, or by issuing bonds) 7. Know about equity financing. Equity financing by selling stock, from retained earnings, or from venture capital. * Debt financing refers to funds raised by borrowing (going into debt); whereas equity financing is raised from within the firm (through retained earnings or by selling ownership in the company by issuing stock or selling ownership to venture capitalists. ________________________________________________________________________

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