General Business S1/13
(Finance)
What is Financial Management
Financial Management includes all the activities concerned with obtaining money and
using it effectively:
o determining the best ways to raise money
o ensuring that money is used in accordance with the organization’s goal
Need for financing
o when expenses are high, or sales are low
o opportunities to expand
Short-term financing:
o Money used for one year or less
o cash flow:
movement of money into and out of an organization
o inventory:
speculative production (the time lag between the actual production of
goods and when the goods are sold)
Long-term financing:
o money used for over a year (e.g., assets)
o Often involves large amounts of money
Risk return ratio:
o high-risk decision should generate higher financial returns for a business
o more conservative decisions often generate less returns
Planning - The Basis of Sound Financial Management
Financial plan:
o Document that outlines the funds needed for a certain period of time along
with the sources and intended uses of those funds
o Plan for obtaining and using the money needed to implement an
organization’s goals
Developing a financial plan
o establishing organizational goals and the forecasts of the firm’s short-term
and long-term financial needs have to be created
o determining how much money is needed to accomplish each goal (budgeting)
o identifying sources of funds
Goal:
o End result that an organization expects to achieve over a one- to ten-year
period
o must be specific, measurable, attainable, realistic and time limited
Forecasts:
o Short-term:
predict revenues, costs and expenses for a period of one year or less
o Long-term:
predict revenues, costs and expenses for a period longer than one year
and sometimes as long as five or ten years
o Cash-flow forecast:
, predict the cash inflows and outflows in future periods, usually months
or quarters
Three fundamental concepts:
Budgeting
Budget:
o financial statement that projects income and/or expenditures over a specified
future period
o sets forth management’s expectations for revenues and allocates the use of
specific resources throughout the company
o depend heavily on the balance sheet, the income statement, the statement of
cash flows and short-/long term financial forecasts
o budget is the guide for financial operations and expected financial needs
Budgeting challenges:
(Finance)
What is Financial Management
Financial Management includes all the activities concerned with obtaining money and
using it effectively:
o determining the best ways to raise money
o ensuring that money is used in accordance with the organization’s goal
Need for financing
o when expenses are high, or sales are low
o opportunities to expand
Short-term financing:
o Money used for one year or less
o cash flow:
movement of money into and out of an organization
o inventory:
speculative production (the time lag between the actual production of
goods and when the goods are sold)
Long-term financing:
o money used for over a year (e.g., assets)
o Often involves large amounts of money
Risk return ratio:
o high-risk decision should generate higher financial returns for a business
o more conservative decisions often generate less returns
Planning - The Basis of Sound Financial Management
Financial plan:
o Document that outlines the funds needed for a certain period of time along
with the sources and intended uses of those funds
o Plan for obtaining and using the money needed to implement an
organization’s goals
Developing a financial plan
o establishing organizational goals and the forecasts of the firm’s short-term
and long-term financial needs have to be created
o determining how much money is needed to accomplish each goal (budgeting)
o identifying sources of funds
Goal:
o End result that an organization expects to achieve over a one- to ten-year
period
o must be specific, measurable, attainable, realistic and time limited
Forecasts:
o Short-term:
predict revenues, costs and expenses for a period of one year or less
o Long-term:
predict revenues, costs and expenses for a period longer than one year
and sometimes as long as five or ten years
o Cash-flow forecast:
, predict the cash inflows and outflows in future periods, usually months
or quarters
Three fundamental concepts:
Budgeting
Budget:
o financial statement that projects income and/or expenditures over a specified
future period
o sets forth management’s expectations for revenues and allocates the use of
specific resources throughout the company
o depend heavily on the balance sheet, the income statement, the statement of
cash flows and short-/long term financial forecasts
o budget is the guide for financial operations and expected financial needs
Budgeting challenges:
