Nineteen

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Chapter Nineteen
Financial Management
2
Finance Managers

• What is Financial Management?
• Finance
• Financial Manager
• Importance of Finance

3
What Financial Managers Do (Figure 19.1)
4
Most Important Skills Needed by CFOs
Source CIO Enterprise, 3/15/1999
5
Non-Finance Functions of a CFO
Source CIO Enterprise
6
Where CFOs Get Their Financial Information
Source USA Today
7
Financial Planning Process
Forecast Cash Flow Short-term Long-term Uses
Budget Cash Needs Operating, Cash, Capital
Compare Results Modify Forecasts Budgets
Control Differences Actual vs. Projected Flows
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Operating Funds Needs

• Manage Daily Operations
• Manage Accounts Receivable
• Acquire Inventory
• Capital Expenditures

9
Financing Daily Operations- Cash Flows
Money Received From (Cash In)
Business Expenses (Cash Out)

• Inventory Purchases
• Payment on Loans
• Payment on Assets
• Salaries Payable
• Supplies
• Taxes

• Credit Sales
• Cash Sales
• Investment Income

10
Uses of Excess Funds
Expansion
Marketable Securities
EXCESS
Treasury Bills
FUNDS
Commercial Paper
Certificates of Deposit
Asset Purchases
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Sources of Funds

• Short-Term
• Trade Credit
• Promissory Notes
• Family/Friends
• Banks, etc.
• Secured Loan
• Unsecured Loan
• Factoring
• Commercial Paper

• Long-Term
• Debt
• Term-Loan
• Bonds
• Secured
• Unsecured
• Equity
• Stock
• Retained Earnings
• Venture Capital

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Who Can Issue Bonds? (Figure 19.4)

1. Federal, state, and local governments
2. Federal government agencies
3. Corporations
4. Foreign governments and corporations

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Sources of Equity Capital
Retained Earnings
Internal Sources
Owner Contributions
Sale of Partnerships
Equity Capital
Venture Capital
External Sources
Public Sale of Stock
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Making Use of Leverage
Leverage- Selling Bonds
Equity- Sale of Stock

• Common Stock 30,000
• Bonds (_at_10) 200,000
• Funds Raised 230,000
• Earnings 35,000
• Less Bond Interest 20,000
• Total Earnings 15,000
• Return to 15,000
• Stockholders 30,000

• Common Stock 230,000
• Bonds (_at_10) 0
• Funds Raised 230,000
• Earnings 35,000
• Less Bond Interest 20,000
• Total Earnings 15,000
• Return to 35,000
• Stockholders 230,000

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15.2