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    Financial Management Essentials
    Financial Management Essentials
    Financial Management Essentials
    Ebook248 pages2 hours

    Financial Management Essentials

    By Musa Essayyad

    4.5/5

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    About this ebook

    REA’s Essentials provide quick and easy access to critical information in a variety of different fields, ranging from the most basic to the most advanced. As its name implies, these concise, comprehensive study guides summarize the essentials of the field covered. Essentials are helpful when preparing for exams, doing homework and will remain a lasting reference source for students, teachers, and professionals. Financial Management includes the finance function, business organization, financial statements, depreciation and cash flow, financial statement analysis, financial planning, operating and financial leverage, time value of money, risk and return, valuation, capital budgeting, cost of capital, capital structure, cash and marketable securities, accounts receivables and inventories, and financing smaller firms and startups.
    LanguageEnglish
    PublisherResearch & Education Association
    Release dateJan 1, 2013
    ISBN9780738670904
    Financial Management Essentials

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    4.5/5

    16 ratings2 reviews

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    • 4/5
      Good book for non-financial professional like me. I like the summary and straight to point approach

      1 person found this helpful

    • 5/5
      Simplified already! The reader can fully understand financial management that can be applied in business and personal life.

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    Book preview

    Financial Management Essentials - Musa Essayyad

    These Little Books have rescued lots of grades and more!

    (a sample of the hundreds of letters REA receives each year)

    " I can’t tell you how much that little book helped me. It

    saved my GPA and quite possibly my sanity."

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    " Your book has really helped me sharpen my skills and

    improve my weak areas. Definitely will buy more. "

    Student, Buffalo, NY

    I think it’s the greatest study guide I have ever used!

    Student, Anchorage, AK

    I wish to congratulate you on publishing such excellent books.

    Instructor, Big Rapids, MI

    " I found your Essentials book very helpful. Now tattered and

    covered with notes, I take it to class daily. "

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    " I bought The Essentials of Electric Circuits and was very

    impressed. Congratulations on such a well thought out summary. "

    Engineer, Colorado Springs, CO

    "Your Essentials books are great! They are very helpful,

    and have upped my grade in every class. Thank you for

    such a great product."

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    "I recently purchased six titles from your history Essentials

    series and I find them to be excellent."

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    "Thank you for volumes I & II of The Essentials of Statistics.

    I am very pleased with these two little booklets."

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    THE ESSENTIALS®

    OF FINANCIAL MANAGEMENT

    Year 2005 Printing

    Copyright © 2001, 1998, 1994, 1990 by Research & Education Association, Inc. All rights reserved. No part of this book may be reproduced in any form without permission of the publisher.

    Printed in the United States of America

    Library of Congress Control Number 00-133920

    9780738670904

    ESSENTIALS is a registered trademark of

    Research & Education Association, Inc., Piscataway, New Jersey 08854

    B05

    What REA’s Essentials® Will Do for You

    This book is part of REA’s celebrated Essentials® series of review and study guides, relied on by tens of thousands of students over the years for being complete yet concise.

    Here you’ll find a cogent summary of the very material you’re most likely to need for exams, not to mention homework — eliminating the need to read and review many pages of textbook and class notes.

    This slim volume condenses the vast amount of detail characteristic of the subject matter and summarizes the essentials of the field. The book provides quick access to the important facts, terms, theorems, concepts, and formulas in the field.

    It will save you hours of study and preparation time.

    This Essentials® book has been prepared by experts in the field and has been carefully reviewed to ensure its accuracy and maximum usefulness. We believe you’ll find it a valuable, handy addition to your library.

    Larry B. Kling

    Chief Editor

    Acknowledgment

    We would like to thank Robert Volk for his editorial contributions.

    Table of Contents

    These Little Books have rescued lots of grades and more!

    Title Page

    Copyright Page

    What REA’s Essentials® Will Do for You

    Acknowledgment

    CHAPTER 1 - THE FUNCTION AND GOALS OF FINANCIAL MANAGEMENT

    CHAPTER 2 - BUSINESS ORGANIZATION AND THE FINANCIAL ENVIRONMENT

    CHAPTER 3 - FINANCIAL STATEMENTS, DEPRECIATION AND CASH FLOW

    CHAPTER 4 - FINANCIAL STATEMENTS ANALYSIS

    CHAPTER 5 - FINANCIAL PLANNING

    CHAPTER 6 - OPERATING AND FINANCIAL LEVERAGE

    CHAPTER 7 - TIME VALUE OF MONEY

    CHAPTER 8 - RISK AND RETURN

    CHAPTER 9 - VALUATION

    CHAPTER 10 - CAPITAL BUDGETING

    CHAPTER 11 - COST OF CAPITAL

    CHAPTER 12 - CAPITAL STRUCTURE

    CHAPTER 13 - CASH AND MARKETABLE SECURITIES

    CHAPTER 14 - ACCOUNTS RECEIVABLE AND INVENTORIES

    CHAPTER 15 - SHORT-TERM FINANCING

    CHAPTER 16 - CAPITAL MARKETS AND COMMON STOCK FINANCING

    CHAPTER 17 - DEBT AND PREFERRED STOCK FINANCING

    CHAPTER 18 - WARRANTS, CONVERTIBLES AND OPTIONS

    CHAPTER 19 - LEASING

    CHAPTER 20 - DIVIDEND POLICY

    CHAPTER 21 - BUSINESS EXPANSION AND BUSINESS FAILURE

    CHAPTER 22 - INTERNATIONAL FINANCE

    CHAPTER 23 - FINANCING SMALL FIRMS AND STARTUPS

    CHAPTER 1

    THE FUNCTION AND GOALS OF FINANCIAL MANAGEMENT

    1.1 THE FIELD OF FINANCE

    Finance is the art and science of managing money. Finance applies the disciplines of economics and accounting to various problems in the firm.

    There are two major areas in finance.

    One of the areas is the provision of financial services to individuals, businesses, nonprofit organizations and government. The major opportunities in financial services are:

    Banks, savings and loans, and similar institutions.

    Personal financial planning. Certified Financial Planners are professionals in this activity.

    Investments. Stockbrokers, financial analysts and portfolio managers are some of the jobs available in this area. The Chartered Financial Analyst is the professional designation in financial analysis and portfolio management.

    Real estate and insurance, brokers, property managers, appraisers and planners are some of the job opportunities in real estate. There are several professional designations in real estate. Agents, brokers, underwriters and claims service are some of the job opportunities in insurance. Chartered Life Underwriter (CLU) and Chartered Property and Casualty Underwriter (CPCU) are the two major professional designations in insurance.

    Financial management is the second of these two major areas. A financial manager manages the financial affairs of any type of business, whether financial or nonfinancial, private or public, profit or nonprofit.

    1.2 THE FINANCIAL MANAGER’S RESPONSIBILITIES

    The main responsibilities of the financial manager include:

    Financial Analysis and Planning — This involves organizing and using accounting data to monitor the firm’s financial condition. It also involves evaluating the need for capital expenditures and determining what additional financing is needed.

    Managing the firm’s asset structure — This involves managing the firm’s cash, marketable securities portfolio, accounts receivable, inventory, equipment and physical plant.

    Managing the firm’s financial structure — This involves decisions on how assets are financed, use of short-term versus long-term debt, leasing and use of debt versus equity.

    1.3 THE ORGANIZATION OF THE FINANCE FUNCTION

    Accounting departments typically handle the finance function in small firms. In large firms, there is typically a Vice President Finance, or Chief Financial Officer (CFO) who reports directly to the President (CEO). Typically, the treasurer and the controller will report to the Vice President Finance.

    The treasurer is normally responsible for handling financial planning and fund raising, managing cash, capital budgeting analysis, credit and collections and investing of excess funds.

    The controller normally is responsible for all accounting activities, including tax management, data processing and cost and financial accounting.

    1.4 GOALS OF THE FIRM

    The broad goal of the firm should be an attempt to maximize the wealth of the firm’s present shareholders, if this is a corporation, or the wealth of the firm’s owners in a proprietary or partnership organization.

    Many times, managers in a corporation are given incentives such as stock options and bonuses to maximize shareholders’ wealth. In a proprietary ownership, the owner/manager can benefit directly from profits which can result in bonuses.

    Wealth maximization is not inconsistent with social responsibility. Social responsibility will be broadly defined as quality product and service to the firm’s customers, concern for employees — a safe working environment and a trained and loyal workforce — and community concern. Because of competitive pressures, government regulation may be needed to protect the responsible firms from the irresponsible firms. Pension funds and mutual funds with a concern about social issues are increasingly having an impact on firms in their role as large shareholders.

    CHAPTER 2

    BUSINESS ORGANIZATION AND THE FINANCIAL ENVIRONMENT

    2.1 BASIC FORMS OF BUSINESS ORGANIZATION

    A proprietorship is a business owned by one individual. About 75% of all businesses in the U.S. are proprietorships.

    The advantages of a proprietorship are:

    Low cost and ease of formation. No legal documents need be prepared and a state charter is not required.

    Decisions do not require consent of others.

    Income tax may be an advantage or disadvantage.

    The disadvantages of a proprietorship are:

    Unlimited liability. Proprietor is personally responsible for all business debts.

    Difficuly in raising large amounts of capital.

    A partnership is owned by two or more individuals. Nine percent of all business firms in the U.S. are partnerships.

    The advantages of a partnership are:

    Low cost and ease of formation.

    Can raise more capital than proprietorship.

    Can attract talent easier than a proprietorship.

    Income tax may be an advantage or disadvantage.

    The disadvantages of a partnership are:

    Unlimited liability for each partner. If one partner is unable to pay his or her share, the

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