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Copyright 2005 Prentice- Hall, Inc.

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Presentation on theme: "Copyright 2005 Prentice- Hall, Inc."— Presentation transcript:

1 Copyright 2005 Prentice- Hall, Inc.

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

3 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.

4 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.

5 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.

6 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.

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

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

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

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

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

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

13 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.

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

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

16 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.

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

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

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

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

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

22 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.

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

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

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

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

27 Injury Rate Per 1,000 Workers
Riskiest Jobs Injury Rate Per 1,000 Workers Source: Rutgers University, Crime Prevention Service, Copyright 2005 Prentice- Hall, Inc.

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

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

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


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