CHPT. 16 BUSI NOTES
Managers and employees must - find the money needed to keep a business operating
and pay lenders and suppliers, employees, and fund all the goals and objectives that a
successful business wants to achieve.
A business that cannot pay its bills - may have to close its doors and even be forced to
file for bankruptcy protection.
Financial management can be viewed as a two-sided problem - On one side, the uses
of funds often dictate the types of financing needed by a business.
On the other side, the activities a business can undertake are determined by the types
of financing available.
Financial managers must ensure - that funds are available when needed, that they are
obtained at the lowest possible cost, and that they are used as efficiently as possible.
Proper financial management must also ensure 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.
- A firm's credit customers pay their bills on time, and the number of past due accounts
is reduced.
- Bills are paid promptly to protect the firm's credit rating and its ability to borrow money.
- The funds required for paying the firm's taxes are available when needed to meet tax
deadlines.
- Excess cash is invested in certificates of deposit (CDs), government securities, or
conservative, marketable securities.
What became a high priority in the wake of the crisis that affected both business firms
and individuals and what did President Obama do about it? - More regulation and
reforms; President Obama signed the Dodd-Frank Wall Street Reform and Consumer
Protection Act into law on July 21, 2010.
- Goals are to hold Wall Street firms accountable for their actions, end taxpayer bailouts,
tighten regulations for major financial firms, and increase government oversight.
- There has been debate about limiting the amount of executive pay and bonuses,
limiting the size of the largest financial firms, and curbing speculative investment
techniques that were used by banks before the crisis.
-New regulations will also protect American families from unfair, abusive financial and
banking practices.
- For businesses, the impact of new regulations could increase the time and cost of
obtaining both short-and long-term financing.
What did experts and others say about the Dodd-Reform Wall Street Reform and
Consumer Protection Act? - The law did not go far enough and others say that it went
too far.
,CHPT. 16 BUSI NOTES
Career in finance - - Bureau of Labor Statistics projects there will be about a 9%
increase in the number of jobs in the financial sector of the economy between now and
2020.
- At the executive level, most large business firms have a chief financial officer (CFO)
for financial management.
- Some firms prefer to uses the titles vice president of financial management treasurer,
or controller instead of the CFO title for executive-level positions in the finance area.
- Make $300,000 a year at the executive level
- Banks, insurance companies, investment firms, businesses involved in manufacturing,
services, and marketing, colleges and universities, not-for-profit organizations, and
government entities have a need for workers who can manage and analyze financial
data.
- One of the most important priorities for someone interested in a finance career is
honesty.
- Investors, lenders, and other corporate executives expect financial managers to be
above reproach.
Both federal and state government entities have enacted legislation to - Ensure that
corporate financial statements reflect the "real" status of a firm's financial position.
In addition to honesty, managers and employees in the finance area must: - 1. Have a
strong background in accounting or mathematics.
2. Know how to use a computer to analyze data.
3. Be an expert at both written and oral communication.
Typical job titles in finance include - Bank officer, consumer credit officer, financial
analyst, financial planner, loan officer. insurance analyst, and investment account
executive.
Starting salaries for careers in finance, depending on qualifications, work experience,
and education - $25,000-$35,000 a year, but it is not uncommon for college graduates
to earn higher salaries.
- Many attractive benefits and other perks that make a career in financial management
attractive.
What should be used to pay the firm's expenses and provide a profit as well? - sales
revenues
Temporary financing may be needed when - expenses are high or sales are low
Short-term financing - - The three financial needs that deserve special attention are
cash flow, speculative production, and to increase inventory.
- Cash flow problems: The goal is to have sufficient money coming into the firm in any
period to cover the firm's expenses during that period. This goal is not always achieved.
-Speculative production: Firm negotiates short-term financing to buy materials and
supplies, to pay wages and rent, and to cover inventory costs until its products
, CHPT. 16 BUSI NOTES
eventually are sold to wholesalers and retailers later in the year. Once the firm's finished
products are shipped to retailers and wholesalers and payment is received (usually
within 30-60 days), sales revenues are used to repay short-term financing.
- Increase inventory: Retailers need short-term financing to build up their inventories
before peak selling periods. To obtain merchandise from growers or wholesalers, it uses
short-term financing and repays the loans when the merchandise is sold.
Short-term financing needs - - Cash-flow problems
- Speculation production
- Current inventory needs
- Monthly expenses
- Short-term promotional needs
- Unexpected emergencies
Long-term financing needs - - Business star up-costs
- Mergers and acquisitions
- New product development
- Long-term marketing activities
- Replacement of equipment
- Expansion of facilities
Long-term financing - Needed to start a new business.
According to financial experts, business firms will find it more difficult to raise both short-
and long term financing in the future for two reasons: - 1. Financial reform and
increased regulations will lengthen the process required to obtain financing.
2. Both lenders and investors are more cautious about who receives financing.
- Result: financial managers must develop a strong financial plan that describes how the
money will be used and how it will be repaid.
When developing a financial plan for a business, a financial manager must - consider
the risk-return ratio when making decisions that affect the firm's finances.
- On the other hand, more conservative decisions (with less risk) often generate lesser
returns.
- Although financial managers want higher returns, they often must strive for a balance
between risk and return.
Three steps of financial planning (like all planning) begins with - - Establishing a set of
valid goals and objectives.
- Financial managers must then determine how much money is needed to accomplish
each goal and objective.
- Financial managers must identify available sources of financing and decide which to
use which include sales revenue: revenue projections for this planning period; equity
capital: money from sole proprietor or partners, common stock, preferred stock; debt
capital: short-term borrowing, long-term borrowing; sale of assets: for profit, to raise
cash.
Managers and employees must - find the money needed to keep a business operating
and pay lenders and suppliers, employees, and fund all the goals and objectives that a
successful business wants to achieve.
A business that cannot pay its bills - may have to close its doors and even be forced to
file for bankruptcy protection.
Financial management can be viewed as a two-sided problem - On one side, the uses
of funds often dictate the types of financing needed by a business.
On the other side, the activities a business can undertake are determined by the types
of financing available.
Financial managers must ensure - that funds are available when needed, that they are
obtained at the lowest possible cost, and that they are used as efficiently as possible.
Proper financial management must also ensure 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.
- A firm's credit customers pay their bills on time, and the number of past due accounts
is reduced.
- Bills are paid promptly to protect the firm's credit rating and its ability to borrow money.
- The funds required for paying the firm's taxes are available when needed to meet tax
deadlines.
- Excess cash is invested in certificates of deposit (CDs), government securities, or
conservative, marketable securities.
What became a high priority in the wake of the crisis that affected both business firms
and individuals and what did President Obama do about it? - More regulation and
reforms; President Obama signed the Dodd-Frank Wall Street Reform and Consumer
Protection Act into law on July 21, 2010.
- Goals are to hold Wall Street firms accountable for their actions, end taxpayer bailouts,
tighten regulations for major financial firms, and increase government oversight.
- There has been debate about limiting the amount of executive pay and bonuses,
limiting the size of the largest financial firms, and curbing speculative investment
techniques that were used by banks before the crisis.
-New regulations will also protect American families from unfair, abusive financial and
banking practices.
- For businesses, the impact of new regulations could increase the time and cost of
obtaining both short-and long-term financing.
What did experts and others say about the Dodd-Reform Wall Street Reform and
Consumer Protection Act? - The law did not go far enough and others say that it went
too far.
,CHPT. 16 BUSI NOTES
Career in finance - - Bureau of Labor Statistics projects there will be about a 9%
increase in the number of jobs in the financial sector of the economy between now and
2020.
- At the executive level, most large business firms have a chief financial officer (CFO)
for financial management.
- Some firms prefer to uses the titles vice president of financial management treasurer,
or controller instead of the CFO title for executive-level positions in the finance area.
- Make $300,000 a year at the executive level
- Banks, insurance companies, investment firms, businesses involved in manufacturing,
services, and marketing, colleges and universities, not-for-profit organizations, and
government entities have a need for workers who can manage and analyze financial
data.
- One of the most important priorities for someone interested in a finance career is
honesty.
- Investors, lenders, and other corporate executives expect financial managers to be
above reproach.
Both federal and state government entities have enacted legislation to - Ensure that
corporate financial statements reflect the "real" status of a firm's financial position.
In addition to honesty, managers and employees in the finance area must: - 1. Have a
strong background in accounting or mathematics.
2. Know how to use a computer to analyze data.
3. Be an expert at both written and oral communication.
Typical job titles in finance include - Bank officer, consumer credit officer, financial
analyst, financial planner, loan officer. insurance analyst, and investment account
executive.
Starting salaries for careers in finance, depending on qualifications, work experience,
and education - $25,000-$35,000 a year, but it is not uncommon for college graduates
to earn higher salaries.
- Many attractive benefits and other perks that make a career in financial management
attractive.
What should be used to pay the firm's expenses and provide a profit as well? - sales
revenues
Temporary financing may be needed when - expenses are high or sales are low
Short-term financing - - The three financial needs that deserve special attention are
cash flow, speculative production, and to increase inventory.
- Cash flow problems: The goal is to have sufficient money coming into the firm in any
period to cover the firm's expenses during that period. This goal is not always achieved.
-Speculative production: Firm negotiates short-term financing to buy materials and
supplies, to pay wages and rent, and to cover inventory costs until its products
, CHPT. 16 BUSI NOTES
eventually are sold to wholesalers and retailers later in the year. Once the firm's finished
products are shipped to retailers and wholesalers and payment is received (usually
within 30-60 days), sales revenues are used to repay short-term financing.
- Increase inventory: Retailers need short-term financing to build up their inventories
before peak selling periods. To obtain merchandise from growers or wholesalers, it uses
short-term financing and repays the loans when the merchandise is sold.
Short-term financing needs - - Cash-flow problems
- Speculation production
- Current inventory needs
- Monthly expenses
- Short-term promotional needs
- Unexpected emergencies
Long-term financing needs - - Business star up-costs
- Mergers and acquisitions
- New product development
- Long-term marketing activities
- Replacement of equipment
- Expansion of facilities
Long-term financing - Needed to start a new business.
According to financial experts, business firms will find it more difficult to raise both short-
and long term financing in the future for two reasons: - 1. Financial reform and
increased regulations will lengthen the process required to obtain financing.
2. Both lenders and investors are more cautious about who receives financing.
- Result: financial managers must develop a strong financial plan that describes how the
money will be used and how it will be repaid.
When developing a financial plan for a business, a financial manager must - consider
the risk-return ratio when making decisions that affect the firm's finances.
- On the other hand, more conservative decisions (with less risk) often generate lesser
returns.
- Although financial managers want higher returns, they often must strive for a balance
between risk and return.
Three steps of financial planning (like all planning) begins with - - Establishing a set of
valid goals and objectives.
- Financial managers must then determine how much money is needed to accomplish
each goal and objective.
- Financial managers must identify available sources of financing and decide which to
use which include sales revenue: revenue projections for this planning period; equity
capital: money from sole proprietor or partners, common stock, preferred stock; debt
capital: short-term borrowing, long-term borrowing; sale of assets: for profit, to raise
cash.
