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Financial Management

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17 Chapter Financial Management * * * * Define finance and explain the role of financial managers. Describe the components of a financial plan and the financial ... – PowerPoint PPT presentation

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Title: Financial Management


1
Financial Management
17
Chapter
2
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.
3
The Business Function of Finance
  • Finance planning, obtaining, and managing the
    companys funds in order to accomplish its
    objectives
  • Maximizing overall worth
  • Meeting expenses
  • Investing in assets
  • Increasing profits to shareholders

4
The Role of the Finance Manager
  • Implement the firms financial plan
  • Determine the most appropriate source of funds
  • Many CFOs are members of the board of directors

5
Risk-Return Tradeoff
  • The process of maximizing the wealth of the
    firms shareholders by striking the optimal
    balance between risk and return.

6
Financial Planning
  • 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.

7
Managing Assets
  • Sound financial management requires assets to be
    managed and acquired.
  • What a firm owns
  • Use of funds

8
Short-Term Assets
  • Cash
  • Marketable Securities
  • Accounts Receivable
  • Inventory

9
Capital Investment Analysis
  • Long-lived assets
  • Produce economic benefit for more than one year
  • Substantial investments
  • Capital Investment Analysis
  • Expansion new assets
  • Replacement upgrading assets

10
Managing International Assets
  • Todays 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

11
Sources of Funds and Capital Structure
  • Debt Capital funds obtained through borrowing.
  • Equity Capital investment in the firm in
    exchange for ownership.

12
Leverage and Capital Structure
  • Goal increasing the rate of return on funds
    invested by borrowing funds

13
Mixing Short and Long-Term Funds
  • Short-term funds
  • Current liabilities
  • Less expensive
  • Volatile interest rates
  • Long-term funds
  • Long-term debt and equity
  • Used for long-term assets

14
Dividend Policy
  • 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?

15
Short-Term Funding Options
  • Trade Credit
  • Short-term Loans
  • Commercial Paper

16
Sources of Long-Term Financing
  • Public Sale of Stocks and Bonds
  • Private Placements
  • Venture Capitalists
  • Private Equity Funds
  • Hedge Funds

17
Mergers, Acquisitions, Buyouts, and Divestitures
  • Financial managers evaluate mergers,
    acquisitions, and other opportunities.
  • Leveraged buyouts
  • Divestiture
  • Sell-off/Spin-off

18
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