Chapter 18 What is finance? ●Finance is the function in a business that acquires funds for the firm and manages them within the firm -Preparing budgets, cash flow analysis, planning for the expenditure of funds for assets ●Financial management is the job of managing a firm's resources so it can meet its goals and objectives. ●Financial managers examine data prepared by accountants and recommend strategies to improve the financial performance of the firm. Three reasons firms fail financially 1.Undercapitalization 2.Poor control over cash flow 3.Inadequate expense control Financial planning: optimizing the firms profitability and making the best use out of its money 1.Forecasting short term and long term financial needs 2.Developing budgets to meet those needs 3.Establishing financial controls to see if the company is achieving its goals ●Budget: A financial plan that sets forth management's expectations, and, on the basis of those expectations, allocates the use of specific resources throughout the firm. -Capital budgets: spending plans for major asset purchases that often require large sums of money. -Cash budget: estimates cash inflows and outflows during a particular period like a month or a quarter. -operating/master budget: The budget that ties together the firm's other budgets and summarizes its proposed financial activities. ●Financial control: A process in which a firm periodically compares its actual revenues, costs, and expenses with its budget. ●Capital expenditures: Major investments in either tangible long-term assets such as land, buildings, and equipment or intangible assets such as patents, trademarks, and copyrights. ●Debt financing: Funds raised through various forms of borrowing that must be repaid. ●Equity financing: Money raised from within the firm, from operations or through the sale of ownership in the firm (stock or venture capital).
