1. Financing and Producing Goods

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

3. Financing Business Expansion  Financing Obtaining money or funds needed for business expansion

4. 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.

5. 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?

6. 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

7. 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 collateral—something 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.

8. Immediate-Term Financing  Money borrowed by a business for 1 to 10 years. Loans—generally requiring collateral  Most are mortgages, expansions, or needed purchases. Leasing  Means renting rather than buying.

9. 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).

10. 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.

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

12. Production Operation  Four Steps: Planning—choosing a location, scheduling production, and knowing how much you need. Purchasing—knowing how much you want to pay for your goods, which goods are the best for what you can afford. Quality Control—making sure your goods stay top quality. Inventory Control—making sure you have goods in place or know how to get them.

13. Technology and Production  Technology—the use of science to develop new products and methods to produce, distribute, and provide goods or services. Mechanization—the combined labor of people and machines. Assembly Line—use of conveyor belts to move products from station to station. Division of Labor—the breaking down of a job into small tasks. Automation—machines do the work and people oversee. (Robotics)