• Those managers responsible for planning and overseeing the financial resources of a
• The business function involving decision about a firm’s long-term investments and
obtaining the funds to pay for those investments
1. Determining a firm’s long-term investments
2. Obtaining funds to pay for those investments
3. Conducting the firm’s everyday financial activities
4. Managing the risks that the firm takes
Responsibilities of the financial manager
• Cash flow management
o Managing the patter in which cash flows into the form in the form of revenues
and out of the firm in the form of debt payments
• Financial control
o The process of checking actual performance against plans to ensure that the
desired financial status is achieved.
• Financial planning
o A description of how a business will reach some financial position it seeks for the
future; includes projections for sources and uses of funds.
What funds are needed to meet immediate plans?
When will the firm need more funds?
Where can the firm get the funds to meet both its short and long term
Short term Expenditures (operating)
• Accounts payable
o Unpaid bills owed to suppliers plus wages and taxes due within a year.
• Accounts receivable
o Funds due from customers who have bought on credit.
Credit policy • Rules governing a firm’s extension of credit to customer.
o Materials and goods currently held by the company that will be sold within the
o Raw materials inventory
The portion of a firm’s inventory consisting of basic supplies used to
manufacture products for sale.
o Work-in-process inventory
The portion of a firm’s inventory consisting of goods partway through the
o Finished goods inventory
The portion of a firm’s inventory consisting of completed goods ready for
Long term expenditures (capital)
• Mainly for fixed assets, lasting use and value
• Not normally sold or converted to cash
• Required a very large investment
• Represent binding commitment of company funds that continues long into the future.
Sources of short term funds
• Trade credit
o The granting of credit by a selling firm to a buying firm.
Open book credit
• Form of trade credit in which sellers ship merchandise on faith that
payment will be forthcoming
• Form of trade credit in which buyers sign promise-to-pay
agreements before merchandise is shipped
• Form of trade credit in which buyers must sign statements of
payment terms attached to merchandise by sellers.
Trade acceptance • Trade draft that has been signed by the buyer
• Secured short term loans
o A short-term loan in which the borrower is required to put up collateral
• Any asset that a lender has the right to seize if a borrower does
not repay a loan
• Inventory as collateral
• Accounts receivable as collateral
• Unsecured short term loans
o A short term loan in which the borrower is not required to put up col