pre fi Flashcards
is very much related to another management function, controlling.
Planning
is about setting the
goals of the organization and identifying ways to achieve them.
Management planning
are in form of budgets and projected
financial statements.
Quantified plans
Steps in Financial Planning
set goals
Identify resources
Identify goal-related tasks
Establish responsibility centers for accountability and timeline
Establish an evaluation system for monitoring and controlling.
Determine contingency plans.
is a description in quantitative usually monetary terms of desired future result.
Budget
- is a prediction of the firm’s sales over a specific period, based on external and internal information.
Sales Budget
- is a financial planning related to the units of production that the management think that the
business should produce in the upcoming period to match the estimated sales quantity
Production Budget
- is a statement of the firm that has planned inflows and outflows of cash.
Cash budget
is a tool of the company to set an overall goal of what the company’s performance and
position will be for and as of the end of the year.
Projected financial statements
It is a process of closely monitoring of in and out of cash in the business.
cash flow statement
refers to company’s investment in short term asset such as cash, inventory, short-term marketable
securities, and account receivable.
Working capital
capital refers to the difference between the firm’s current assets and current liabilities.
Net Working
specifically refers to the efficient management of the firm’s current assets (cash,
receivables, and inventory) and current liabilities (short-term payables).
Working Capital Management
involves the maintenance of a cash and marketable securities investment level, which will enable
the company to meet its cash requirements and at the same time optimize the income on idle funds.
cash management
- cash needed to facilitate the normal transactions of the business, that is, to carry out its
purchases and sales activities.
Transaction Motive
- Cash may held beyond its normal operating requirement level in order to provide for a
buffer against contingencies such as unexpected slow-down in accounts receivable collection,
Precautionary Motive
- cash held ready for profit making or investment opportunities that may come up such as a
block of raw materials inventory offered at discounted prices or a merger proposal.
Speculative Motive
-A company may be required by a bank to maintain a certain compensating balance in its
demand deposit account as a condition of a loan extended to it.
Contractual Motive
- A firm operating cycle begins from the time goods for sale manufactured to the eventual
collection of cash from the sale of these goods.
Cash Conversion Cycle
- The objective in managing inventory is to convert it as quickly as possible to cash without
losing sales due to stock outs.
Inventory Management
– these are purchased materials not yet put into production
Raw materials
– these are goods and labor put into production but not finished
Work in process
– these are goods put into production and finished. These are ready to be sold.
Finished goods
- represents assets of the entity that expected to be collected and thus converted to
cash.
Accounts Receivable Management
- Another used in granting credit to customers is through credit scoring.
Credit Scoring
