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Chapter 18 new - Chapter 18 Financial Management THE ROLE...

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Chapter 18 Financial Management
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THE ROLE OF FINANCE: COMPARING THE ACCOUNTANT AND THE FINANCIAL MANAGER : The role of an ACCOUNTANT is like a skilled technician who takes measures of a company’s health and writes a report. FINANCIAL MANAGERS use the data prepared by accountants and make recommendations to top management regarding STRATEGIES FOR IMPROVING THE COMPANY’S FINANCIAL STRENGTH.
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THE ROLE OF FINANCE (contd.) . A manager cannot make sound financial decisions without understanding accounting information. The need for careful financial management remains an ongoing challenge in a business throughout its life.
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THE ROLE OF FINANCE (contd.) The MOST COMMON WAYS FOR FIRMS TO FAIL FINANCIALLY are: 1- UNDERCAPITALIZATION , or not enough funds to start with. 2- POOR CASH FLOW , or cash in minus cash out. 3- INADEQUATE EXPENSE CONTROL.
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WHAT IS FINANCE? FINANCE is the function in a business responsible for acquiring funds for the firm, managing funds within the firm, and planning for the expenditure of funds on various assets. Without a carefully calculated business plan, the firm has little chance for survival. FINANCIAL MANAGEMENT is the job of managing a firm’s resources so it can meet its goals and objectives. Most organizations will designate a manager in charge of financial operations.
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DUTIES AND RESPONSIBILITIES OF THE FINANCIAL MANAGER: ONE: FINANCIAL PLANNING Financial planning involves analyzing short-term and long-term money flows to and from the firm. The major objective of financial planning is TO OPTIMIZE PROFITS AND MAKE THE BEST USE OF MONEY. The steps involved in FINANCIAL PLANNING are: 1-FORECASTING both long-term and short-term financial needs. 2-DEVELOPING BUDGETS to meet those needs. 3- ESTABLISHING FINANCIAL CONTROL to see how well the company is following the financial plans.
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DUTIES AND RESPONSIBILITIES OF THE FINANCIAL MANAGER (Contd.) 1 st FORECASTING FINANCIAL NEEDS . A SHORT-TERM FORECAST is a prediction of revenues, costs, and expenses for a period of one year or less. A CASH FLOW FORECAST is a prediction of cash inflows and outflows in future periods, usually months or quarters. The inflows and outflows of cash are based on expected sales revenues and on various costs and expenses.
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