Mgt201 short lectures || Short Lectures Mgt201 || VU mgt201 short lectures ||VU Mgt201 Short Lecture

Summary

This financial management lecture covers a wide range of key topics crucial for business success. It explores various financial activities, including financing sources (equity, debt), investment strategies, and working capital management. Key points include the importance of managing current assets and liabilities, stock and inventory control, and budgeting. The lecture also touches upon investment options like mutual funds and capital markets, along with the concepts of technical insolvency and liquidation. Overall, it provides valuable insights for businesses aiming to optimize their financial strategies and ensure stability.

Takeaways

• 😀 Financial management involves managing business finances through internal and external activities such as equity, loans, and investments.
• 😀 Sources of financing include both internal financing (e.g., equity from owners) and external financing (e.g., loans and debt financing).
• 😀 Profit-sharing through dividends is a common way to distribute business profits, which can be in cash or stock form.
• 😀 Internal financing often relies on reinvesting company profits, whereas external financing includes obtaining funds through loans or issuing shares.
• 😀 Financial management includes careful control of working capital, which involves managing current assets and liabilities.
• 😀 Capital budgeting is crucial for evaluating long-term investment projects, using methods such as discounted cash flow (DCF) analysis.
• 😀 Interest rates, whether fixed or floating, play a key role in determining the cost of borrowed funds, impacting financial decisions.
• 😀 Companies need to maintain effective inventory management systems, including controlling raw materials, work-in-progress, and finished goods.
• 😀 Cash flow management is essential for ensuring a business can meet its short-term obligations, involving monitoring cash inflows and outflows.
• 😀 Financial ratios, such as the working capital ratio, help assess the liquidity and financial stability of a company.
• 😀 Techniques like horizontal and vertical analysis are used for comparing financial performance over time and against industry standards.

Q & A

What are financing activities in financial management?

Financing activities refer to how a business obtains its financial resources, which can be either through the owner's contribution (equity financing) or by borrowing (debt financing). These activities are essential for raising capital for the business.

What is the difference between internal and external financing?

Internal financing is when a business uses its own resources, like retained earnings or profits, to fund operations or expansion. External financing involves raising funds from outside sources, such as loans, bonds, or equity investments.

How are interest rates classified and why is it important for businesses?

Interest rates are classified into fixed and floating rates. A fixed interest rate remains constant throughout the term of the loan, while a floating rate can change based on market conditions. For businesses, understanding interest rates is crucial as they affect the cost of borrowing and, consequently, financial planning.

What is working capital and why is it important for businesses?

Working capital is the difference between a company's current assets and current liabilities. It is important because it reflects the company's ability to cover its short-term debts and operational expenses, ensuring smooth business operations.

What is capital budgeting and why is it important?

Capital budgeting is the process of planning and evaluating investments in long-term assets. It helps businesses decide which projects are worth pursuing, ensuring that they invest in ventures that will generate returns over time.

What are mutual funds and how do they work?

Mutual funds pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. Each investor owns shares in the fund, and the value of their investment fluctuates based on the fund’s overall performance.

How do businesses manage receivables to ensure they do not face cash flow issues?

Businesses manage receivables by setting credit policies, following up on overdue payments, and maintaining a maximum receivable limit for customers. This ensures that money owed is collected in a timely manner to avoid cash flow problems.

What is the role of inventory management in financial management?

Inventory management ensures that a business maintains the right amount of stock to meet customer demand without overstocking. Proper inventory control helps avoid tying up excess capital in unsold goods and reduces storage costs.

What is the concept of 'cost of inventory' and how is it calculated?

The cost of inventory includes all costs associated with acquiring and holding inventory, such as purchase cost, storage, and handling costs. It can be calculated by adding up the cost of acquiring raw materials, processing them, and the costs related to storage and sales.

What is the significance of cash flow statements in financial management?

A cash flow statement shows the inflow and outflow of cash within a business. It helps businesses understand their liquidity position and whether they have enough cash to meet obligations. It includes operating, investing, and financing activities.