Chapter 8B Flashcards
(18 cards)
Finance
The function in a business that acquires funds for the firm and manages them within the firm
Finance activities
Include preparing budgets, doing cash flow analysis, and planning for the expenditure of funds
Financial Management
Managing a firm’s financial resources to meet its goals. It uses different methods to make sure the company uses its money in the best way
Why it’s important:
Poor financial management reduces a business’s chance of survival
Financial managers
Examine financial data prepared by accountants and recommend strategies for improving the financial performance of the firm
The roles and responsibilities of Financial Managers
- Auditing
- Managing taxes
- Advising
- Collecting funds (Credit management)
- Controlling funds (Funds management)
- Obtaining funds
- Budgeting
- Planning
2 key tasks of financial managers
Obtaining funds and controlling funds
Controlling funds includes managing cash, credit accounts and inventory
Three reasons firms fail financially
- Undercapitalisation (insufficient funds)
- Poor control of cash flow
- Inadequate expense control
Financial Planning
Analysing short-term & long-term money flows to and from the firm - to optimise the firm’s profitability and make the best use of its money
Steps of Financial Planning
- Forecasting
- Budgeting
- Financial control
Forecasting
Steps of Financial Planning
Gives and estimated view of cash inflows and outflows
Short-term forecast
Predicts revenues, costs, and expenses for a period of one year or less
Long-term forecast
Predicts revenues, costs, and expenses for a period longer than a year
A crucial part in a company’s long term strategic plans
A budget
Allocates the use of specific resources throughout the firm based on management’s expectations for revenue
Capital Budget
Forecasts a firm’s spending plans for major asset purchases that require larger sums of money
Assets such as property, buildings, equipment
Cash budgets
Estimates cash inflows and outflows during a particular period. Helps anticipate borrowing needs, debt repayment, operating expenses, and short-term investments
Often the last budget prepared
Operating/Master budget
An aggregate of the firms’s other budgets and summarises its proposed financial activities
Financial Control
The process in which a firm periodically compares its actual revenues, costs, and expenses with its budget.
Most companies hold at least monthly financial reviews as a way to ensure financial control
to ensure there are no variances to the financial plan
