Chapter 18 Financing and Investing Through Securities Markets

>>>> Chapter 18 Financing and Investing Through Securities Markets

s l a o G g Learnin 1 2 Define finance, and explain the role of financial managers. 5 Identify sources of short-term financing for business operations. Describe the components of a financial plan and the financial planning process. 6 Discuss long-term financing options. 7 Describe mergers, acquisitions, buyouts, and divestitures. 3 Outline how organizations manage their assets. 4 Compare the two major sources of funds for a business, and explain the concept of leverage.

n o i t c n u F s s e n i s u The B e c n a n i F of • 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

e h t f o e l o The R r e g a n a M Finance • Implement the firm’s financial plan. • Determine the most appropriate source of funds. • Many CFOs are members of the board of directors.

f f o e d a r T n r u t e Risk-R The process of maximizing the wealth of the firm’s shareholders by striking the optimal balance between risk and return.

g n i n n a l P l a i c Finan • • Financial Plan – the inflows and outflows and sources of funds. Financial plans are built by answering the following questions: 1) What funds will the firm require during the planning period? 2) When will it need additional funds? 3) Where will it obtain the necessary funds? • Financial plans are based on the forecasts of costs and expected sales activities for a given period.

s t e s s A g n i g a an M Sound financial management requires assets to be managed and acquired ü What a firm owns ü Use of funds

s t e s s A ort-term Sh ü Cash ü Marketable Securities ü Accounts Receivable ü Inventory

t n e m t s e v n I l a t i Cap Analysis • Long-lived assets • Produce economic benefit for more than one year • Substantial investments • Capital Investment Analysis – Expansion: new assets – Replacement: upgrading assets

g n i g a n Ma s t e s s A l a n o i t a n r Inte • 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.

d n a s d n u F f o s e c Sour e r u t c u r t S l a t i p a C Debt Capital –funds obtained through borrowing. Equity Capital – investment in the firm in exchange for ownership.

l a t i p a C d n a e g a r Leve s n o i s i c e D e r u t c Stru Goal: increasing the rate of return on funds invested by borrowing funds.

d n a m r e T t r o h Mixing S s d n u F m r e T g n Lo • Short-term funds – Current liabilities – Less expensive – Volatile interest rates • Long-term funds – Long-term debt and equity – Used for long-term assets

y c i l o P d n e d i v i D • Dividends are cash payments to shareholders. • Financial Managers must make decisions regarding their dividend policy. – Should we pay a dividend? – When should it be paid?

g n i d n u F m r e t t r o h S Options ü Trade Credit ü Short-term Loans ü Commercial Paper

m r e T g n o L f o s e Sourc g n i c n a Fin ü Public Sale of Stocks and Bonds ü Private Placements ü Venture Capitalists ü Private Equity Funds ü Hedge Funds

, s n o i t i s i u q c A , s r e s e Merg r u t i t s e v i D d n a Buyouts Financial managers evaluate mergers, acquisitions, and other opportunities. – Leveraged buyouts – Divestiture • Sell-off/Spin-off