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25 Cards in this Set

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the function in a business that acquires funds for the firm & manages them within the firm

financial management

the job of managing a firm's resources to meet its goals & objectives

financial managers

managers who examine the financial data prepared by accountants & recommend strategies for improving the financial performance of the firm

financial managers main tasks include

auditing, managing taxes, advising tip management on financial matters, collecting funds, controlling funds, obtaining funds, budgeting, planning

3 most common reasons a firm fails financially

1. under capitalization (not enough funds to start)

2. poor control over cash flow

3. inadequate expense control

financial planning, 3 steps

1) forecasting a firm's short-term & long-term financial needs

2) developing budgets to meet those needs

3) establishing financial control to see whether the company is achieving its goals

short-term forecast

predicts revenues, costs & expenses for a period of one year or less

cash flow forecast

predicts the cash inflows in future periods usually months or quarters

long-term forecast

predicts revenues, costs, & expenses for a period longer than a year & sometimes as far as five or ten years into the future


financial plan that sets forth management's expectations & on the basis of those exceptions allocates the use of specific resources through the firm

3 types of budgets

operating budget, capital budget, cash budget

operations budget

budget that ties together all of a firm's other budgets & summarizes the business's proposed financial activities

capital budget

budget that highlights a firm's spending plans for major asset purchases that often require large sums of money like property, building, & equipment

cash budget

estimates cash inflows & cut flows during a particular period *sales made later in the month will not be collected until the next month

financial control

process in which a firm periodically compares its actual revenues, cost & expenses with its projected ones

4 need for funds

1. managing day-to-day needs of the business

2. controlling credit operations

3. acquiring needed inventory

4. making capital expenditures

capital expenditures

major investments in either tangible long-term assets such as land, building, & equipment or intangible assets such as patents, trade-marks & copy rights

equity financing

money raised from within the firm or through the sale of ownership in the firm

debt financing

funds raised through various forms of borrowing that must be repaid

short-term financing

funds needed for one year or less

long-term financing

funds needed for period more than one year

short-term funds

monthly expenses, unanticipated emergencies, cash flows problems, expansion of current inventory, temporary promotional programs

long-term funds

new-product development, replacement of capital equipment, mergers or acquisitions, expansion into new markets, new facilities

trade credit

practice of buying goods & services now & paying for them later

promissory note

written contract with promise to pay