Summarize the process of planning for financial management.
A financial plan begins with an organization's goals and objectives. Next, a firm's goals and objectives are "translated" into departmental budgets that detail expected income and expenses. From these budgets, which may be combined into an overall cash budget, the financial manager determines what funding will be needed and where it may be obtained.
Whereas departmental and cash budgets emphasize short-term financing needs, a capital budget can be used to estimate a firm's expenditures for major assets and its long-term financing needs.
The four principal sources of financing are sales revenues, equity capital, debt capital, and proceeds from the sale of assets. Once the needed funds have been obtained, the financial manager is responsible for monitoring and evaluating the firm's financial activities.
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Mastering Financial Management
- Evaluate the advantages and disadvantages of long-term debt financing.
- Evaluate the advantages and disadvantages of equity financing.
- Describe the advantages and disadvantages of different methods of short-term debt financing.
- Identify the services provided by banks and financial institutions for their business customers.
- Identify a firm's short- and long-term financial needs.
- Understand why financial management is important in today's uncertain economy.
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