Study Guides (256,443)
CA (124,652)
UTSC (8,077)
MGT (341)
MGTA02H3 (72)

Detailed

4 Pages
97 Views

Department
Management (MGT)
Course Code
MGTA02H3
Professor
Chris Bovaird

This preview shows page 1. Sign up to view the full 4 pages of the document.
Management Chapter 20: Financial Decisions and Risk Management
The Role of the Financial Manager
Financial managers: those managers responsible for planning and overseeing the financial resources of a
firm
Finance: the business function involving decisions about a firm’s long-term investments and obtaining the
funds to pay for those investments
oFour responsibilities: determining long-term investments; obtaining funds; conducting firm’s
everyday financial activities; help manage risks
Objectives of the Financial Manager
To increase firm’s value (and stockholders’ wealth) by making decisions to improve status (in corporations,
profits = increase in value of common stock)
Responsibilities of Financial Manager
Cash flow management: managing the pattern in which cash flows into the firm in the form of revenues and
out of the firm in the form of debt payments (idle cash should be invested)
Financial control: the process of checking actual performance against plans to ensure that the desired
financial status is achieved (sales are unpredictable so financial adjustments may need to be made) < budgets
provide measuring stick to evaluate performance
Financial planning: a description of how a business will reach some financial position it seeks for the future;
includes projections for sources and uses of funds
Why Do Businesses Need Funds
Failure to make contractually obliged payments can lead to bankruptcy
Short-Term (Operating) Expenditures
Accounts payable: unpaid bills owed to suppliers plus wages and taxes due within the upcoming year
Accounts receivable: funds due from customers who have bought on credit
oCredit policy: rules governing a firm’s extension of credit to customers (way of predicting payment
schedules) < credit usually allowed to customers who have ability to pay, vice versa
oEx. “2/10, net 30” means that customers have 2% discount if they pay within 10 days, must pay full
price within 30 days
Inventory: materials and goods currently held by the company that will be sold within the year (too much
means money can’t be spent elsewhere, too little means potential sales are lost)
oRaw materials inventory: that portion of a firm’s inventory consisting of basic supplies used to
manufacture products for sale (ex. Levi Straus has rolls of denim)
oWork-in-process inventory: that portion of a firm’s inventory consisting of goods partway through
the production process (ex. Cut out but not sewn jeans)
oFinished goods inventory: that portion of a firm’s inventory consisting of completed goods ready
for sale (completed jeans)
Working capital: difference between a firm’s current assets and current liabilities (liquid asset)
oWorking capital = inventories + accounts receivable (- accounts payable)
oUsually is 20% of sales (working capital is not useful cash flow, less working capital raises
earnings permanently) < less WC saves money
Long Term Capital Expenditures
Long term capital expenditures are not normally sold or converted to cash, acquisition requires large
investment, represent a binding commitment of company funds that continues into the future, more carefully
planned than short term expenditures
Fixed assets: items that have a lasting use or value
Sources of Short-Term Funds
Trade Credit
Trade credit: the granting of credit by a selling firm to a buying firm
oOpen book credit; form of trade credit in which sellers ship merchandise on faith that payment will
be forthcoming
oPromissory notes: form of trade credit in which buyers sign promise-to-pay agreements before
merchandise is shipped
www.notesolution.com

Loved by over 2.2 million students

Over 90% improved by at least one letter grade.

Leah — University of Toronto

OneClass has been such a huge help in my studies at UofT especially since I am a transfer student. OneClass is the study buddy I never had before and definitely gives me the extra push to get from a B to an A!

Leah — University of Toronto
Saarim — University of Michigan

Balancing social life With academics can be difficult, that is why I'm so glad that OneClass is out there where I can find the top notes for all of my classes. Now I can be the all-star student I want to be.

Saarim — University of Michigan
Jenna — University of Wisconsin

As a college student living on a college budget, I love how easy it is to earn gift cards just by submitting my notes.

Jenna — University of Wisconsin
Anne — University of California

OneClass has allowed me to catch up with my most difficult course! #lifesaver

Anne — University of California
Description
Management Chapter 20: Financial Decisions and Risk Management The Role of the Financial Manager Financial managers: those managers responsible for planning and overseeing the financial resources of a firm Finance: the business function involving decisions about a firms long-term investments and obtaining the funds to pay for those investments o Four responsibilities: determining long-term investments; obtaining funds; conducting firms everyday financial activities; help manage risks Objectives of the Financial Manager To increase firms value (and stockholders wealth) by making decisions to improve status (in corporations, profits = increase in value of common stock) Responsibilities of Financial Manager Cash flow management: managing the pattern in which cash flows into the firm in the form of revenues and out of the firm in the form of debt payments (idle cash should be invested) Financial control: the process of checking actual performance against plans to ensure that the desired financial status is achieved (sales are unpredictable so financial adjustments may need to be made) < budgets provide measuring stick to evaluate performance Financial planning: a description of how a business will reach some financial position it seeks for the future; includes projections for sources and uses of funds Why Do Businesses Need Funds Failure to make contractually obliged payments can lead to bankruptcy Short-Term (Operating) Expenditures Accounts payable: unpaid bills owed to suppliers plus wages and taxes due within the upcoming year Accounts receivable: funds due from customers who have bought on credit o Credit policy: rules governing a firms extension of credit to customers (way of predicting payment schedules) < credit usually allowed to customers who have ability to pay, vice versa o Ex. 210, net 30 means that customers have 2% discount if they pay within 10 days, must pay full price within 30 days Inventory: materials and goods currently held by the company that will be sold within the year (too much means money cant be spent elsewhere, too little means potential sales are lost) o Raw materials inventory: that portion of a firms inventory consisting of basic supplies used to manufacture products for sale (ex. Levi Straus has rolls of denim) o Work-in-process inventory: that portion of a firms inventory consisting of goods partway through the production process (ex. Cut out but not sewn jeans) o Finished goods inventory: that portion of a firms inventory consisting of completed goods ready for sale (completed jeans) Working capital: difference between a firms current assets and current liabilities (liquid asset) o Working capital = inventories + accounts receivable (- accounts payable) o Usually is 20% of sales (working capital is not useful cash flow, less working capital raises earnings permanently) < less WC saves money Long Term Capital Expenditures Long term capital expenditures are not normally sold or converted to cash, acquisition requires large investment, represent a binding commitment of company funds that continues into the future, more carefully planned than short term expenditures Fixed assets: items that have a lasting use or value Sources of Short-Term Funds Trade Credit Trade credit: the granting of credit by a selling firm to a buying firm o Open book credit; form of trade credit in which sellers ship merchandise on faith that payment will be forthcoming o Promissory notes: form of trade credit in which buyers sign promise-to-pay agreements before merchandise is shipped www.notesolution.com
More Less
Unlock Document


Only page 1 are available for preview. Some parts have been intentionally blurred.

Unlock Document
You're Reading a Preview

Unlock to view full version

Unlock Document

Log In


OR

Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit