Course : MGMT6011 - Introduction to Management and Business

Effective Period : September 2017

Financial Management
Session 24
 Learning Objectives

1. Explain the role and responsibilities of financial managers.

2. Outline the financial planning process, and explain the three key
budgets in the financial plan.
3. Explain why firms need operating funds.
4. Identify and describe different sources of short term financing
5. Identify and describe different sources of long term financing
 The Role of Finance and
Financial Managers
Finance : The function in a business that acquires funds for
the firm and managers those funds within the firm

Financial Management :

 The Job of managing a firm’s resources so it can meet its

goals and objectives.

Importance of Finance
What Financial Managers Do

Planning

Auditing Budgeting

Financial
Managing Obtaining
taxes
Managers funds
Do

Advising top
management Controlling
on financial funds
matters
Collecting
funds
 Financial Planning

Financial Plan
Short-term Long-term
Forecasting Forecasting
Operating
Budget
Capital Cash Budget
Budget

Financial Feedback
Feedback
Controls

18-5
 Working with the Budget Process

• Financial Plan- Financial Statements

• Types of Budgets
– Capital
– Cash
– Operating (Master)
• Financial Controls- Feedback

18-6
 Need for Operating Funds

 Managing Day-by-Day needs of the Business.

 Controlling credit operations
 Acquiring needed Inventory
 Capital Expenditures

18-7
 Why Firms Need Funds

Short-Term Funds Long-Term Funds

• Meeting monthly • New product
expenses development
• Unanticipated • Replacing capital
emergencies expenditure
• Cash-flow problems • Mergers or acquisitions
• Expanding current • Expansion into new
inventory markets
• Temporary promotional • Building new facilities
programs

18-8
 Sources of Funds

Short-Term Long-Term
• Trade Credit • Debt
• Promissory Notes – Term-Loan
• Family/Friends – Bonds
• Banks, etc. • Secured
– Secured Loan • Unsecured
– Unsecured Loan • Equity
• Factoring – Stock
• Commercial Paper – Retained Earnings
• Credit Cards
– Venture Capital

18-9
 Obtaining Long Term Financing

Financial managers generally ask three questions:

1. What are our organization’s long term goals and
objectives?
2. What funds do we need to achieve the firm’s long
term goals and objectives?
3. What sources of long term funding are available,
and which will best fit our needs?
 Sources of Equity Financing

Retained
Earnings
Internal
Sources Owner
Contributions

Equity Sale of
Partnerships
Capital
External Venture
Sources Capital

Public Sale of
Stock

18-11
 Venture Capitalists

• Finance new and rapidly growing companies

• Purchase equity securities
• Assist in the development of new products or services
• Add value to the company through active participation
• Take higher risks with the expectation of higher
rewards
• Have a long-term orientation

Source: NVCA.com
18-12
 References

• William G. Nickels, James M. McHugh,

and Susan M. McHugh.
2016.Understanding Business, eleventh
Edition. Mc Graw Hill.
ISBN : 978-981-4670-37-1