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MGM101H5 (354)
Chapter 11

MGM101 Chapter 11

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University of Toronto Mississauga
Dave Swanston

MGM101 Chapter 11 – Financial management finance The function in a business that acquires funds for the firm and manages those funds within the firm. financial management The job of managing a firm’s resources so it can meet its goals and objectives. financial managers Managers who make recommendations to top executives regarding strategies for improving the financial strength of a firm. Cash: Planning Budgeting Obtaining funds Auditing Controlling funds (funds management) Managing taxes Advising top management on financial matters Collecting funds (credit management) Short-term forecast: Forecast that 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: Forecast that predicts revenues, costs, and expenses for a period longer than one year, and sometimes as far as five or ten years into the future. Budget: A financial plan that sets forth management’s expectations, and, on the basis of those expectations, allocates the use of specific resources throughout the firm. Operating (master) budget: The budget that ties together all of a firm’s other budgets; it is the projection of dollar allocations to various costs and expenses needed to run or operate the business, given projected revenues. Capital budget: A budget that highlights a firm’s spending plans for major asset purchases that often require large sums of money. Cash budget: A budget that estimates a firm’s projected cash inflows and outflows that the firm can use to plan for any cash shortages or surpluses during a given period. Financial control: A process in which a firm periodically compares its actual revenues, costs, and expenses with its projected ones. Key areas include: Managing Day-to-Day Needs of the Business Controlling credit operations Acquiring needed inventory Making capital expenditures Capital expenditures: Major investments in either tangible long-term assets such as land, buildings, and equipment, or intangible assets such as patents, trademarks, and copyrights. Debt financing refers to funds raised through various forms of borrowing that must be repaid. Equity financing is money raised from within the firm (from operations) or through the sale of ownership in the firm Short term financing: Borrowed funds that are needed for one year or less Long term financing: Borrowed funds that are needed for longer periods, more than one year Trade credit: The practice of buying goods
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