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Simple Finance Notes

In: Business and Management

Submitted By chrisoah
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1. The Financial Manager and the Company
1.1 The Role of the Financial Manager
Stakeholders
* A stakeholder is someone other than the owner who has a claim on all the cash flows of the company. These include * Managers – Salaries and Bonuses * Creditors – Interest and Principal * Employees – Wages * Suppliers – Goods & Services * Government – Company Tax.

Cash Flow * Productive assets – tangible assets such as equipment, machinery or a manufacturing facility or intangible assets, such as patents, trademarks, technical expertise or other types of intellectual capital. * Financing decisions are concerned with the ways in which companies obtain and manage long-term financing to acquire and support their productive assets. * A company generates cash flow by selling the good and services they produce. * The company is successful when the cash inflow exceeds the cash outflow. * When this occurs, the remaining cash is called residual cash flows. * Companies that have less inflow than outflow are forced into insolvency. * Insolvency is the inability to pay debts when they are due.

Three Fundamental Decisions in Financial Management
Financial managers may be confronted with decisions to make when running business. There are three fundamental decisions, which include: 1. Capital Budgeting Decisions: Identifying the productive assets the company should buy and how much money can the company afford to spend. 2. Financing Decisions: Determining how the company should finance or pay for assets. 3. Working Capital Management Decisions: Determining how day-to-day financial managed so that the company can pay its expenses and also how surplus should be invested.

1.2 Forms of Business Organisation 1. Sole Traders: A business owned by a single individual * All…...

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