The 3 line fucntions of any business are
Production
Sales
Finance
No business without all three
Finance involves 4 key responsibilities
Determine a firms long-term investments
Obtain Funds to pay for thos investments
Conduct the firms everyday financial activities
Help manage the risks that a firm takes
Roles of a financial Manager
The financial manager objectives
Increase firm value and stockholder wealth
Collect funds, pay debts, establish trade credit, obtain loans, control cash, plan for future needs
Responsible for planning and overseeing the financical resources of a firm
Cash-flow management
Purchase materials, capital goods and human resources it needs to produce goods and services
Managing the pattern of cash inflows and outflows
Invseting funds that are not needed to service debt-idle cash balances
Funds must either committed to maintaining the firm, or raring interest and not sitting idle
Financial Control
This is the process of checking actual performance agnaist plans to ensure that the desired financial status occurs
Checking performance agnaist strategic plans
Sales and expense vary from actual
Strategies higher than expected revenue-strategies lower than expected revenue-expensees too high- expenses lower than expected
Making adjustments
Preparing budgets to ensure that enough cash in on hand to meet operational and debt-service needs
Financial Planning
What funds are needed with immediate plans?
When will the firm need more funds
Where can the firm get the funds to meet its ST and LT needs?
A plan to get a desired fianancial status
Projections of revenue flows
Sources and planned uses of funds to meet both short- and long-term goals
Timing of when funds will be required
Short term (operating) expenses
Accounts payable
Money owed to suppliers
Largest short term debt
Accounts receivable
Inventory
Raw materials
Work in process
Long-term (Capital) Expenditures
Fundsing fixed assets that have a long life and a lasting value
Land, building, machinery
LCM considerations-Long term commitment
Not normally sold or converted into cash
Acquisition requires a large investment; ties up the firm's resources-need to evaulate if the asset will provide an appropriate return
Short term funds
Allows firms to cover operational expenses and implement short-term plans
Factoring accounting receivable
Selling AR
Cost of collection including write offs
Trade credit
The granting of credit by selling firm to a buying firm
Open book credit
Promissory note
Tug of war with accounts recievable
Like a ST loan
Pay customers slowly bu collect wuick
Delay pmt to keep using cash
Secured Loans
Which the borrower is required to put up collateral
Interest rates are lower than unsecured loans
Appeals to firms whos redit rating is not sufficient to qualify for unsecured loans
Unsecured Loans
Line of Credit-Revolving credit agreements
Commercial paper- selling unsecured notes for less than face value-then repurcahsing later
Sources of long-term funds
Firms need long term funding to finance expenditures on fixed assets such as buildings and equipment that is necessary for conducting business
Debt financing
LT loans
Corporate bonds
Callable Bonds
May be called at anytime, or after a min period of time and paid off for a pecified call price
Convertible bonds
Option of receiving common stock instead of cash
Secured
Reduce risk of bonds by pledging assets and reducing risk
Unsecured
Bearer bonds
If u have them u own them
Registered bonds
Names of holders are registered
A promise by the borrower to pay the lender an amount of money on the maturity date including principal plus interest-bond ratings- discount if your rate is lower than market, premium is higher.
Equity financing
Common Stock
A firm sells ownership rights by issuing shares investors buy the stock hoping that it will appreciate
Residual interest (after creditors, pref shares)
Retained Earning
Financing by retaining profits in the firm and not paying dividends to shareholders
Hybride fiancing
Preferred Shares
Cumulative or on cumulative payments, as do bonds
Can you force a dividend payment?
No
Unlike bonds, they do not normally have a maturity (redemption) date - if they do, they are liabilities
Have no voting rights, so control of the firm is not affected
preference
Choosing between Debt and Equity Financing
Capital structure: the mis of debt vs equity
Financial plans usually include a target for the debt-equity mix.
Securities Markets
Primary Securities Market
Sale and purchase of newly issued stocks or bonds
Stock exchange
Stockbrokers
People licensed to buy and sell securities for customers in the secondary market
Discount brokers
Full-service brokers
Online trading
Toronto Stock Exchange
The largest exchange in canada
Over the counter market
Numberous dealers who trade amount themeselves for smaller firms and those not listed on exchanges
Also trade fixed income securities
NASDAQ
The world's first electronic stock market
Buying and selling securties
Bear market
Falling prices
Bull market
Rising prices
Market Indexes
Summarize trends in the stock market and specific industries
Market orders
Shares ordered
Limit orders
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