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UNIT SEVEN FINANCIAL MANAGEMENT



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UNIT SEVEN FINANCIAL MANAGEMENT


Vocabulary Practice

Explain the following terms:

  • corporation

  • real assets

  • financial assets

  • financial intermediary

  • capital budgeting decision

  • cash flow

  • capital structure

  • treasurer

  • controller

  • CFO

  • tangible assets

  • intangible assets

FINANCIAL MANAGEMENT

Financial management is important, interesting, and challenging. It is important because today’s capital investment decisions may determine the businesses that the firm is in 10, 20, or more years ahead. Also, a firm’s success or failure depends in large part on its ability to find the capital that it needs.

Finance is interesting for several reasons. Financial decisions often involve huge sum of money. Large investment projects or acquisitions may involve billions of dollars. Also, the financial community is international and fast moving, with colorful heroes and a sprinkling of unpleasant villains.

Finance is challenging. Financial decisions are rarely cut and dried, and the financial markets in which companies operate are changing rapidly. Good managers can cope with routine problems, but only the best managers can respond to change. To handle new problems, you need more than rules of thumb; you need to understand why company and financial markets behave as they do and when common practice may not be best practice. Once you have a consistent framework for making financial decisions, complex problems become more manageable.

To survive and prosper, a company must satisfy its customers. It must also produce and sell products and services at a profit. In order to produce, it needs many assets-plant, equipment, offices, computers, technology, and so on. The company has to decide (1) which assets to buy and (2) how to pay for them. The financial manager plays a key role in both these decisions. The investment decision, that is, the decision to invest in assets like plant, equipment, and know-how, is in large part a responsibility of the financial manager. So the financing decision, the choice of how to pay for such investment

The role of the Financial Manger

To carry on business, companies need an almost endless variety of real assets. Many of these assets are tangible, such as machinery, factories, and offices; others are intangible, such as technical expertise, trademarks, and patents. All of them must be paid for.

To obtain the necessary money, the company sells financial assets, or securities. These pieces of paper have value because they are claims on the firm’s real assets and the cash that those assets will produce. For example, if the company borrows money from the bank, the bank has a financial asset. That financial asset gives it a claim to stream of interest payments and repayment of the loan. The company’s real assets need to produce enough cash to satisfy these claims.

Financial managers stand between the firm’s real assets and the financial markets in which the firm raises cash. The financial manager’s role is shown in Figure 1.1, which traces how cash flows from investors to the firm and back to the investors again. The flows starts when the financial assets are sold to raise cash (arrow 1 in figure). The cash is employed to purchase the real assets used in the firm’s operations (arrow 2). Later, if the firm does well, the real assets generate enough cash inflow more than repay the initial investment (arrow 3). Finally, the cash is either reinvested (arrow 4a) or returned to the investors who contributed the money in the first place (arrow 4b). Of course the choice between arrows 4a and 4b is not a completely free one. For example, if a bank lends the firm money at stage 1, the bank has to be repaid this money plus interest at stage 4b.






Firm’s operations (a bundle of real assets)

(2)




(3)


Financial manager

(1)




(4a)


(4b)



Financial markets (investors holding financial assets)


Figure 1.1

This flow chart suggests that the financial manager faces two basic problems. First, how much money should the firm invest, and what specific assets should the firm invest in? this is the firm’s investment or capital budgeting, decision. Second, how should be the cash required for an investment be raised? This is financing decision.



The Capital Budgeting Decision

Capital budgeting decisions are central to the company’s success or failure. They also are important to service as well as manufacturing firms. For example, America Online announced in 1997 that it would spend millions of dollars to add additional modems to facilitate access to its network. This investment will be crucial to the company’s ability to service its existing customers and attract new ones. Today’s investments provide benefits in the future. Thus the financial manager is concerned not solely with the size of the benefits but also with how long the firm must wait for them. The sooner the profits come in, the better. In additional, these benefits are rarely certain; a new project may be a great success – but then again it could be a dismal failure. The financial manager needs a way to place a value on these uncertain future benefits.



The Financing decision.

The financial manager’s second responsibility is to raise the money pay for the investment in real assets. This is the financing decision. When a company needs financing, it can invite investors to put up cash in return for a share of profits or it can promise investors a series of fixed payments. In the first case, the investor receives newly issued shares of stock and becomes a shareholder, a part owner of the firm. In the second, the investor becomes a lender whom the corporation is obligated to repay. The choice of the long-term financing mix is often called the capital structure decision, since capital refers to the firm’s sources of long-term financing, and the markets for long term financing are called capital markets.

Within the basic distinction – issuing new shares of stock versus borrowing money – there are endless variations. Suppose the company decides to borrow. Should it go to capital markets for long term debt financing or should it borrow from a bank? Should it borrow in Paris, receiving and promising to repay French francs, or should it borrow dollars in New York? Should it demand the right to pay off the debt early if future interest rate fall? We will look at these and other choices in later chapters.

The decision to invest in a new factory or to issue new shares of stock has long term consequences. But the financial manager is also involved in some important short term decisions. For example, she needs to make sure that the company has enough cash on hand to pay next week’s bills and that any spare cash is put to work to earn interest. Such short term financial decisions involve both investment (how to invest spare cash) and financing (how to raise cash to meet a short term need).



Who is the Financial Manager?

The term financial manager refers to anyone responsible for a significant corporate investment or financing decision. But except in the smallest firms, no single person is responsible for all decisions. Top management is of course constantly involved in financial decisions. But the engineer who designs a new production facility is also involved: the design determines the kind of asset the firm will invest in. Likewise the marketing manager who undertakes a major advertising campaign is making an investment decision: the campaign is an investment in an intangible asset that will pay off in the future sales and earnings.







Chief Financial Officer (COF)

Responsible for:



Financial policy

Corporate planning












Treasurer

Responsible for:



Cash management

Raising capital

Banking relationships

Controller

Responsible for:



Preparation of financial statement

Accounting

Taxes



Nevertheless, there are managers who specialize in finance, and their functions are summarized in Figure 1.2. The treasurer is usually the person most directly responsible for looking after the firm’s cash, raising new capital, and maintaining relationships with banks and other investors who hold the firm’s securities.

Figure 1.2

For small firms, the treasure is likely to be the only financial executive. Lager corporations usually also have a controller, who prepares the financial statements. Manages the firm’s internal accounting, and looks after its tax affairs. You can see that the treasurer and controller have different roles: the treasurer’s main function is to obtain and manage the firm’s capital, whereas the controller ensures that the money is used efficiently.

The largest firms usually appoint a chief financial officer (CFO) to oversee both the treasurer’s and the controller’s work. The CFO is deeply involved in financial policymaking and corporate planning. Often he or she will have general responsibilities beyond strictly financial issues.

Usually the treasurer, controller, or CFO is responsible for organizing and supervising the capital budgeting process. However, major capital investment projects are so closely tied to plans for product development, production, and marketing that managers from these other areas are inevitably drawn into planning and analyzing the projects. If the firm has staff members specializing in corporate planning, they are naturally involved in capital budgeting too.

Because of the importance of many financial issues, ultimate decisions often rest by law or by custom with the board of directors. For example, only the board has legal power to declare a dividend or to sanction a public issues of securities. Boards usually delegate decision – making authority for small – or medium – sized investment outlays, but the authority to approve large investments is almost never delegated.



Discussion

  1. Briefly describe the importance of financial management.

  2. What must a company do to survive and prosper?

  3. What do companies need to carry on business?

  4. What can companies do to obtain the necessary money?

  5. What is the role of financial manager?

  6. What basic problems does the financial manager face?

  7. What is the importance of capital budgeting decision?

  8. What is the second responsibility of the financial manager?

  9. Who does the term financial manager refer to?

  10. What is the responsibility of the Treasurer?

  11. What is the main function of the controller?

  12. What is the responsibility of CFO?

  13. What do they target at?

  14. What is the role of the board of directors?

Use of English

Read the text below and find the right word or phrase from the box to fill each of the gaps.

Assets create development exploit grants loans

rates collateral finance holidays qualify reserves

When an established company needs to(1)……… further expansion, it can often(2)……. its internal resources. One way to do it is to use profit from previous years as capital; but Hans has not had time to build up any(3)……… .Another way is to sell off some of the firm’s (4)……….. for cash. Companies sometimes sell their own factories or offices and then lease them back from the buyer. If the company uses its assets as (5)……… for a bank loan, the bank will normally take a charge over the property. New businesses, on the other hand, can often get government (6)………. Particularly if they are located in (7)…….. areas. They may(8)………. for grant, or they may be eligible for tax(9)………., low- interest (10)………. or low business (11)………. For a fixed number of years, or assistance with finding and training staff. The company will(12)……. new jobs.

Translation

Translate the following text into English paying special attention to standard use of terms and clarify of expression.

Tài chính doanh nghiệp

Nói đến TCDN là nói đến việc quyết định về tài chính, việc quản lý nguồn vốn luân chuyển trong quá trình hoạt động, và việc tìm nguồn để tài trợ các chương trình phát triển của doanh nghiệp.Bên cạnh công tác kế toán, TCDN còn bao gồm công tác thủ qũy (hay thu-phát ngân) công tác đòi nợ, công tác xếp loại tín dụng khách hàng…và công tác đánh giá hiệu quả thực hiện.

Các quyết định bất thường được yêu cầu khi các doanh nhân muốn khai sinh doanh nghiệp (quyết định về vốn sáng lập viên, vốn pháp định, vốn ban đầu), khuếch trương doanh nghiệp( tăng vốn điều lệ), và khi doanh nghiệp gặp tình trạng mất khả năng trả nợ hay lâm vào hoàn cảnh phá sản, các quyết định hướng về việc nên tổ chức lại hay nên giải tán, và trong trường hợp phải đóng cửa thì nên kết thúc bằng phương thức sáp nhập hay phá sản?Các quyết định trong quá trình kinh doanh bình thường lại hướng về các dự án tài trợ công nghiệp hay giao dịch thương mại.Việc lượng giá kế hoạch đó được dựa trên một số các tỉ số tài chính.

Trong hoạt động sản xuất, TCDN ước tính khả năng sinh lợi của một kế hoạch đầu tư bằng cách phân tích điểm hòa vốn và thời gian hòa vốn.Các chỉ tiêu này được tính toàn từ định phí và biến phí cùng với các yếu tố khấu hao tài sản và thời giá tiền tệ.Trong hoạt động thương mại, TCDN chú trọng vào các vấn đề như bản dự toán của một chiến dịch quảng cáo, khả năng phát sinh lỗ từ các rủi ro khu vực hay rủi ro tín dụng… và chính sách định giá để đối phó với tình trạng chiến tranh giá cả.



PART III ACCOUNTING – AUDITING

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News -> Nghị quyết của quốc hội số 23/2003/QH11 ngàY 26 tháng 11 NĂM 2003 VỀ nhà ĐẤT DO nhà NƯỚC ĐÃ quản lý, BỐ trí SỬ DỤng trong quá trình thực hiện các chính sáCH
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