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MGTA02H3 (400)
Chapter 12

Chapter 12- Financial Decisions


Department
Management (MGT)
Course Code
MGTA02H3
Professor
Bill Mc Conkey
Chapter
12

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Chapter 12- Financial Decisions
1- Describe the responsibilities of a financial manager
THE ROLE OF THE FINANCIAL MANAGER
Financial managers- those managers responsible for planning and overseeing the
financial resources of a firm
Finance/corporate finance- the business function involving decisions about a firm’s
long-term investments and getting the funds to pay for those investments
Involves 4 responsibilities:
oDetermining a firm’s long-term investments
oGetting funds to pay for those investments
oCarrying on the firm’s everyday financial activities
oHelping to manage the risks that the firm takes
Objectives of the Financial Manager
Collect funds, pay debts, establish trade credit, get loans, control cash
balances, and plan for future financial needs
Increase a firm’s value and stockholders’ wealth
Make decisions for improving the firm’s financial status
Ensures that a company earns a profit
Responsibilities of the Financial Manager
Cash Flow Management
Must ensure that the firm always has enough funds on hand to purchase the
materials and human resources that it needs to produce goods and services
Cash flow management- managing the pattern in which cash flows into the firm as
revenues and out of the firm as debt payments
Financial Control
Financial control- the process of checking actual performance against plans to ensure
that the desired financial status is achieved
Involves monitoring revenues inflows and making proper financial adjustments
Budgets provides the “measuring stick” against performance is evaluated
oCash flows, debts, and assets can compared at regular intervals against
budgeted amounts of each department and the whole company
Financial Planning
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
Financial manager must think why a firm needs funds and must assess the
relative costs and benefits of potential funding sources
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2- Distinguish between short-term (operating) and long term (capital)
expenditures
WHY DO BUSINESSES NEED FUNDS?
Company needs money to survive or else it can lead to bankruptcy and the
dissolution of the firm
Short-Term (Operating) Expenditures
Uses it regularly in its everyday business activities
Accounts Payable
Unpaid bills owed to supplies plus wages and taxes due within the upcoming
year
Largest single category of short-term debt
Financial managers must know in advance the amounts of new accounts
payable and when they must be repaid
Accounts Receivable
Funds due from customers who have bought on credit
Financial managers must know correctly both how much credit is advanced to
buyers and when they will make payments on their accounts
Credit Policies
Credit policy- rules governing a firm’s extension of credit to customers
Sets standards to which buyers are eligible for what type of credit
Credit is extended to customers who have the ability to pay and who honour
their obligations
Set payment terms (Ex: 2/10 net 30: 2% off if pay within 10 days, but have 30
days to pay the regular price)
Inventories
Inventory- materials and goods currently held by the company that will be sold within
the year
Too little inventory can cost a firm sales
Too much inventory tied-up funds that cannot be used elsewhere and sell
excess inventory at low prices
3 types of inventories:
oRaw materials- consisting of basic supplies used to manufacture products
for sale
oWork-in process- consisting of goods partway through the production
process
oFinished goods- consisting of completed goods ready for sale
Working Capital
Working capital- the difference between a firm’s current assets and current liabilities
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