Reading Tasks

IX. Fill in the blanks with the most appropriate words from the list.

1. efficient 2. bills 3. funds 4. computers 5. finances

6. interest 7. outstanding 8. cash 9. dividends 10. payments

Financial Managers try to minimize the amount of.... held in the form of cash since it does not earn interest. However, some funds must be available each day in the firm's checking account to pay.... and to meet the payroll. Periodically, larger amounts of cash must be available to pay taxes, provide stockholders with.... (if the firm is a corporation), or make interest payments due on loans or mortgages. While the typical firm will use an interest-earning checking account for these funds, such accounts typically earn less.... than other investments.

The general principle underlying cash management is to minimize the amount of....required for businesses operations so that more can be used in interest-producing investments. In order to minimize the firm's cash needs, the financial manager should pay bills as late as possible and collect money owed to the firm as quickly as possible. These actions lead to.... cash management - as long as they do not damage the firm's credit rating or cost more than they save.

One of the least expensive ways for firms to manage.... themselves is by finding out where and how their cash is working for them. Banks are now selling desktop.... to larger companies, giving financial managers access to balances on bank accounts throughout the world. Excess funds that are not earning interest can be instantly moved elsewhere. Midsize companies use lock-boxes, which are essentially local addresses where customers can make.....Companies that receive large numbers of small checks can bypass banking delays caused by mailing this way. Still another new method of managing cash is the controlled disbursement account, a system that lets a firm know how many checks and in what amounts will clear what banks at what time. Firms can then keep funds invested until the minute.... checks clear.

I. Answer the questions using the information from the text.

1. Why does a company need money?

2. What can lead to bankruptcy and dissolution of the firm?

3. What are two different kinds of financial outlays?

4. What are short-term (operating) expenditures?

5. What are accounts payable?

6. Why is it the firm's interest to withhold payment as long as it can?

7. What are accounts receivable?

8. What is a credit policy?

9. In what cases do financial managers deny credit to firms?

10. What do payment terms determine?

11. What is inventory?

12. What is raw materials inventory?

13. What is work-in-process inventory?

14. What is finished-goods inventory?

15. What financial consequences can failure to manage inventory lead to?

16. What are long-term (capital) expenditures?

17. What are fixed assets?

18. Why do long-term expenditures pose special problems for the financial manager?

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