Chap 15.docx - CHAPTER 15: Financial Decisions and Risk...

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CHAPTER 15: Financial Decisions and Risk ManagementLO-1: The Role of Financial ManagerFinance: the business function involving decisions about a firm’s long-term investments and obtainingfunds 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 takes1.Objectives of the Financial Manager-Increase a firm’s value and stockholders’ wealth by collect funds, pay debts, establish tradecredit, obtain loans, control cash balances and plan for future financial needs-Make sure revenues exceed costs2.Responsibilities of the Financial Manager-Cash-flow Management: managing the pattern in which cash flows into the firm in the form ofrevenues and out the firm in the form of debt payments+ Ensure the firm has enough funds on hand to purchase the materials and human resourcesthat it needs to produce goods and services+ Funds not needed must be invested immediately to earn more money-Financial control: the process of checking actual performance against plans to ensure that thedesired financial status is achieved+ Monitoring revenue inflows and making appropriate financial adjustments-Financial planning+ Develop afinancial plan: a description of how a business will reach some financial position itseeks for the future; includes projections for sources and uses of funds+ Develop clear picture of why a firm needs funds+ Assessing the relative costs and benefits of potential funding sourcesLO-2: Why Businesses Need Funds1.Short-Term (Operating) Expenditures-Accounts payable:unpaid bills owed to suppliers plus wages and taxes due within a year-Accounts receivable:funds due from customers who have bought on credit+ Credit Policies: predicting payment schedules to set standards as to which buyers are eligiblefor what type of credit-Inventories:materials and foods currently held by the company that will be sold within a year+ Raw-materials inventory:basic supplies a firm buys to use in its production process+ Work-in-process inventory:goods partway through the production process+ Finished-goods inventory:items ready for sale2.Long-Term (Capital) Expenditures-Not normally sold or converted to cash-Acquisition requires a very large investment-Represent a binding commitment of company funds that continues long into the futureLO-3: Sources of Short-Term Funds
1.Trade Credit: the granting of credit by selling firm to a buying firm-Open-book credit: buyers receive merchandise along with invoices stating credit terms, sellersship products on faith that payment will be forthcoming-Promissory notes:the agreement states when and how much money will be paid to seller-Trade-draft:attached to the merchandise shipment by the seller and states the promised dateand amount of payment due, buyer must sign the draft to take possession of the merchandise.

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Term
Spring
Professor
N/A
Tags
Finance, Business, Management,

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