Discussion 1 Instructions:
Summarize the role of management as it relates to finance in a corporation. In your post, address
the following:
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Indicate the various aspects of finance that management must understand.
Describe why a manager needs to understand the characteristics and importance of
financial markets including risk and efficiency.
Describe why cash flow is more important than sales in a business.
Discuss what could happen if management does not fulfill responsibilities related to
finance. If you have one, share a real world example from your own professional
experience or from an external source.
Respond to Peers: Respond to at least two classmates’ by commenting on their example of
management not fulfilling its responsibilities. Pose a question to spark discussion regarding what
could have been handled differently. Utilize the reading material to support your claim.
Student 1:
Indicate the various aspects of finance that management must understand.
Cash flow, risk, time, and opportunity cost. According to our textbook, "expected cash flow is
the most obvious contributor to economic value; risk is another name for uncertainty; time
affects value, specifically the time we have to wait to receive a given cash flow; and opportunity
cost is the factor you face if you chose to make a purchase". (Hickman, 2013).
Describe why a manager needs to understand the characteristics and importance of
financial markets including risk and efficiency.
Understanding the characteristics and importance of financial markets, including risk and
efficiency is fundamental to making sound financial decisions. (Hickman, 2013).
Describe why cash flow is more important than sales in a business.
"Because cash flow is a better measure of the amount of available funds that the firm generates, i
t is a more reliable indicator than net income of the firm's ability to pay its bills, make its interest
payments on debts and pay dividends to its stockholders". (Hickman, 3013).
Discuss what could happen if management does not fulfill responsibilities related to
finance. If you have one, share a real world example from your own professional
experience or from an external source.
If management does not fulfill responsibilities related to finance, the company could suffer
tremendously. I personally believe the main reason behind business's failing now a days is the
lack of financial readiness. I am definitely looking forward to learning more about it throughout
the course.
Student 2:
A financial manager within a company has many different responsibilities that are crucial to the
company. According to our text the four biggest aspects of finance that management must
understand are cash flow, risk, time, and opportunity costs (Hickman, 2013). Without the
knowledge of these four things, management will not be able to make accurate and beneficial
decisions.
It is important for a manager to understand the characteristics and importance of financial
markets including risk and efficiency. The reason for this is because if a manager wants to make
any type of big decision they need to know what the risk is going to be. A manager who
understands the risk of investing is more likely to have probable return than a manager who is
unaware. Managers also need to understand the efficiency of the market because it is always
changing.
Both cash flow and sales are important when it comes to a business however, cash flow take
precedence over sales. “Expected cash flow is the most obvious contributor to economic
value”(Hickman ,2013). Cash flow shows what is coming in and going out of the company. Cash
flow gives the company more information than what sales can and is harder to manipulate.
If management does not fulfill their responsibilities when it comes to finance, things can go bad
quickly. Ultimately if this were to happen you could see a business slowly begin to deteriorate
and even possibly close for good. Everything a company does in some way, shape, or form has
finances involved. When poor finance decisions are being made the company will begin to fall
and unless that company changes its poor decision it will continue to fall.
Discussion 2 Instructions:
View the How to Read a Financial Statement: Business Finance Essentials video which looks at
the fundamental financial documents every company needs; including the balance sheet, income
statement, and statement of cash flow. In your post, choose one of the financial statements and
explain how a manager would use the statement to drive financial analysis and decision-making.
Respond to Peers: Respond to at least two classmates who have each selected a different
statement, and share any additional ways a manager might use that type of statement to drive
financial decisions in a corporation. Utilize the required reading materials to support your claims.
Student 1:
Financial statements are essential financial documents that a company requires to evaluate its
financial performance and position especially to attempt and highlight the past irregularities and
consequently take the necessary actions. By and large, all financial statements have their own
worth, however, cash flow statements among all is regarded as one of the most fundamental
financial documents (Hickman, Byrd, & McPherson, 2013).
Cash flow statement help managers in assessing the generation of cash flow as well as the usage
of cash flow made by the entity in terms of three basic business activities i.e. operating, investing
and financing activities. Operating activities are the ones which are the core business activities
from which the business generates its cash flows i.e. normal sale and purchase of goods and
services to the customers (Hickman, Byrd, & McPherson, 2013). Likewise, investing activities
have their own importance as the business tries to find out investment horizons where it can
invest its funds such as in purchase of property, plant and equipment or other financial
investments, etc. Lastly, financing activities play a key role for an entity in defining the major
sources from the bulk funds can be generated for the entity such as through issuance of new
issuance of new shares or raising up new loans, etc. In this way, the generation and usage of
funds are accumulated with previous year’s closing cash balance to provide the closing cash
balance for the current year.
Student 2:
Income Statements are usually prepared for every year. The income statement shows gross
profit, expenses, and net income/ net loss. This financial statement is important for managers
because it can help your business become more profitable. Unlike the balance sheet, the income
statement shows periods of time, and with this you can start to notice trends about when your
company is making the most revenue. This could help you with several different things like
knowing how much of whatever good you sell and during what times you need that much just in
case you have perishables. The income statement also will breakdown your expenses. This is
important because you can start to see where you most expensive operations are, and then maybe
you could try to make that process better. The income statement will usually have a taxes
section, and I believe it is clear that knowing what you have paid in taxes, or what you are going
to pay in taxes is important. The income statement is not that only financial statement, and all of
them work together to give you a picture of how your business is doing or a business you want to
invest in is doing.
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