Copyright 2005 Prentice- Hall, Inc.

Understanding Financial And Risk Management Chapter 20 Understanding Financial And Risk Management

Copyright 2005 Prentice- Hall, Inc. Chapter Outline Role Of The Financial Manager Why Do Businesses Need Funds? Sources Of Short-Term Funds Sources Of Long-Term Funds Financial Management For Small Business Risk Management Copyright 2005 Prentice- Hall, Inc.

Responsibilities Of Financial Management Determine Long-Term Investments Obtain Funds To Pay For Investments Conduct Everyday Financial Activities Assist In Managing Risk Copyright 2005 Prentice- Hall, Inc.

Responsibilities Of Financial Manager Cash-Flow Management- Cash Inflows & Outflows Financial Control- Performance Vs. Planned Results Financial Planning- Strategies To Reach Goals/Objectives Copyright 2005 Prentice- Hall, Inc.

Copyright 2005 Prentice- Hall, Inc. Financial Plan How Much Does Company Need To Meet Immediate Needs? When Will It Need More Funds? What Are The Sources For Short-Term & Long-Term Funds? Copyright 2005 Prentice- Hall, Inc.

Short-Term Expenditures Operating Needs Accounts Payable Accounts Receivable Inventories Copyright 2005 Prentice- Hall, Inc.

Factors In Short-Term Needs Credit Policies Working Capital Current Assets – Current Liabilities Copyright 2005 Prentice- Hall, Inc.

Long-Term Expenditures Capital Needs Not Normally Converted Into Cash Requires Large Investment Binding, Long-Term Commitment By Company Copyright 2005 Prentice- Hall, Inc.

Copyright 2005 Prentice- Hall, Inc. Trade Credit Open-Book Credit Promissory Notes Trade Draft Vs. Trade Acceptance Copyright 2005 Prentice- Hall, Inc.

Secured Short-Term Loans Collateral Inventory Loans Accounts Receivable Pledging Factoring Copyright 2005 Prentice- Hall, Inc.

Unsecured Short-Term Loans No Collateral Compensating Balance Line Of Credit Revolving Credit Agreement Commercial Paper Copyright 2005 Prentice- Hall, Inc.

Copyright 2005 Prentice- Hall, Inc. Debt Financing Long-Term Obligation Long-Term Loans Often Arranged Quickly No Public Disclosure Duration Matched To Needs Clauses Make It Possible To Change Terms Copyright 2005 Prentice- Hall, Inc.

Issues In Debt Financing Interest Rates Corporate Bonds Bond Indentures Copyright 2005 Prentice- Hall, Inc.

Copyright 2005 Prentice- Hall, Inc. Five “C’s” Of Credit Character Capacity Capital Conditions Collateral Copyright 2005 Prentice- Hall, Inc.

Copyright 2005 Prentice- Hall, Inc. Equity Financing Claim To Earnings Common Stock Dividends Appreciation (Growth) Retained Earnings Financial Burden Hybrid- Preferred Stock Copyright 2005 Prentice- Hall, Inc.

Copyright 2005 Prentice- Hall, Inc. Stockholders’ Equity Copyright 2005 Prentice- Hall, Inc.

Copyright 2005 Prentice- Hall, Inc. Debt Vs. Equity Capital Structure Financial Risk Investors’ Return Expectations Venture Capital = Equity Copyright 2005 Prentice- Hall, Inc.

Risk-Return Relationship Copyright 2005 Prentice- Hall, Inc.

Establishing Bank/Trade Credit Long-Term Funding Established Company New Business Business Plan Venture Capital Copyright 2005 Prentice- Hall, Inc.

Copyright 2005 Prentice- Hall, Inc. Projected Cash Flow Copyright 2005 Prentice- Hall, Inc.

Copyright 2005 Prentice- Hall, Inc. Risk Management Risk = Uncertain Outcome Speculative Risk- Gain Vs. Loss Pure Risk- Loss Vs. No Loss Copyright 2005 Prentice- Hall, Inc.

Risk-Management Process Copyright 2005 Prentice- Hall, Inc.

Copyright 2005 Prentice- Hall, Inc. Risk Alternatives Avoidance Control Retention Transfer RISK Copyright 2005 Prentice- Hall, Inc.

Criteria For Insurable Vs. Uninsurable Risk Predictability Casualty Unconnectedness Verifiability Copyright 2005 Prentice- Hall, Inc.

Business Insurance Products Liability Workers’ Compensation Property Business Interruption Special Key Person Business Continuation Copyright 2005 Prentice- Hall, Inc.

Injury Rate Per 1,000 Workers Riskiest Jobs Injury Rate Per 1,000 Workers Source: Rutgers University, Crime Prevention Service, http://crimeprevention.rutgers.edu/index.htm Copyright 2005 Prentice- Hall, Inc.

Employee Insurance Products Life Group Life Health Disability Copyright 2005 Prentice- Hall, Inc.

Special Health Insurance Providers Health Maintenance Organization (HMO) Preferred Provider Organization (PPO) Point-Of-Service (POS) Copyright 2005 Prentice- Hall, Inc.

Areas Of Potential Risk In E-Commerce Media Liability Errors And Omissions Loss Of Service Copyright 2005 Prentice- Hall, Inc.