Reading
5. Read the text and match the topic sentences A-H to the gaps 1-7. One letter is EXTRA.
A. Successful financial planning means that the financial manager must decide on the amount and mix of assets necessary to generate the forecasted level of sales and profits.
B. In addition to long-range plans or budgets, the financial manager is concerned with near-term cash inflows and outflows associated with business operation.
C. In smaller firms, the operator of the business may take total responsibility for the finance functions.
D. Financial analysis goes hand in hand with successful financial planning.
E. Financial management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise.
F. Once financial plans have been made and asset needs planned for, the financial manager must acquire or raise the short-term and long-term funds necessary to support the firm's assets.
G. In order to plan, it is necessary to look forward. We all have perfect hindsight, but foresight is what determines the success of a business.
H. The overall objective of financial management is to maximize the value of the owners' investment or equity in the firm.
Financial Management functions
(1) __. To be successful in this endeavor, the financial manager must effectively carry out the functions of financial planning and analysis, asset management, and the raising of funds.
Financial Planning and Analysis. (2) __. Long-range plans covering several years must be prepared to project growth in sales, assets, and employees. First, a sales forecast needs to be made that includes expected developments in the economy and that reflects possible competitive pressures from other businesses. The sales forecast then must be supported by plans for an adequate investment in assets.
(3) ___. Cash flows are often monitored on a daily basis for large firms while small firms may make only monthly cash budgets. An unexpected shortage of cash causes financial problems for the financial manager. Having failed to plan for such a need in advance, he or she may have to seek a loan from a bank or other lender when the firm is out of money.
(4) ___. The established firm must conduct a financial analysis of past performance to aid in developing realistic future plans. The new firm should analyze the performance characteristics of other firms in the same industry before making plans. Financial analysis is conducted primarily through the examination of financial ratios, such as the ratio of profits to sales.
Asset Management. (5) ___. Investments in fixed assets are necessary to support sales. For manufacturing firms, plant facilities and machinery are necessary to produce the firm's products. In addition to fixed assets, the firm must carry adequate amounts of current assets. Inventory must be accumulated for the purpose of making sales. Cash balances must be maintained to carry on day-to-day transactions, and receivables may be incurred if sales are made on credit.
Raising Funds. (6) ___. Trade credit may be requested from suppliers, short-term bank loans may be obtained, or other current liabilities may be used. Long-term sources of financing may come from profits, the owner's own equity contributions, or long-term borrowing.
(7) ___. In fact, in small firms, the owner usually administers all facets of the business' operations. On the other hand, the medium and large business may, by virtue of size, assign an individual or group of individuals to these special functions and in so doing achieve the efficiency that comes from specialization of talent.