Chapter 11: Financial Management
What is finance and financial managers?
Finance: How the business acquires funds and manages those funds.
Financial managers: interpret data from accountants, then make recommendations to executives to
improve financial strength of firm.
Financial management: managing firms resources.
Why is it important to understand finance?
• Poor control over cash
• Inadequate expense control
Managers must stay updated of changes or opportunities in finance and adjust accordingly.
What is financial planning?
Financial planning is analyzing shortterm and longterm money flows to and from the firm
1. Forecasting shortterm and longterm financial needs
2. Developing budgets to make needs
3. Establishing financial control
Explain the different parts of forecasting?
ShortTerm forecast: forecast that predicts revenues, costs, and expense within a year
Cast Flow forecast: predicts cash inflows and outflows I the future using quarters and months
LongTerm Forecasts: forecasts that predict revenues, costs, and expenses longer than a year What are the different types of budgets?
Budget: Is a financial plan that allows for specific resources to be allocated efficiently throughout the
1. Operating (master) Budgets
• Ties together all firms budgets
• Summarizes business’s financial activities
• Most detailed and most used budget
• Prepare operating budget on a monthly basis
2. Capital Budgets
• Firm’s spending plans for major asset purchases (land, buildings and equipment)
3. Cash Budgets
• Estimates cash inflows and outflows so it can use to plan for cash shortages or surpluses
What are financial controls?
When firms periodically compare its revenues, expenses and sots with its budgets
Why do firm’s need funds?
• Managing daytoday needs of the business
o Funds need to be available for all operational costs of the business
o (People expect to be paid on time)
• Controlling credit operations
o Firms that make credit available will have more customers
o Firms generally accept MasterCard of VISA (customers credit history)
• Acquiring needed inventory
o Make sure there’s shit for customers to buy, and no wait times
o Just in time inventory
• Making capital expenditures
o Capital expenditures are major investments in longterm assets, or intangible assets such
as trademarks, copyrights, and patents
What are some alternate sources of funds?
• Debt financing: funds raised from various forms of borrowing that needs to be repaid.
• Equity financing: money raised from within the firm (operation) or sale of ownership (sale of
• Short term financing: funds needed for one year
• Long term financing: funds needed for longer than a year. Forms of ShortTerm Financing
• Trade credit
o Least expensive and accounts payable
o The practice of buying goods and services now and paying later
o Promissory note: written contract with a promise to pay
• Family and Friends
o Borrowing money from friends
o Less than a year, but can create problems
• Financial institutions
o Banks are reluctant to lend money to small business.
• Short term loans (different forms)
o Secured loan: loan backed up by something valuable (property)
o Unsecured loan: not backed up
o Line of credit: an amount of unsecured funds a bank will lend to a business
o Revolving Credit agreement: line of credit approved by bank
o Commercial finance companies: organizations that make short term loans to borrowers
with tangible assets
o Selling A/R for cash
• Commercial Paper
o Unsecured promissory notes of $100,000 and up that mature (come due) in 365 days or
Forms of LongTerm Financing
3 Major questions
1. What is the organizations long term goals and objectives?
2. What are the financial requirements needed to achieve these goals?
3. What sources of longterm capital is available and which fits our needs?
• Borrowing from lending institutions
o TermLoan agreement: promissory note that means the borrower has to repay loan
o ADV: interest paid is tax deductible
o Risk/ return trade off: greater the risk the higher the interest
• Issuing Bonds
o Bond: longterm debt obligation to a corp or gov.
o Institutional investors: large org. That invest their own funds
o Maturity date: exact date the issuer must pay bondholder.
What are the different classes of bonds?
Debenture bonds: unsecured (no collateral)
Secured bonds: ^ the opposite What are sinking funds and why are the attractive
• They provide for an orderly retirement (repayment) of a bond issue They reduce the risk the bond
will not be repaid
• The market price of the bond is supported because the risk of the firm not repaying the principal
on the maturity date is reduced
• Selling stock
• Retained earnings
• Venture capital
2 Types of Shares
Common and Preferred (BASIC ACCOUNTING SHIT)
Chapter 12: Marketing What is marketing?
Determining customer needs and wants, then making goods and services to meet those expectations
Green marketing: same shit, just environmentally friendly.
What is the evolution of marketing?
• Europeans settled in Canada in 1900’s, philosophy was to produce as much as possible
• Vast demand back in the day, and most goods were bought as soon as they were available
• 1920’s mass production techniques have been established.
• Emphasis on selling and advertising
• 1945, more demand for returning soldiers (babyboom)
• Competition was fierce so Marketing concept emerged.
Customer orientation, service orientation and profit orientation
4. Customer Relationship
• CRM: learning as much as possible about customers.
• 1990’s concept of customer relationship
What is the marketing mix?
2. Conduct research
3. Indentify a target market
4. Design a product to meet the needs
5. Determine a brand name and design package
6. Set a price
7. Select distribution system
8. Design a promotional program
9. Build a relationship with customers