Textbook Notes (363,063)
Canada (158,170)
MGTA02H3 (361)
Chapter 10

chapter 10 notes

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University of Toronto Scarborough
Management (MGT)
Chris Bovaird

Chapter 10 Financial Decisions Notes The Role of the Financial Manager N financial managers those managers responsible for planning and overseeing the financial resources of a firm N finance (corporate finance) the business function involving decisions about a firms long-term investments and obtaining the funds to pay for those investments N finance typically involves four responsibilities: (1) determining a firms long-term investments; (2) obtaining funds to pay for those investments; (3) conducting the firms everyday financial status; (4) helping to manage the risks that the firm takes Objectives of the Financial Manager N financial managers collect funds, pay debts, establish trade credit, obtain loans, control cash balances, and plan for future financial needs; but a financial managers overall objective is to increase a firms value and thus stockholders wealth N financial managers make decisions for improving that status and therefore must ensure that a company that it earns a profit N in sole proprietorships and partnerships, profits translate directly into increases in owners wealth N in corporations, profits translate into an increase in the value of common stock Responsibilities of the Financial Manager N the various responsibilities of the financial manager in increasing a firms wealth fall into three general categories: cash flow management, financial control, and financial planning Cash Flow Management N to increase a firms value, financial managers must ensure that it always has enough funds on hand to purchase the materials and human resources that it needs to produce goods and services N at the same time, there may be funds that are not needed immediately, which must be invested to earn more money for a firm N cash flow management managing pattern in which cash flows in the form of revenues and out in the form of debt payments N by locating idle cash and putting it to work, firms gain additional income, and can avoid having to borrow from outside sources N the savings on interest payments can be substantial Financial Control N because things never go as planned, managers must be prepared to make adjustments for actual financial changes that occur N financial control process of checking actual performance against plans to ensure that the desired financial status is achieved N budgets are often the backbone of financial control N the cash flows, debts, and assets not only of the whole firm but also of each department are compared at regular intervals against budgeted amounts and discrepancies indicate the need for financial adjustments so that resources are used to the best advantage Financial Planning N financial plan a description of how a business will reach some financial position it seeks for the future; includes projections for sources and uses of funds N a financial plan describes a firms strategies for reaching some future financial position Why Do Businesses Need Funds? N every company needs money to survive N failure to make a contractually obligated payment can lead to bankruptcy and the dissolution of the firm N however, the successful financial manager must distinguish between two different kinds of financial outlays: short-term (operating) expenditures and long-term (capital) expenditures Short-Term (Operating) Expenditures N a firm incurs short-term expenditures regularly in its everyday business activities N to handle these expenditures, financial managers must pay attention to AP, AR, and to inventories Accounts Payable N accounts payable are unpaid bills owed to suppliers plus wages and taxes due within the upcoming year N for most companies, this is the largest single category of short-term debt N to plan for funding flows, managers want to know in advance the amounts of new AP as well as when they must be repaid N for information about such obligations and needssay, the quantity of supplies required by a certain department in an upcoming periodfinancial managers must rely on other managers Accounts Receivable N accounts receivable consist of funds due from customers who have bought on credit N a sound financial plan requires financial managers to project accurately both how much credit is advanced to buyers and when they will make payments on their accounts N because AR represent an investment in products for which a firm has not yet received payment, they temporarily tie up its funds N clearly, the seller wants to receive payments as quickly as possible N credit policy rules governing a firms extension of credit to customers N this policy sets standards as to which buyers are eligible for what type of credit N typically, credit is extended to customers who have the ability to pay and who honour their obligations Inventories N between the time a firm buys raw materials and the time it sells finished products, it ties up funds in inventory N inventory materials and goods currently held by the company that will be sold within the year N failure to manage inventory can have grave financial consequences www.notesolution.com
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