Textbook Notes (363,452)
Canada (158,372)
Management (802)
MGM101H5 (354)
Chapter 11

Chapter 11 Notes.docx

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University of Toronto Mississauga
Dave Swanston

Chapter 11 Notes – Financial Management - Finance; function in business that acquires funds for firm and manages those funds within firm o Preparing budgets o Doing cash flow analysis o Planning for expenditure of funds - Financial Management; job of managing a firm’s resources so it can meet goals o Without plan, firm has little chance of survival - Financial Managers; managers who make recommendations to top execs regarding strategies for improving financial strength of a firm o Responsible for managing accounts payable and accounts receivable - Financial Planning o Forecasting both short-term and long-term financial needs o Developing budgets to meet those needs o Establishing financial control to see how well the company is doing what it set out to do Forecasting Financial Needs - Short-Term Forecast; forecasts that predicts revenues, costs, and expenses for period of one year or less - Cash-Flow Forecast; forecast that predicts cash inflows and outflows in future periods, usually months or quarters - Long-Term Forecast; forecast that predicts revenues, costs, and expenses for period longer than one year, and sometimes as far as five or ten years into the future - Budget; financial plan that sets forth management’s expectations, and on basis of those expectations, allocates use of specific resources throughout firm o Operating (master) budget; budget that ties together all of firm’s other budgets  How much will the firm spend on supplies, travel, rent, research, salaries  Most detailed and most used budget  Mostly prepared on monthly basis for next 12 months o Capital budget; budget that highlights firm’s spending plans for major asset purchases that often require large sums of money  Assets such as property, building, and equipment o Cash budget; budget that estimates a firm’s projected cash inflows and outflows that firm can use to plan for any cash shortages or surpluses during given period Financial Control - Financial Control; process in which firm periodically compares its actual revenues, costs, and expenses with its budget - At least one monthly financial review to ensure financial control - Help managers identify variances to financial plan and allow them to take corrective action - Provide feedback to help reveal which accounts, which departments, and which people are varying from financial plans Need for Funds - Managing day-to-day needs of the business (page 265) - Controlling credit operations o Making credit available makes customers happy o Accepting credit cards (MasterCard and Visa) enhance sales and business no longer incurs cost of running credit department - Acquiring needed inventory o Businesses must maintain inventories that often involve sizable expenditures of funds - Making capital expenditures o 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  Often require huge portion of organization’s funds Alternate Sources of Funds (268) - Debt financing; funds raised through various forms of borrowing that must be repaid o Selling bonds o Loans from banks - Equity financing; funds raised from operations within the firm or through sale of ownership of firm o Retained earnings o Venture capital o Selling stock - Short-Term financing; borrowed funds
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