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Chapter17.pptxFinancial Management http://www.wileybusinessupdates.com
Chapter
17
1
Define the role of the financial manager.
Describe financial planning.
Outline how organizations manage their assets.
Discuss the sources of funds and capital structure.
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Learning Objectives
Identify short-term funding options.
Discuss sources of long-term financing.
Describe mergers, acquisitions, buyouts, and divestitures.
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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
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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
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The process of maximizing the wealth of the firm’s shareholders by striking the optimal balance between risk and return.
Risk-Return Tradeoff
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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
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Sound financial management requires assets to be managed and acquired.
What a firm owns
Use of funds
Managing Assets
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Cash
Marketable Securities
Accounts Receivable
Inventory
Short-Term Assets
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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
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Debt Capital– funds obtained through borrowing.
Equity Capital– investment in the firm in exchange for ownership.
Sources of Funds and Capital Structure
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Goal: increasing the rate of return on funds invested by borrowing funds
Leverage and Capital Structure
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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
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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
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Trade Credit
Short-term Loans
Commercial Paper
Short-Term Funding Options
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Public Sale of Stocks and Bonds
Private Placements
Private Equity Funds
Hedge Funds
Sources of Long-Term Financing
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Financial managers evaluate mergers, acquisitions, and other opportunities.
Leveraged buyouts
Divestiture
Sell-off/Spin-off
Mergers, Acquisitions, Buyouts, and Divestitures
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