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MGM101H5 Chapter Notes -Accounts Receivable, Debenture, Investment

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Dave Swanston

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Financial Management
Finance: function in a business that acquires funds for firm and manages those funds
within firm and manages those funds within the firm
Financial Management: job of managing a firm’s resources so it can meet its goal and
Financial Managers: managers who make recommendations to top executives
regarding strategies for improving the financial strength of a firm
Financial Planning: key responsibility of financial manager in a business
oForecasting both short term and long term financial needs
oForecasting Financial Needs
Short Term Forecast: predicts revenues, costs, and expenses for a period of one year
or less
Cash flow forecast: forecast that predicts the cash inflows and outflows in future
periods, usually months or quarters
Long Term Forecast: predicts revenues, costs, expenses for a period longer than one
year, and sometimes as far as 5 or 10 years into future
Budget: financial plan sets forth management’s expectations and on basis of those
expectations, allocates use of specific resources throughout firm
Types of Budgets Established in Firm’s Financial Plan

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Financial Management
Operating Budget: budget that ties together all of a firm’s other budgets; it = projection
of dollar allocations to various costs and expenses needed to run or operate the
business, given projected revenues
Capital Budget: budget highlights firm’s spending plans for major asset purchases that
often require large sums of money
Cash Budget: budget that estimates a firm’s projected cash inflows and outflows that
the firm can use to plan for any cash shortages or surplus during a given period.
Establishing Financial Controls
Financial Control: process in which a firm periodically compares its actual revenues,
costs and expenses with its projected ones
Need for Funds
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