Chapter 15 - THE ROLE OF THE FINANCIAL MANAGER ● ●...

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THE ROLE OF THE FINANCIAL MANAGERFinancial managers: plan and control financial assetsFinance typically involves 4 responsibilities:Determining 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 ManagerFinancial manager’s overall objective is to increase a firm’s value and stockholders’wealthDo many things to increase value:Collect fundsPay debtsEstablish trade creditObtain loansControl cash balancesPlan for future financial needsResponsibilities of the Financial ManagerIncreasing firm’s wealth fall into 3 general categories:Cash-Flow ManagementMust ensure there is always enough cash on hand to purchase materials and humanresources needed to produce goods/servicesFunds that are not needed immediately must be invested to make more moneyHaving too much cash on hand means not making as much money if you invested itinsteadFinancial ControlBecause things never go exactly as planned, financial managers must makeadjustments for actual chances that happenFinancial control: process of checking actual performance against plans to ensuredesired outcome happensControl involves watching revenue streams and making appropriate adjustmentsDiscrepancy in budgets indicate need for financial adjustmentsFinancial PlanningFinancial plan: describes a firm’s strategies for reaching some future financialpositionMust answer several questions when constructing a financial planWhat 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 needsfundsMust also assess relative costs and benefits of potential funding sourcesWHY BUSINESSES NEED FUNDSShort-Term (Operating) ExpendituresAccounts PayableMost companies, this is largest category of short-term debtAccounts ReceivableSound financial plan requires financial managers to project accurately both howmuch credit is advanced to buyers and when they will make paymentsCredit PoliciesPredicting payment schedules is function of credit policy — rules governing firm;sextension of credit to customersInventoriesBetween buying raw materials and selling finished products, firm spends funds ininventoryToo little inventory can cost firm salesToo much inventory means you could be using those funds elsewhereBasic supplies: raw-materials inventoryGoods part way through production: work-in-process inventoryFinished-goods inventory: goods that are ready for saleLong-Term (Capital) ExpendituresLong-term expenditures differ from short-term outlets:

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