Lamar Van Dusen - Financial Planning Requirements

1. Financial Planning Requirements Lamar Van Dusen

2. Goals • What roles do finance and the financial manager play in the firm’s overall strategy? • How does a firm develop its financial plans, including forecasts and budgets? • What types of short-term and long-term expenditures does a firm make?

3. Goals (cont’d) • What are the main sources and costs of unsecured and secured short-term financing? • How do the two primary sources of long-term financing compare? • What are the major types, features, and costs of long-term debt? • When and how do firms issue equity, and what are the costs?

4. Goals (cont’d) • Where can investors buy and sell securities? • What trends are affecting the field of financial management?

5. Goal 1 What roles do finance and the financial manager play in the firm’s overall strategy?

6. Financial Management: the art and science of managing the firm’s money so that it can meet its goals

7. The Role of the Financial Manager To maximize the value of the firm to its owners by: • financial planning • investment (spending money) • financing (raising money)

8. Goal 2 How does a firm develop its financial plans, including forecasts and budgets?

9. Financial Planning Requirements • Forecasts • short-term (operating plans) • long-term (strategic plans) • Budgets • cash budget • capital budget • operating budget

10. Goal 3 What types of short-term and long-term expenditures does a firm make?

11. How Organizations Use Funds • Short-term expenses • cash management • accounts receivable • inventory • Long-term expenditures • capital expenditures • capital budgeting

12. Goal 4 What are the main sources and costs of unsecured and secured short-term financing?

13. Unsecured Short-Term Financing • Trade credits (accounts payable) • Bank loans • line of credit • revolving credit agreement • Commercial paper

14. Secured Short-Term Financing • Secured loans • pledging specific assets as collateral • Factoring • selling accounts receivable outright at a discount

15. Goal 5 How do the two primary sources of long-term financing compare?

16. Comparing Long-Term Financing • Debt financing (borrowing) • interest expense is tax deductible • no loss of ownership • requires payment of interest and principal on specified dates • Equity financing (ownership) • not required to pay dividends (not tax deductible) or repay investment • common shareholders have voting rights

17. Goal 6 What are the major types, features, and costs of long-term debt?

18. Long-Term Debt • Term loans • secured or unsecured • 5- to 12-year maturity • Corporate bonds • 10- to 30-year maturity • Mortgage loans • secured by real estate

19. Goal 7 When and how do firms issue equity, and what are the costs?

20. Equity Financing • Common stock • cost includes issuing costs and potential dividend payments • Retained earnings • profits reinvested in firm • Preferred stock • more expensive than debt • dividends not tax-deductible • claims are secondary to those of stockholders • less expensive than common stock

21. Debt vs. Equity Financing

22. Goal 8 Where can investors buy and sell securities?

23. Securities: investment certificates issued by corporations or governments that represent either equity or debt

24. Types of Markets • Primary market • new securities are sold (IPO) • Secondary market • organized stock exchanges • Toronto Stock Exchange (TSX) • TSX Venture Exchange • foreign exchanges • New York Stock Exchange (NYSE) • over-the-counter market

25. Trends in Finance • Finance goes global • Risk management • credit risk • market risk • operational risk

26. Thanks