Afm 131 chapter 17 notes - Afm 131 chapter 17 notes The...

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Afm 131 chapter 17 notes The role of finance and financial manager Finance is the function in a business that acquires funds for the firm and manages them within the firm - Preparing budgets, cash flow analysis, planning for expenditure of funds on things like plant equipment and machinery Financial management is the job of managing a firm’s resources to meet its goals and objectives Financial managers examine the financial data prepared by accountants and recommend strategies for improving the financial performance of the firm Financial managers need to understand accounting to make decisions, but accountants also need an understanding of finance - These two field are like bread and butter (very close) - They are usually monitored bu the same officer such as CFA or VP of finance For all the tasks that financial managers do, go to diagram on pg 296 (bottom) The value of understanding finance The three main reasons why firms fail are: 1. Undercapitalization (insufficient funds to start a business) 2. Poor control over cash flow 3. Inadequate expense control What is financial management? Financial managers are responsible for making sure bills are paid on time, and making sure overdue collections are collected so the company does not incur too many bad debt - Financial managers need to be up to date on tax law changes and know how thye apy to managerial decisions - They want to minimize the amount of tax they must pay - A person in the finance department will usually do internal audits to help accounting information be more accurate Financial Planning - To analyze short term and long term money flow to and from the firm - To optimize profitability and make the best use of it’s money - Steps to do this: 1. Forecasting firm’s short term and long term financial needs Short term forecast predicts revenues, costs and expenses for a period of one year or less Cash flow forecasts is a part of the short term forecast that predicts cash inflows and outflows in future periods such as months or quarters - Based on expected sales, expenses, collections and debt payments - These expected sales and others mentioned above are based on previous financial statements Long Term Forecast predicts revenue, costs, and expenses, for a period longer than one year, and sometimes as long as 5 or 10 years - Plays a big role in long term strategic planning o How much to invest in tech, where will we be in 5 years, future expenditures for capital assets
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2. Developing a budget for those needs Budget is a financial plan that sets forth management’s expectations and uses resources based on said expectations throughout the firm - Based on financial statements - Very important because it guides the companies operations and financial needs There are different types of budgets.
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