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Chapter 10

MGTA02H3 Chapter Notes - Chapter 10: Working Capital, Accounts Payable, Cash Flow

Management (MGT)
Course Code
Chris Bovaird

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Chapter 10: Financial Decisions
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
obtaining the funds necessary to pay for those investments. Finance typically involves:
Determining a firm’s long-term investments
Obtaining funds to pay for those investments.
Conducting the firm’s everyday financial activities.
Helping to manage the risks that the firm takes.
Objectives of the Financial Manager:
Financial managers do the following:
Collect funds
Pay debts
Establish trade credit
Obtain loans
Control cash balances
Plan for future financial needs
The financial manager’s overall objective is to increase a firm’s value – thus stockholder’s wealth.
In all words, financial managers must ensure that a company’s earnings exceed its costs – in other words, that it
makes a profit.
In sole proprietorships and partnerships, profits represent an increase in the owner’s wealth.
In a corporation, profits translate into an increase in the value of common stock.
Responsibilities of the Financial Manager:
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.
Financial control: the process of checking actual performance against plans to ensure that the desired financial
status is achieved.
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.
Why do Business need Funds?
Short-term (operating) Expenditures:
Accounts payable: unpaid bills owed to suppliers plus wages and taxes due within the next year.
Accounts receivable: consists of funds due from customers who have bought on credit.
Credit policy: rules governing a firm’s extension of credit from customers.
Inventory: materials and goods currently held by the company that will be sold within the year.
Raw materials inventory: that portion of a firm’s inventory consisting of basic supplies used to manufacture
products for sale.
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