What is Financial Management?

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9 Νοε 2013 (πριν από 3 χρόνια και 9 μήνες)

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What is Financial Management?


Financial

management

includes

all

the

activities

concerned

with

obtaining

money

and

using

it

effectively
.



Sales

revenues

should

be

used

to

pay

expenses

and

provide

a

profit


Income

and

expenses

may

vary

from

month/month

or

year/year
.



Temporary

financing

may

be

needed

when

expenses

are

high

and

sales

are

slow

or

the

opportunity

to

purchase

a

new

plant

or

expand

an

existing

one

arises
.

Corporate Cash Needs

Short
-
Term Financing


Cash
-
flow problems


Current Inventory needs


Monthly expenses


Speculative production


Short
-
term promotional
needs


Unexpected emergencies


Long
-
Term Financing


Business start
-
up costs


Mergers and acquisitions


New product development


Long
-
term marketing
activities


Replacement of equipment


Expansion of facilities

Short
-
Term Financing


Short
-
term

financing

is

money

that

will

be

used

for

one

year

or

less
.


Operating

cycle

of

a

business

[may

be

longer

than

one

year]

and

is

the

amount

of

time

between

the

purchase

of

raw

materials

and

the

sale

of

finished

products

to

wholesalers,

retailers

or

consumers
.

Short
-
Term Financing. . .
(continued)


Cash

flow

is

the

movement

of

money

into

and

out

of

an

organization
.



Extension

of

credit

to

wholesalers,

retailers,

or

customers

can

cause

cash
-
flow

problems

to

firms
.

Short
-
Term Financing. . .
(continued)


Current

inventory

needs



Speculative

production

refers

to

the

time

lag

between

the

actual

production

of

goods

and

when

the

goods

are

sold
.


Most

goods

are

manufactured

from

4
-
9

months

before

they

are

actually

sold

to

customers
.


Must

build

their

inventories

before

selling

them

before

peak

times
.

Long
-
Term Financing




Long
-
term

financing

is

money

that

will

be

used

for

longer

than

one

year
.

Financial Management


Financing

gets

a

business

started

in

the

first

place
.


Then

it

supports

the

firm’s

production

and

marketing

activities,

pays

its

bills,

and

when

carefully

managed,

produces

a

reasonable

profit
.

Financial Management. . .
(continued)

Proper

financial

management

ensures

that
:


Financing

priorities

are

established

in

line

with

organizational

goals

and

objectives
.


Spending

is

planned

and

controlled
.


Sufficient

financing

is

available

when

it

is

needed,

both

now

and

in

the

future
.

(firm’s

credit

rating)


Excess

cash

is

invested

in

certificates

of

deposit

(CDs),

government

securities

or

conservative,

marketable

securities
.

Financial Planning

Financial

Plan

is

a

formula

for

obtaining

and

using

the

money

needed

to

implement

an

organization’s

goals
.

Process

for

developing

the

plan

includes
:


establishing

organizational

goals

and

objectives


determining

how

much

money

is

needed

to

accomplish

each

goal

and

objective


identifying

available

sources

of

financing

and

decide

which

to

use

Review

Figure

20
.
2
,

page

606

Financial Planning. . .
(continued)

1)
Establishing

Organizational

Goals

and

Objectives

a)
Goal



end

result

to

achieve

from

1
-
10

yrs
.

b)
Objective



specific

statements

detailing

what

the

organization

will

accomplish

within

a

shorter

period

of

time
.

c)
Must

be

specific

and

measurable

and

able

to

translate

into

money

costs
.



Financial Planning. . .
(continued)

2)
Budgeting

for

Financial

Needs

a)
Once

goals

and

objectives

are

confirmed,

a

budget

can

be

planned

for

a

specific

period

including

revenue

and

expenses
.

b)
Budget

is

a

financial

statement

that

projects

income

and/or

expenses

over

a

specified

future

period
.

c)
Sales

Budget

forecasts

sales

for

a

department(s)

over

a

specific

time
.



Review

Figure

20
.
3
,

p

607

Financial Planning. . .
(continued)

d)
Cash

budget

estimates

cash

receipts

and

expenditures

over

a

specific

time
.



Review

Figure

20
.
4
,

p

607

d)
Zero
-
base

budgeting

is

a

budgeting

approach

in

which

every

expense

in

every

budget

must

be

justified
.

e)
Capital

budget

is

a

financial

statement

that

estimates

a

firm’s

expenditures

for

major

assets

and

its

long
-
term

financing

needs
.

Financial Planning. . .
(continued)

3)
Identifying

Sources

of

Funds

a)
Sales

revenue



greatest

part

of

a

firm’s

financing

b)
Equity

capital



provided

by

owner(s)

or

stock

sales

for

start
-
up

or

expansion

(generally

used

for

long
-
term

financing)

c)
Debt

capital



borrowed

capital

provided

as

a

line

of

(pre
-
approved)

credit

d)
Proceeds

from

sale

of

assets



assets

which

no

longer

needed

or

don’t

‘fit

in’

with

company’s

core

business
.

(selling

interest

in

related

business

to

raise

capital)