180 likes | 383 Views
17. Chapter. Financial Management. 1. 2. 3. 4. 5. 6. 7. Learning Objectives. Define finance and explain the role of financial managers. Describe the components of a financial plan and the financial planning process. Outline how organizations manage their assets.
E N D
17 Chapter Financial Management
1 2 3 4 5 6 7 Learning Objectives Define finance and explain the role of financial managers. Describe the components of a financial plan and the financial planning process. Outline how organizations manage their assets. Compare the two major sources of funds for a business, and explain the concept of leverage. Identify sources of short-term financing for business operations. Discuss long-term financing options. Describe mergers, acquisitions, buyouts, and divestitures.
Finance– planning, obtaining, and managing the company’s funds in order to accomplish its objectives Maximizing overall worth Meeting expenses Investing in assets Increasing profits to shareholders The Business Function of Finance
Implement the firm’s financial plan Determine the most appropriate source of funds Many CFOs are members of the board of directors The Role of the Finance Manager
The process of maximizing the wealth of the firm’s shareholders by striking the optimal balance between risk and return. Risk-Return Tradeoff
Financial Plan– the inflows and outflows and sources of funds. Financial plans are built by answering the following questions: What funds will the firm require during the planning period? When will it need additional funds? Where will it obtain the necessary funds? Financial plans are based on the forecasts of costs and expected sales activities for a given period. Financial Planning
Sound financial management requires assets to be managed and acquired. What a firm owns Use of funds Managing Assets
Cash Marketable Securities Accounts Receivable Inventory Short-Term Assets
Long-lived assets Produce economic benefit for more than one year Substantial investments Capital Investment Analysis Expansion: new assets Replacement: upgrading assets Capital Investment Analysis
Today’s firms have facilities and assets worldwide. Sales occur outside of the home country. International assets require the management of activities to reduce the financial risk of exchange rates. Balance Managing International Assets
Debt Capital– funds obtained through borrowing. Equity Capital– investment in the firm in exchange for ownership. Sources of Funds and Capital Structure
Goal: increasing the rate of return on funds invested by borrowing funds Leverage and Capital Structure
Short-term funds Current liabilities Less expensive Volatile interest rates Long-term funds Long-term debt and equity Used for long-term assets Mixing Short and Long-Term Funds
Dividends are cash payments to shareholders. Highest dividend yielding stocks Financial managers must make decisions regarding their dividend policy. Should we pay a dividend? When should it be paid? Dividend Policy
Trade Credit Short-term Loans Commercial Paper Short-Term Funding Options
Public Sale of Stocks and Bonds Private Placements Venture Capitalists Private Equity Funds Hedge Funds Sources of Long-Term Financing
Financial managers evaluate mergers, acquisitions, and other opportunities. Leveraged buyouts Divestiture Sell-off/Spin-off Mergers, Acquisitions, Buyouts, and Divestitures