Business Finance Third Quarterly Exam Reviewer

Financial Management

• The primary goal of financial management is to maximize shareholder wealth.
• The Financial Manager is responsible for overseeing a company's financial operations.
• Shareholders play a role in financial management by electing the Board of Directors and influencing company policies.

Financial Decisions

• Issuing new equity to raise funds is a financing decision.
• Evaluating a potential investment with high risk is an investing decision.

Financial Instruments and Markets

• Financial instruments can be categorized as Debt Instruments and Equity Instruments.
• The role of financial markets is to facilitate the buying and selling of financial instruments.
• To raise funds for a long-term project, a company would go to the capital market to issue new securities.

Financial Planning

• There are six steps in the financial planning process.
• The first step in the financial planning process is to set goals or objectives.
• Establishing responsibility centers for accountability and timeline assigns specific tasks to departments or teams.
• An evaluation system in the financial planning process allows plans to be monitored through quantified plans such as budgets.

Financing Options

• Business owners looking to finance the purchase of new machinery for expansion should consider a long-term loan from a bank or credit cooperative.
• Entrepreneurs may prefer loans from credit cooperatives over commercial banks due to more favorable terms, such as lower interest rates based on membership and community involvement.

Cash Flow Statement

• A cash flow statement provides a summary of a company's inflows and outflows of cash over a particular period.
• Cash inflows include operating revenues, investment income, equity financing, and debt financing.
• Cash outflows include operating expenses, purchase of equipment, repayment of loans, and dividends paid.

Budgeting

• A budget in financial planning is a detailed plan of operations for a future period.
• The purpose of a sales budget is to estimate future sales revenue based on external and internal information.
• The Cash Budget is important for a firm because it forecasts the timing of cash inflows and outflows.

Case Studies

• Setting a higher sales target in the sales budget directly supports the goal of increasing sales.
• Identifying resources aligns with the requirement for increased production capacity to meet projected sales.
• Analyzing the variance between projected and actual sales falls under establishing an evaluation system for monitoring and controlling.
• Creating a contingency plan in anticipation of a potential economic downturn exemplifies determining contingency plans.