Ch. 17 Flashcards
define “finance”
the business function that acquires finds for the firm and manages them within the firm
financial management is the job of …
managing a firm’s resources to meet its goals and objectives
what do financial managers do?
examine the financial data prepared by accountants and recommend strategies for improving the financial performance of the firm
list three key functions of a financial manager
obtain money, control the use of that money effectively and see that the company pays its bills
list the first four things that financial managers
managing taxes, advising top management on financial matters, collecting funds, and controlling funds
list the last four things that financial managers
obtaining funds, budgeting, planning and auditing
it is vital that financial managers in any business …
stay abreast of changes and opportunities in finance and adjust to them
financial managers also …
carefully analyze the tax implications of various managerial decisions in an attempt to minimize the taxes paid by the business
list the three most common reasons a firm fails financially
undercapitalization (insufficient funds to run a business)
poor control over cash flow
inadequate expense control
list the first step of the financial planning process
forecasting financial need
a short-term forecast predicts … (3) for …
revenues, costs and expenses for a period of one year or less
what does a cash flow forecast predict?
the cash inflows and outflows in future periods, usually months or quarters
a long-term forecast predicts …(3) for …
revenues, costs and expenses for a period longer that one. year and sometimes as far as five or tens year into the future
list the second step of the financial planning process
working with the budget process
the budgeting process depends on …
the accuracy of the firm’s financial statements
a budget sets forth …
management’s expectations for revenues and, on the basis of those expectations, allocates the use of specific resources throughout the firm
list the three types of budgets established in a firm’s financial plans
an operating (master) budget, a capital budget and a cash budget
the operating (master) budget ties together …
all of the firm’s other budgets and summarizes the business’s proposed financial activities
a capital budget highlights …
a firm’s spending plans for major asset purchases that often require large sums of money
a cash budget estimates …
a firm’s projected cash inflows and outflows that the firms can use to plan for any cash shortages or surpluses during a given period
cash budgets are important …
guidelines that assist managers in anticipating borrowing, debt repayment, operating expenses, and short-term investments
list the third step of the financial planning process
establishing financial controls
financial control is …
a process in which a firm periodically compares its actual revenues, costs and expenses with its budget
