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Nickels Nickels
McHughMcHugh
McHughMcHugh
Nickels Cover
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Chapter
19191919 Financial Financial ManagementManagement
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Finance & ManagersFinance & Managers• What is Financial What is Financial
Management?Management?
–FinanceFinance
–Financial ManagerFinancial Manager
• Importance of Importance of FinanceFinance
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What Financial Managers DoWhat Financial Managers Do
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Financial Planning ProcessFinancial Planning Process
Forecast Cash Flow
Short-term & Long-term Uses
Budget Cash Needs
Operating, Cash, & Capital
Control Differences Actual vs. Projected Flows
Compare Results
Modify Forecasts & Budgets
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Financing DailyFinancing Daily Operations- Cash FlowsOperations- Cash Flows
Money Received From:Money Received From:
(Cash In)(Cash In)
Credit SalesCredit Sales
Cash SalesCash Sales
Investment Investment
IncomeIncome
Business Business Expenses:Expenses:
(Cash Out)(Cash Out)Inventory Inventory PurchasesPurchases
Payment on LoansPayment on Loans
Payment on Payment on AssetsAssets
Salaries PayableSalaries Payable
SuppliesSupplies
TaxesTaxes
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Budget ProcessBudget Process
• Financial Plan- Financial Financial Plan- Financial StatementsStatements
• Types of BudgetsTypes of Budgets–CapitalCapital
–CashCash
–Operating (Master)Operating (Master)
• Financial Controls- FeedbackFinancial Controls- Feedback
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Ways to Cut CostsWays to Cut Costs
Slash travel, consulting, & entertainment budgetsSlash travel, consulting, & entertainment budgets
Unbundle product service/mix, charge for things Unbundle product service/mix, charge for things once freeonce free
Renegotiate purchasing contractsRenegotiate purchasing contracts
Form partnerships to share costsForm partnerships to share costs
Put selected R&D, technology, etc. on holdPut selected R&D, technology, etc. on hold
Speed collections/slow paymentsSpeed collections/slow payments
Cut people outside core areas of production & salesCut people outside core areas of production & sales
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Need for Operating FundsNeed for Operating Funds
• Manage Daily OperationsManage Daily Operations
• Manage Accounts Manage Accounts ReceivableReceivable
• Acquire InventoryAcquire Inventory
• Capital ExpendituresCapital Expenditures
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Sources of FundsSources of Funds
Short-TermShort-Term• Trade CreditTrade Credit• Promissory NotesPromissory Notes• Family/FriendsFamily/Friends• Banks, etc.Banks, etc.– Secured LoanSecured Loan– Unsecured LoanUnsecured Loan
• FactoringFactoring• Commercial PaperCommercial Paper
Long-TermLong-Term• DebtDebt– Term-LoanTerm-Loan– BondsBonds
• SecuredSecured• UnsecuredUnsecured
• EquityEquity– StockStock– Retained EarningsRetained Earnings– Venture CapitalVenture Capital
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Who Can Issue Bonds?Who Can Issue Bonds?
1.1.Federal, state, and Federal, state, and local governmentslocal governments
2.2.Federal government Federal government agenciesagencies
3.3.CorporationsCorporations
4.4.Foreign governments Foreign governments and corporationsand corporations
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Sources of Equity FinancingSources of Equity Financing
Equity Equity CapitalCapitalEquity Equity CapitalCapital
Internal Internal SourcesSourcesInternal Internal SourcesSources
External External SourcesSourcesExternal External SourcesSources
Retained Retained EarningsEarnings
Retained Retained EarningsEarnings
Owner Owner ContributionContribution
ss
Owner Owner ContributionContribution
ssSale of Sale of
PartnershipsPartnerships
Sale of Sale of PartnershipsPartnerships
Venture Venture CapitalCapital
Venture Venture CapitalCapital
Public Sale of Public Sale of StockStock
Public Sale of Public Sale of StockStock
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Making Use of LeverageMaking Use of Leverage
Common Stock $ 50,000Common Stock $ 50,000
Bonds (@10%) Bonds (@10%) $450,000$450,000
Funds Raised $500,000Funds Raised $500,000Earnings $ 125,000Earnings $ 125,000
Less: Bond Interest Less: Bond Interest $ 45,000$ 45,000
Total Earnings $ 80,000Total Earnings $ 80,000
Return to Return to $80,000$80,000
Stockholders Stockholders $50,000$50,000
Common StockCommon Stock $500,000 $500,000
Bonds (@10%) Bonds (@10%) 0 0
Funds RaisedFunds Raised $500,000 $500,000Earnings $ 125,000Earnings $ 125,000
Total Earnings $ 125,000 Total Earnings $ 125,000
Return to Return to $125,000$125,000
Stockholders Stockholders $500,000$500,000 == = = 160%160%
Leverage- Selling Leverage- Selling BondsBonds
== = 25%= 25%
Equity- Sale of StockEquity- Sale of Stock