1. NETA PowerPoint Presentations to accompany The Future of Business Fourth Edition Adapted by Norm Althouse, University of Calgary Copyright © 2014 by Nelson Education Ltd.

2. Finance: Maximizing the Value Chapter 18 Copyright © 2014 by Nelson Education Ltd.Chapter 18

3. Copyright © 2014 by Nelson Education Ltd. Making the Connection

4. Learning Outcomes 1. Explain the roles finance and the financial manager play in the company’s overall strategy. 2. Describe how a company develops its financial plans, including forecasts and budgets. 3. List the types of short- and long-term expenditures a company makes. 4. Summarize the main sources and costs of unsecured and secured short-term financing. 5. Identify and compare the two primary sources of long- term financing. Copyright © 2014 by Nelson Education Ltd.4

5. Learning Outcomes (cont’d) 6. Understand the major types, features, and costs of long- term debt. 7. Discuss how companies issue equity, and the costs to the company. 8. Understand risk, how it can be managed, and what makes a risk insurable. 9. Describe the types of insurance coverage that businesses should consider. 10. List some of the trends that are affecting the practice of financial management. Copyright © 2014 by Nelson Education Ltd.5

6. Explain the roles finance and the financial manager play in the company’s overall strategy. Copyright © 2014 by Nelson Education Ltd.6

7. Financial Management Copyright © 2014 by Nelson Education Ltd.7  The spending and raising of a company’s money is both a science and an art.  CFOs need a broad understanding of their company’s business and industry as well as leadership ability and creativity.

8. Exhibit 18.1: How Cash Flows through a Business Copyright © 2014 by Nelson Education Ltd.8

9. Financial Manager’s Responsibilities Copyright © 2014 by Nelson Education Ltd.9 Financial Planning Investment (spending money) Financing (raising money) Key Activities

10. The Goal of the Financial Manager Copyright © 2014 by Nelson Education Ltd.10 Maximize Firm’s Value! Opportunity for Profit Potential for Loss

11. Risk and Return Factors Copyright © 2014 by Nelson Education Ltd.11 Changing Patterns of Market Demand Interest Rates General Economic Conditions Market Conditions Social Issues

12. Describe how a company develops its financial plans, including forecasts and budgets. Copyright © 2014 by Nelson Education Ltd.12

13. Forecasting the Future Copyright © 2014 by Nelson Education Ltd.13 Short-Term Forecasts: Operating plans Less than one year Project revenues and costs Long-Term Forecasts: Strategic plans More than one year Broader view of financial activities

14. Budgets Copyright © 2014 by Nelson Education Ltd.14 Operating – Forecasts of sales and expenses. Capital – Forecasts of fixed assets. Cash – Forecast of cash inflows and outflows. Forecasts of Revenues and Expenses

15. List the types of short- and long-term expenditures a company makes. Copyright © 2014 by Nelson Education Ltd.15

16. Short-Term Expenses Copyright © 2014 by Nelson Education Ltd.16 Management of Current Assets Cash Accounts Receivable Inventory

17. Long-Term Expenditures Copyright © 2014 by Nelson Education Ltd.17 Management of Capital Expenditures Land Buildings Machinery/Equipment Information Systems

18. Summarize the main sources and costs of unsecured and secured short-term financing. Copyright © 2014 by Nelson Education Ltd.18

19. Short-Term Financing Copyright © 2014 by Nelson Education Ltd.19 Trade Credit Bank Loans Commercial Paper Seller extends credit to the buyer. Lines of credit. Loan issued by financially strong company. FactoringSelling of accounts receivable.

20. Identify and compare the two primary sources of long-term financing. Copyright © 2014 by Nelson Education Ltd.20

21. Major Differences between Debt and Equity Financing Copyright © 2014 by Nelson Education Ltd.21

22. Understand the major types, features, and costs of long-term debt. Copyright © 2014 by Nelson Education Ltd.22

23. Long-Term Financing Copyright © 2014 by Nelson Education Ltd.23  Term loan – For a period of more than one year.  Bonds – Issued by corporations and governments.  Mortgage loan – Secured against real estate.

24. Discuss how companies issue equity and the costs to the company. Copyright © 2014 by Nelson Education Ltd.24

25. Equity Financing Copyright © 2014 by Nelson Education Ltd.25 Common Shares Preferred Shares Dividends and Retained Earnings Venture Capital

26. Understand risk, how it can be managed, and what makes a risk insurable. Copyright © 2014 by Nelson Education Ltd.26

27. Basic Terms Copyright © 2014 by Nelson Education Ltd.27 Risk management – Identifying and evaluating risks. Peril – Hazard or a source of danger. Speculative risk – Chance of either loss or gain, without the insurance against the possible loss.

28. Risk Management Copyright © 2014 by Nelson Education Ltd.28 Strategies to Manage Risk Risk Avoidance Self-Insurance Risk Reduction Risk Transfer

29. Describe the types of insurance coverage that businesses should consider. Copyright © 2014 by Nelson Education Ltd.29

30. Basic Terms Copyright © 2014 by Nelson Education Ltd.30 Insurance policy – Agreement of the risks covered. Insurable interest – Insurance applicant’s chance of loss if a particular peril occurs. Insurable risk – Risk that can be covered. Law of large numbers – Predictions of the likelihood that a peril will occur.

31. Insurable Risks Copyright © 2014 by Nelson Education Ltd.31 1. Loss must not be under the control of the insured. 2. There must be many similar exposures to that peril. 3. Losses must be financially measurable. 4. Peril must not be likely to affect all the insured parties at the same time. 5. The potential loss must be significant. 6. The insurance company must have the right to set standards for insurance coverage

32. Types of Insurance Copyright © 2014 by Nelson Education Ltd.32 Property Liability Health Life

33. List some of the trends that are affecting the practice of financial management. Copyright © 2014 by Nelson Education Ltd.33

34. The Future of the Financial Industry Copyright © 2014 by Nelson Education Ltd.34  The CFO’s role continues to expand.  Weighing the risks.