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MUSOLINO. Financial Management. CHAPTER. 18. 1- 1. Finance & Managers. What is Financial Management? Finance Financial Manager Importance of Finance. Most Important Skills Needed by CFOs. Source: CIO Enterprise. Women CFOs.

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  1. MUSOLINO Financial Management CHAPTER 18 1-1

  2. Finance & Managers • What is Financial Management? • Finance • Financial Manager • Importance of Finance

  3. Most ImportantSkills Needed by CFOs Source: CIO Enterprise

  4. Women CFOs • As of May 2006, 35 of the 500 largest companies in the US had a female CFO • Five largest companies with female CFO: Citigroup, Home Depot, Verizon, Marathon Oil, and Medco Health Solutions • Top 3 reasons that helped women achieve their current position: Supportive boss, Supportive spouse, and culture of the organization Source: cfo.com, June 1, 2006

  5. Non-FinanceFunctions of CFOs Source: CIO Enterprise

  6. What Financial Managers Do

  7. Where CFOs GetTheir Financial Information Source: USA Today

  8. Financial Managers: Ask Your Clients • What are the client's goals in areas like lifestyle, retirement, saving for college education and their health care as well as that of their dependents? • When do they want to reach their goals? • What steps have they already taken toward achieving their goals? • How do they feel about taking investment risks for a potential higher rate of return? • How involved do they want to be in monitoring their progress toward their goals? Source: Fpanet.org

  9. Financial Planning Financial Plan Short-term Forecasting Long-term Forecasting Operating Budget Capital Budget Cash Budget Financial Controls Feedback Feedback

  10. Budget Process • Financial Plan- Financial Statements • Types of Budgets • Capital • Cash • Operating (Master) • Financial Controls- Feedback

  11. Need for Operating Funds • Manage Daily Operations • Controlling credit operations • Acquire Inventory • Capital Expenditures

  12. Short-Term Funds Meeting monthly expenses Unanticipated emergencies Cash-flow problems Expanding current inventory Temporary promotional programs Long-Term Funds New product development Replacing capital expenditure Mergers or acquisitions Expansion into new markets Building new facilities Why Firms Need Funds

  13. Daily Profits Of Companies With The Highest Revenue • Wal-Mart - $24.8 Million • ExxonMobil - $58.9 Million • General Motors - $10.5 Million • Ford - $1.4 Million • General Electric - $41.1 Million • ChevronTexaco - $19.8 Million Source: World Feature Syndicate, 2005

  14. Short-Term Trade Credit Promissory Notes Family/Friends Banks, etc. Secured Loan Unsecured Loan Factoring Commercial Paper Credit Cards Long-Term Debt Term-Loan Bonds Secured Unsecured Equity Stock Retained Earnings Venture Capital Sources of Funds

  15. Who Can Issue Bonds? • Federal, state, and local governments • Federal government agencies • Corporations • Foreign governments and corporations

  16. Sources of Equity Financing Retained Earnings Internal Sources Owner Contributions Sale of Partnerships Equity Capital Venture Capital External Sources Public Sale of Stock

  17. IPO Summer of 2006 • 89 companies filed plans to raise money through IPO – looking to raise $16.3 billion • 17 companies withdrew their plans to proceed with their IPO – were hoping to raise $3.89 billion • Withdrawing – Go Daddy Group and PNY Technologies • Filing – Double-Take Software and Hansen Medical Source: redherring.com, August 18, 2006

  18. Google IPO • Launched – August 2004 • IPO Price -- $ 85 per share • Seeking to raise $2.7 billion • Unusual auction-style offering • With IPO, the company must shed light on the inner workings • Key competitors – Yahoo and Microsoft • As of March 31, 2004 Google employed about 1,900 employees Source: cnet news.com, April 30, 2004; Forbes, September 17, 2004

  19. Venture Capitalists • Finance new and rapidly growing companies • Purchase equity securities • Assist in the development of new products or services • Add value to the company through active participation • Take higher risks with the expectation of higher rewards • Have a long-term orientation Source: NVCA.com

  20. Common Stock $ 50,000 Bonds (@10%) $450,000 Funds Raised $500,000 Earnings $ 125,000 Less: Bond Interest $ 45,000 Total Earnings $ 80,000 Return to $80,000 Stockholders $50,000 Common Stock $500,000 Bonds (@10%) 0 Funds Raised $500,000 Earnings $ 125,000 Total Earnings $ 125,000 Return to $125,000 Stockholders $500,000 Making Use of Leverage Leverage- Selling Bonds Equity- Sale of Stock = = 160% = = 25%

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