Chapter 15 - Chapter 15 Financial Decisions and Risk...

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Chapter 15: Financial Decisions and Risk Management The Roles of the Financial Manager o Financial managers – managers responsible for planning and overseeing the financial resources of a firm o Finance (corporate finance) – the business function involving decisions about a firm’s long-term investments and obtaining the funds to pay for those investments Determining a firm’s long-term investments Obtaining funds to pay for those investments Conducting the firm’s everyday financial activities Managing the risks that the firm takes o 20% CEO’s formerly CFO’s o Objectives of the Financial Managers Overall objective – increase a firm’s value and stockholders’ wealth through: collect funds, pay debts, establish trade credit, obtain loans, control cash balances, plan for future financial needs Accountants create data to reflect firm’s financial status - financial managers make decisions to improve that status Ensure company’s revenues exceed its costs – earns a profit o Responsibilities of the Financial Manager 3 categories – cash-flow management, financial control, financial planning Cash-Flow Management Managing the pattern in which cash flows into the firm in the form of revenues and out of the firm in form of debt payments Ensure that company always has enough funds on hand to purchase the materials and human resources it needs to produce goods/services Funds that aren’t needed immediately must be invested Financial Control The process of checking actual performance against plans to ensure that the desired financial status is achieved – unpredictable sales Budgets – measuring stick against which performance is evaluated Financial Planning A description of how a business will reach some financial position it seeks for the future – includes projections for sources and uses of funds What funds needed to meet immediate plans? When will the firm need more funds? Where can the firm get the funds to meet both its short and long term needs? Why does the firm need funds????? Why Businesses Need Funds o Distinguish between short-term (operating) expenditures and long-term (capital) expenditures- less than 1 year vs. more o Short-Term (Operating) Expenditures Accounts Payable/Receivable, and Inventories Accounts Payable Unpaid bills owed to suppliers plus wages and taxes due within a year Usually largest single category of a short-term debt Must know in advance the amounts payable and when they need to be repaid Rely on other managers for information about such obligations and needs Accounts Receivable Funds due from customers who have bought on credit Temporarily tie up funds – investment in products for which a firm has not yet received payment Credit Policy – rules governing a firm’s extension of credit to customers o Set standards to which buyers are eligible for what credit Inventories Materials and goods currently held by the company that will be sold within the year Too little – lost sales Too much – tied-up funds

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