Finance Final Exam (Notes 1)

Finance Final Exam - LectureNotes:Finance Accounting providesinformation Finance ,disposition, Ultimateobjective Shareholders

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Lecture Notes: Finance - Financial management is made up of:  Accounting provides information Finance makes decisions about the  acquisition disposition , and  management  of capital with the  help of accounting information - Ultimate objective: Maximize shareholder wealth Shareholders are the owners of the company and a key stakeholder and thus the  business must be managed with their interests in mind.  In order to accomplish this, two goals  must be pursued. .. - Goals:  Viability of the business  keeping it "afloat” or managing the  risk  of it "going under” or bankrupt both in the short-term[liquidity] i.e. available cash, and in the long-term [stability] i.e. able  to pay bills in the future Profitability  Provides  return - Risk-Return   Tradeoff: What is interesting about finance and becomes a central theme to most of our  discussions is that is it impossible to pursue both of these goals at the same time.  There  is always a tradeoff between risk and return.  I.e.  Every dollar kept in liquid form (not  invested) to pay bills and reduce risk (viability), is a dollar that could have been invested  to earn a return (profitability). And vice versa. So if you keep $1 as cash to increase liquidity, you improve viability but you could have  invested it to POSSIBLY increase profitability You need to take risks to make money, thus if you stay away from risk you make less  money so the key is to balance it
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You must strike a perfect balance Finance Department’s Responsibilities Determining financial resources required: Disposition  of funds, money is going where it is needed (budgeting) Obtaining financial resources required: Acquisition , where we getting the money from? (financing) Managing the financial resources effectively: Working capital  management  (short-term money management) Investing (management   of long-term funds) Decisions  – Come from the Balance Sheet - Assets are the investing component and equities make up the financing - Short Term – working capital management Liquidity (current assets) Working Capital Cycle (as money works through we’ve got to pay bills) Cash Budgeting - Long Term – capital budgeting (assets) Amount and mix Operating leverage - CVP - Long Term – capital structure (equities) Stability Financial Leverage EBIT analysis Budgeting – Planning our Financial Needs 3 steps: 1. Forecasting financial needs
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short term - cash flow forecast long term  - investments/capital assets 2. Developing budgets to meet those needs master budget  - operating budget: here’s what we need to operate the business
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This note was uploaded on 08/10/2011 for the course BUS 121 taught by Professor L during the Spring '10 term at Wilfred Laurier University .

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Finance Final Exam - LectureNotes:Finance Accounting providesinformation Finance ,disposition, Ultimateobjective Shareholders

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