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Chapter 12

MGTA01H3 Chapter Notes - Chapter 12: Cash Flow, Corporate Finance, Trade Credit

Management (MGT)
Course Code
Chris Bovaird

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Ch 12
Financial managers: those managers responsible for planning and overseeing the
financial resources of a firm
Finance (corporate finance): the business function involving decision about a firm's long-
term investments and obtaining the funds to pay for those investments
--finance typically involves four responsibilities:
-determining a firm's long-term investments
-obtaining funds to pay for those investment
-conducting the firm's everyday financial activities
-helping to manage the risk that the firm takes
oA financial manager's overall objective is to increase a firm's value—and thus
stockholder's wealth. Financial managers must ensure that a company earns a profit
oThe various responsibilities of the financial manager in increasing a firm's wealth fall into
three general categories: cash flow management, financial control, and financial
Cash flow management: managing the pattern in which cash flows into the firm in the
form of revenues and out of the firm in the form of debt payments
Cash flow management: managing the pattern in which cash flows in
and out
--cash flow management requires careful planning. If excess cash balance are allowed
to sit idle instead of being invested, a firm loses the cash returns it could have earned
oThe successful financial manager must distinguish between two different kinds of
financial outlays: short-term (operating) expenditures and long-term (capital)
o1. To handle these short-term expenditures , financial managers must pay attention to
accounts payable, accounts receivable, and inventories
Credit policy: rules governing a firm's extension of credit to customers
--this policy sets standards as to which buyers are eligible for what type of credit
Inventory: materials and good currently held by the company that will be sold within the
-- too little inventory can cost a firm sales. Too much means tied-up funds that cannot be
used elsewhere
--there are three basic types of inventories: raw materials, work-in-process, and finished
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