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Chapter 15: Financial Decisions and Risk ManagementLO-1:the role of the financial managerFinancial managers plan and control the acquisition and dispersal of the company’s financialassetsFinance: the business function involving decisions about a firm’s long-term investments andobtaining the funds to pay for those investmentso4 responsibilitiesDetermining a firm’s long-term investmentsObtaining funds to pay for those investmentsConducting the firm’s everyday financial activitiesManaging the risks that the firm takesObjectives of the financial manageroObjective is to increase a firm’s value and stockholders’ wealthcollect funds, pay debt,establish trade credit, obtain loans, control cash balances, and plan for future financialneedsResponsibilities of the financial manageroCash-flow management: managing the pattern in which cash flows into the firm in theform of revenues and out of the firm in the form of debt paymentBy putting idle cash to work, firms gain additional investment incomeoFinancial control: the process of checking actual performance against plans to ensurethat the desired financial status is achievedoFinancial planning: a description of how a business will reach some financial position itseeks for the future; includes projections for sources and uses of fundsWhat funds are needed to meet immediate plans? When will the firm needmore funds? Where can the firm get the funds to meet both its short- and itslong-term needs?LO-2:why businesses need fundsShort-term (operating) expendituresoAccounts payableoAccounts receivableCredit policy: the rules governing a firm’s extension of credit to customersoInventory: materials and goods currently held by the company that will be sold withinthe yearRaw-materials inventory: firm buys to use in its production processWork-in-process inventory: consist of goods partway through the productionprocessFinished-goods inventory: refers to items that are ready for saleLong-term (capital) expendituresoMore carefully planned out than short-term outlays. Their acquisition requires a verylarge investment (cover fixed assets)LO-3: sources of short-term funds
-Firms can call on many sources of funds they need to finance day to dayoperations and to implement short-term plansTrade credit: the granting of credit by a selling firm to a buying firmoOpen-book credit: buyers receive merchandise along with invoices stating credit terms.Sellers ship products on faith that payment will be forthcoming (gentlemen’s agreement)oPromissory notes: agreement states when and how money will be paidoTrade draft: forms of credit in international transactionsSecured short-term loansoSecured loans: a short-term loan in which the borrower is required to put up collateral