Chapter 18 - Chapter 18: Financial Management I. What is...

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Chapter 18: Financial Management I. What is finance and what do financial managers do? a. Finance a.i. The function in a business that acquires funds for the firm and manages those funds within the firm a.ii. Activities: preparing budgets, doing cash flow analysis, and planning for the expenditure of fund son such assets as plant, equipment, and machinery b. Financial management : b.i. The job of managing a firm’s resources so it can meet its goals and objectives b.ii. Financial managers examine the financial data prepared by accountants and make recommendations to top executives regarding strategies for improving the health (financial performance) of the firm c. The tasks of a financial manager c.i. Auditing c.ii. Planning c.iii. Budgeting c.iv. Obtaining funds c.v. Controlling funds c.vi. Collecting funds c.vii. Advising top management on financial matters c.viii. Managing taxes d. Three of the most common ways to fail financially d.i. Under-captilization (lacking enough funds to start the business) d.ii. Poor control over cash flow d.iii. Inadequate expense control e. the importance of understanding finance e.i. finance and accounting are two areas that everyone involved in business needs to study II. What is financial management? a. Financial managers are responsible for seeing that the company pays its bills b. Also responsile for collecting ovrdue payments and making sure the company doesn’t lose too much money c. Financial managers msut stay abreast of chanes or opportunities in finance and prepare to adjust to them d. Must stay abreast of changes in tax law e. Must have regular, throuohly conducted internal audits III. Financial Planning a. Key responsibility of the financial manaer b. Involves managers short term and long-temr money flows to and from the frm c. Objective is to optimize profitaiblitya dn make best use of money d. 3 steps of financial planning d.i. Ofrecasting both short-temr and long-term financial needs
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d.i.1. short-term forecast d.i.1.a. forecast that predicts revenues, costs, and expenses for a period of one year or less d.i.1.a.i. cash flow forecast predicts cash inflows nad outflows in future periods, usually months or quarters d.i.2. long-term forecast d.i.2.a. predicts revenues, costs, and expenses for a period loner than 1 year, sometimes as far as 5 or 10 years into the future d.ii. Developing budgets to met those needs d.ii.1. sets forth management’s expectations for revnues adnd, on the basis of those expectations, allocates the use of specific resources throughout the firm d.ii.2. key financial statements (balance sheet, income sttemetn, and statement of cash flows0 Form the basis for the budgeting process d.ii.3. types of udgets d.ii.3.a. capital budget d.ii.3.a.i. a budget that highlights a firm’s spending plan for major assest purchases that often require lare sums of money d.ii.3.a.ii. primarily concerned with assets like propert, buildings and equipment d.ii.3.b. cash budget d.ii.3.b.i. estimate a firm’s projectd cash inflows nad outflos
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Chapter 18 - Chapter 18: Financial Management I. What is...

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