Afm 131 Module 9; Financial Management

Front 1

finance

Back 1

the function in a business that acquires funds for the firm & manages them within the firm

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financial management

Back 2

the job of managing a firm's resources to meet its goals & objectives

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financial managers

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managers who examine the financial data prepared by accountants & recommend strategies for improving the financial performance of the firm

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financial managers main tasks include

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auditing, managing taxes, advising tip management on financial matters, collecting funds, controlling funds, obtaining funds, budgeting, planning

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3 most common reasons a firm fails financially

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1. under capitalization (not enough funds to start)

2. poor control over cash flow

3. inadequate expense control

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financial planning, 3 steps

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1) forecasting a firm's short-term & long-term financial needs

2) developing budgets to meet those needs

3) establishing financial control to see whether the company is achieving its goals

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short-term forecast

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predicts revenues, costs & expenses for a period of one year or less

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cash flow forecast

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predicts the cash inflows in future periods usually months or quarters

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long-term forecast

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predicts revenues, costs, & expenses for a period longer than a year & sometimes as far as five or ten years into the future

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budget

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financial plan that sets forth management's expectations & on the basis of those exceptions allocates the use of specific resources through the firm

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3 types of budgets

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operating budget, capital budget, cash budget

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operations budget

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budget that ties together all of a firm's other budgets & summarizes the business's proposed financial activities

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capital budget

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budget that highlights a firm's spending plans for major asset purchases that often require large sums of money like property, building, & equipment

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cash budget

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estimates cash inflows & cut flows during a particular period *sales made later in the month will not be collected until the next month

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financial control

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process in which a firm periodically compares its actual revenues, cost & expenses with its projected ones

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4 need for funds

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1. managing day-to-day needs of the business

2. controlling credit operations

3. acquiring needed inventory

4. making capital expenditures

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capital expenditures

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major investments in either tangible long-term assets such as land, building, & equipment or intangible assets such as patents, trade-marks & copy rights

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equity financing

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money raised from within the firm or through the sale of ownership in the firm

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debt financing

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funds raised through various forms of borrowing that must be repaid

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short-term financing

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funds needed for one year or less

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long-term financing

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funds needed for period more than one year

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short-term funds

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monthly expenses, unanticipated emergencies, cash flows problems, expansion of current inventory, temporary promotional programs

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long-term funds

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new-product development, replacement of capital equipment, mergers or acquisitions, expansion into new markets, new facilities

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trade credit

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practice of buying goods & services now & paying for them later

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promissory note

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written contract with promise to pay