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Summary OBS 114: Unit 10: Chapter 8B
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This document contains a summary of Chapter 8B of the textbook: Fundamentals of Business Management
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OBS 114Fundamentals of business management
Unit 10: Chapter 8B: Financial management
1. THE ROLE OF FINANCE AND FINANCIAL MANAGERS
Definitions Finance
function in a business that acquires funds for the firm
and manages them within the firm
Financial management:
a set of theories/ techniques used to optimize the
receipt/ use of capital assets
Financial managers:
examine financial data prepared by accountants
recommend strategies for improving financial
performance of a firm
Auditing
Managing
Planning
taxes
Advising
What top
financial manage-
Budgeting
manage ment on
rs do financial
matters
Obtaining Collecting
funds funds
Controllin
g funds
The value of Most common reasons a firm fails financially:
understanding Undercapitalization (insufficient funds to start the
finance business)
Poor control over cash flow
Inadequate expense control
What is Financial managers are responsible for:
financial paying firm’s bills on time
management? collecting overdue payments
make sure the company doesn’t lose to much money
on bad debts
buying merchandise on credit
collecting payment from customers
stay abreast of changes/ opportunities in finance
, analyse tax implications of managerial decisions
2. FINANCIAL PLANNING
Forecasting Short term forecast
financial predicts revenues, costs, expenses for one year/ less
needs Cash flow forecast is part of it:
Forecast that predicts cash inflows/ outflows
Long term forecast
predicts revenues, costs, expenses for more than one
year
Gives managers a profit potential of different strategic
plans
Working with Budget:
the budget Financial plan for the future
process based on a single level of operations:
a quantitative expression of the use of resources
necessary to achieve a business’s strategic goals
Capital budget:
Budget that highlights a firm’s spending plans for major
asset purchases
Cash budget:
Identifies when, how, why cash is expected to come into/
leave the business
Operating/ Master budget:
Budget that ties together the firm’s other budgets
and summarizes its proposed financial activities
Establishing Financial control
financial A process in which a firm periodically compares its actual
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