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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