MGT100H1 Chapter Notes - Chapter 17: Dividend Policy, Commercial Paper, Trade Credit
Chapter 17: Financial Management
●Finance: the business function of planning, obtaining, and managing the company’s
funds to accomplish its objectives as effectively and efficiently as possible
● The role of the financial manager
○Financial managers: executives who develop and carry out their firm’s financial
plan and decide on the most appropriate sources and uses of funds
○Risk-return tradeoff: process of maximizing the wealth of the firm's
shareholders by striking the right balance between risk and return
● Financial planning
○Financial plan: document that specifies the funds needed by a firm for a period
of time, the timing of cash inflows and outflows, and the most appropriate
sources and uses of funds
■ What funds will the firm require during the planned period?
■ When will the firm need additional funds?
■ Where will the firm obtain the necessary funds?
○ Three steps in preparing a financial plan
■ Forecast sales over a future period of time
■ The financial manager must estimate the expected level of profits over
the planning period
■ Decide on the additional assets needed to support the additional sales
● Managing assets
○ Short-term assets
■ Cash and marketable securities
● Marketing securities: low-risk securities that have short maturities
or can be easily sold in secondary markets
■ Accounts receivable: uncontrolled credit sales. They can represent a
significant asset
● Management of accounts receivable is composed of two
functions:
○ Deciding on an overall credit policy and deciding which
customers will be offered credit
■ Inventory management
○ Capital investment analysis: process financial managers used when deciding
whether to invest in long-lived assets
■ Replacement: upgrading assets by substituting new assets for older
assets
○ Managing international assets
■ Most international assets creates several challenges for financial
managers
● Sources of funds and capital structure
○ Assets = liabilities + Owners’ Equity
○Debt capital: funds obtained through borrowing
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MGT100H1 Full Course Notes
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Document Summary
Finance: the business function of planning, obtaining, and managing the company"s funds to accomplish its objectives as effectively and efficiently as possible. Financial managers: executives who develop and carry out their firm"s financial plan and decide on the most appropriate sources and uses of funds. Risk-return tradeoff: process of maximizing the wealth of the firm"s shareholders by striking the right balance between risk and return. Financial plan: document that specifies the funds needed by a firm for a period of time, the timing of cash inflows and outflows, and the most appropriate sources and uses of funds. Three steps in preparing a financial plan. Forecast sales over a future period of time. The financial manager must estimate the expected level of profits over the planning period. Decide on the additional assets needed to support the additional sales. Marketing securities: low-risk securities that have short maturities or can be easily sold in secondary markets.
