THE ROLE OF THE FINANCIAL MANAGER●Financial managers: plan and control financial assets●Finance typically involves 4 responsibilities:○Determining 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 takesObjectives of the Financial Manager●Financial manager’s overall objective is to increase a firm’s value and stockholders’wealth●Do many things to increase value:○Collect funds○Pay debts○Establish trade credit○Obtain loans○Control cash balances○Plan for future financial needsResponsibilities of the Financial Manager●Increasing firm’s wealth fall into 3 general categories:Cash-Flow Management●Must ensure there is always enough cash on hand to purchase materials and humanresources needed to produce goods/services●Funds that are not needed immediately must be invested to make more money●Having too much cash on hand means not making as much money if you invested itinsteadFinancial Control●Because things never go exactly as planned, financial managers must makeadjustments for actual chances that happen●Financial control: process of checking actual performance against plans to ensuredesired outcome happens●Control involves watching revenue streams and making appropriate adjustments●Discrepancy in budgets indicate need for financial adjustmentsFinancial Planning●Financial plan: describes a firm’s strategies for reaching some future financialposition●Must answer several questions when constructing a financial plan○What funds are needed to meet immediate plans?
○When will the firm need more funds?○Where can the firm get the funds to meet both its short-term and its long-termneeds?●To answer these questions, managers must develop clear picture of why firm needsfunds●Must also assess relative costs and benefits of potential funding sourcesWHY BUSINESSES NEED FUNDSShort-Term (Operating) ExpendituresAccounts Payable●Most companies, this is largest category of short-term debtAccounts Receivable●Sound financial plan requires financial managers to project accurately both howmuch credit is advanced to buyers and when they will make paymentsCredit Policies●Predicting payment schedules is function of credit policy — rules governing firm;sextension of credit to customersInventories●Between buying raw materials and selling finished products, firm spends funds ininventory●Too little inventory can cost firm sales●Too much inventory means you could be using those funds elsewhere●Basic supplies: raw-materials inventory●Goods part way through production: work-in-process inventory●Finished-goods inventory: goods that are ready for saleLong-Term (Capital) Expenditures●Long-term expenditures differ from short-term outlets:○
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