Financing and Producing Goods

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• Financing and Producing Goods

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Interest is returned to saver/depositor
People deposit savings to get interest.
Businesses pay interest to financial institutions
Financial Institutions loan to businesses
Businesses use to expand and improve
Computers
Trucks
Plant
Equipment
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Financing Business Expansion

• Financing
• Obtaining money or funds needed for business
  expansion

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Financing Business Expansion

• How is financing obtained?
• People deposit savings to get interest.
• Financial institutions loan money (Your savings)
  to businesses.
• Businesses use loan money (Your savings) to
  expand and improve to make money.
• Businesses then repay their loan with interest.
• A portion of that interest is returned to the
  saver/depositor.

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Financing Business Expansion

• Before Financing
• Perform a cost-benefit analysis (Figure 10.2)
• Estimates the cost of any action and compares it
  with the benefits.
• Estimate the costs of the expansion
• Calculate expected revenues, or total income from
  sales.
• Calculate expected profits, or revenues minus
  costs.
• Calculate how much the loan plus interest will
  cost you monthly.
• Do your profits outweigh the cost of expansion?

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Different Types of Financing

• Raising money for a business through borrowing is
  know as debt financing. This occurs in three
  ways
• Short-term Financing
• Intermediate-term Financing
• Long-term Financing

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Short-Term Financing

• When a business borrows money for any period of
  time less than 1 year.
• Trade Credit
• Buyers take possession immediately and pay for
  them later. Businesses get a 2 discount if paid
  before term is up.
• Unsecured Loan
• Borrowers sign a promissory note to repay the
  loan in full plus interest rather quickly. There
  is no guarantee other than a promise. (usually
  one year)
• Secured Loan
• Loans backed by collateralsomething of value
  borrowers will lose if not paid back.
• Line of Credit
• The maximum amount a bank can borrow you in a
  specific time period, usually one year.

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Immediate-Term Financing

• Money borrowed by a business for 1 to 10 years.
• Loansgenerally requiring collateral
• Most are mortgages, expansions, or needed
  purchases.
• Leasing
• Means renting rather than buying.

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Long-Term Financing

• Money borrowed by a business for more than 10
  years.
• Bonds
• A set rate of interest and period of time is
  determined in paying back the borrowed amount in
  full.
• Stocks
• Also known as equity financing.
• Money is made by selling a portion of the
  company. Stocks are usually common stock (voting
  rights) or preferred stock (no voting rights).

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Financial Manager

• A person who handles all the financial reports,
  communicates to investors, and determines the
  market climate.
• The market climate compares interest rates to the
  economy.

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Production of Goods

• Production
• The process of changing resources into goods that
  people or businesses want.
• Consumer goodsgoods produced for individuals and
  sold directly to the public to be used as they
  are.
• Capital goodsproducts used to make other goods.

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Production Operation

• Four Steps
• Planningchoosing a location, scheduling
  production, and knowing how much you need.
• Purchasingknowing how much you want to pay for
  your goods, which goods are the best for what you
  can afford.
• Quality Controlmaking sure your goods stay top
  quality.
• Inventory Controlmaking sure you have goods in
  place or know how to get them.

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Technology and Production

• Technologythe use of science to develop new
  products and methods to produce, distribute, and
  provide goods or services.
• Mechanizationthe combined labor of people and
  machines.
• Assembly Lineuse of conveyor belts to move
  products from station to station.
• Division of Laborthe breaking down of a job into
  small tasks.
• Automationmachines do the work and people
  oversee. (Robotics)