BUS 201 CH 15.docx - BUS 201 CHAPTER 15 FINANCIAL DECISIONS...

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BUS 201CHAPTER 15FINANCIAL DECISIONS AND RISK MANAGEMENTLearning outcomesLO-1 Describe the responsibilities of a financial manager.LO-2 Distinguish between short-term (operating) and longterm (capital) expenditures.LO-3 Identify three sources of short-term financing for businesses.LO-4 Identify three sources of long-term financing for businesses.LO-5 Discuss the value of common stock and preferred stock to stockholders, and describe the secondarymarket for each type of security.LO-6 Explain the process by which securities are bought and sold.LO-7 Describe the investment opportunities offered by mutual funds, exchange-traded funds, hedge funds,and commodities.LO-8 Explain how risk affects business operations and identify the five steps in the risk managementprocess.THE ROLE OF THE FINANCIAL MANAGERFinancial managers plan and control the acquisition and dispersal of the company’s financialassets. The business activity known as finance (or corporate finance) typically involves four responsibilities:1. determining a firm’s long-term investments2. obtaining funds to pay for those investments3. conducting the firm’s everyday financial activities4. managing the risks that the firm takesGoal is to increase the firm’s value and stockholder;s wealthCollect funds, pay debts, establish trade credit, obtain loans, cash control balances, and plan forfuture financial needsEnsure enough funds on hand to purchase the materials and human resources that it needs to producegoods and services.Cash-flow management—requires careful planning. If excess cash balances are allowed to sit idleinstead of being invested, a firm loses the interest that it could have earnedFinancial control is the process of checking actual performance against plans to ensure that the desiredfinancial outcome occurs.For example, planned revenues based on forecasts usually turn out to be higher or lower thanactual revenues. Why? Simply because sales are unpredictable. Control involves monitoringrevenue inflows and making appropriate financial adjustments.The cornerstone of effective financial management is the development of a financial plan, which describesa firm’s strategies for reaching some future financial position.
• What funds are needed to meet immediate plans?

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Term
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