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
• Meeting monthly expenses
• Unanticipated emergencies
• Cash-flow problems
• Expanding current inventory
• Temporary promotional programs
Long-Term Funds
• New product development
• Replacing capital expenditure
• Mergers or acquisitions
• Expansion into new markets
• Building new facilities
18-8
 Sources of Funds

Short-Term Long-Term
• Trade Credit • Debt
• Promissory Notes oTerm-Loan
• Family/Friends oBonds
• Banks, etc. oSecured
oSecured Loan oUnsecured
oUnsecured Loan • Equity
• Factoring oStock
• Commercial Paper oRetained Earnings
• Credit Cards oVenture Capital

18-9
Obtaining Long Term Financing

Financial managers generally ask 3 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
Retained
Earnings
Earnings
Internal
Internal
Owner
Sources
Sources Owner
Contributions
Contributions

Equity Sale
Saleof
of
Equity Partnerships
Capital Partnerships
Capital
External
External Venture
Venture
Sources Capital
Capital
Sources
Public
PublicSale
Saleof
of
Stock
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