Presentation is loading. Please wait.

Presentation is loading. Please wait.

Chapter 17 1 Copyright © 2008 by Nelson, a division of Thomson Canada Limited Chapter Managing the Firm’s Finances Prepared by Norm Althouse University.

Similar presentations


Presentation on theme: "Chapter 17 1 Copyright © 2008 by Nelson, a division of Thomson Canada Limited Chapter Managing the Firm’s Finances Prepared by Norm Althouse University."— Presentation transcript:

1 Chapter 17 1 Copyright © 2008 by Nelson, a division of Thomson Canada Limited Chapter Managing the Firm’s Finances Prepared by Norm Althouse University of Calgary Prepared by Norm Althouse University of Calgary 16

2 Chapter 17 2 Copyright © 2008 by Nelson, a division of Thomson Canada Limited Principles of Financial Management The spending and raising of a firm’s money – is both a science and an art. Chief Financial Officers(CFOs) need a broad understanding of their firm’s business and industry, as well as leadership ability and creativity. The spending and raising of a firm’s money – is both a science and an art. Chief Financial Officers(CFOs) need a broad understanding of their firm’s business and industry, as well as leadership ability and creativity. Financial Management Financial Management

3 Chapter 17 3 Copyright © 2008 by Nelson, a division of Thomson Canada Limited How Cash Flows Through a Business 1

4 Chapter 17 4 Copyright © 2008 by Nelson, a division of Thomson Canada Limited The Financial Manager’s Responsibilities 1 KeyActivitiesKeyActivities Financial Planning Investment (spending money) Financing (raising money)

5 Chapter 17 5 Copyright © 2008 by Nelson, a division of Thomson Canada Limited The Goal of the Financial Manager 1 Maximize Firm’s Value! Opportunity for Profit Potential for Loss Return Risk

6 Chapter 17 6 Copyright © 2008 by Nelson, a division of Thomson Canada Limited Risk and Return Factors 1 Social Issues Market Conditions General Economic Conditions Interest Rates Changing Patterns of Market Demand

7 Chapter 17 Bank of Canada Interest Rate 1934-2007

8 Chapter 17 Bank of Canada Interest Rate 2000-2009 8 Copyright © 2008 by Nelson, a division of Thomson Canada Limited

9 Chapter 17 9 Copyright © 2008 by Nelson, a division of Thomson Canada Limited 2 Forecasting the Future Short-Term Forecasts Operating Plans for one-year period Project revenues, costs of goods, operating expenses Long-Term Forecasts Long-Term Forecasts Strategic Plans for longer than one- year period Strategic Plans for longer than one- year period Broader view of financial activities

10 Chapter 17 10 Copyright © 2008 by Nelson, a division of Thomson Canada Limited 2 Budgets Operating Budgets Forecast profits Capital Budgets Capital Budgets Forecast outlays for fixed assets Cash Budgets Cash Budgets Forecast cash inflows and outflows

11 Chapter 17 11 Copyright © 2008 by Nelson, a division of Thomson Canada Limited 3 How Organizations Use Funds Manage Current Assets Cash Accounts Receivable Inventory

12 Chapter 17 12 Copyright © 2008 by Nelson, a division of Thomson Canada Limited 3 How Organizations Use Funds Manage Long-Term Capital Expenditures Machinery Buildings Land Equipment Information Systems

13 Chapter 17 13 Copyright © 2008 by Nelson, a division of Thomson Canada Limited 4 Obtaining Short-Term Financing Raising Funds Borrow Money (Debt) Sell Ownership Shares (Equity) Retain Earnings (Profits)

14 Chapter 17 14 Copyright © 2008 by Nelson, a division of Thomson Canada Limited 4 Unsecured Short-Term Loans Bank Loans Lines of credit Revolving credit agreement (most are secured in Canada) Lines of credit Revolving credit agreement (most are secured in Canada) Trade Credit Seller extends credit to the buyer Commercial Paper Unsecured short-term debt issued by a financially strong corporation

15 Chapter 17 15 Copyright © 2008 by Nelson, a division of Thomson Canada Limited 4 Secured Short-Term Loans Secured Loans Borrower pledges specific assets as collateral, such as accounts receivable or inventory. Factoring Firm sells its accounts receivable to a factor, such as a chartered bank or commercial finance company.

16 Chapter 17 16 Copyright © 2008 by Nelson, a division of Thomson Canada Limited 6 Bonds Long-term debt obligations issued by corporations and governments. Term Loans A business loan with a maturity of more than one year. Mortgage Loans A long-term loan made against real estate as collateral. Debt Financing

17 Chapter 17 17 Copyright © 2008 by Nelson, a division of Thomson Canada Limited 7 Venture Capital Preferred Shares Dividends & Retained Earnings Selling Common Shares Equity Financing

18 Chapter 17 18 Copyright © 2008 by Nelson, a division of Thomson Canada Limited Strategies to Manage Risk Risk reduction Risk avoidance Self-insuranceSelf-insurance Risk transference Risk Management 8

19 Chapter 17 19 Copyright © 2008 by Nelson, a division of Thomson Canada Limited There must be many similar exposures to peril Losses must be financially measurable Peril must not be likely to affect all parties at same time Company must have the right to set standards for coverage The loss must not be under control of insured Potential loss must be significant Insurance Concepts Insurable Risks 9

20 Chapter 17 20 Copyright © 2008 by Nelson, a division of Thomson Canada Limited Life Health Liability Property Types of Insurance 9 Key executivesDead peasants

21 Chapter 17 21 Copyright © 2008 by Nelson, a division of Thomson Canada Limited Title insurance Fidelity and surety bonds Theft insurance Business interruption insurance Professional liability insurance Special Types of Business Liability Insurance 9

22 Chapter 17 22 Copyright © 2008 by Nelson, a division of Thomson Canada Limited  Work with top management to develop and implement the firm’s strategic direction  Re-establish public trust  Assure stakeholders of honest transactions and reporting  Maintain a higher profile with their companies’ boards The Changing Role of the CFO 10

23 Chapter 17 23 Copyright © 2008 by Nelson, a division of Thomson Canada Limited Market risk Operational risk Credit risk Weighing the Risks after 9-11-2001 10


Download ppt "Chapter 17 1 Copyright © 2008 by Nelson, a division of Thomson Canada Limited Chapter Managing the Firm’s Finances Prepared by Norm Althouse University."

Similar presentations


Ads by Google