1. Financial Management http://www.wileybusinessupdates.com http://www.wileybusinessupdates.com Chapter 17

2. Define the role of the financial manager. Describe financial planning. Outline how organizations manage their assets. Discuss the sources of funds and capital structure. 1 Learning Objectives Identify short-term funding options. Discuss sources of long-term financing. Describe mergers, acquisitions, buyouts, and divestitures. 234567

3. Finance– planning, obtaining, and managing the company’s funds in order to accomplish its objectives Maximizing overall worth Meeting expenses Investing in assets Increasing profits to shareholders The Business Function of Finance

4. Implement the firm’s financial plan Determine the most appropriate source of funds Many CFOs are members of the board of directors The Role of the Finance Manager

5. The process of maximizing the wealth of the firm’s shareholders by striking the optimal balance between risk and return. Risk-Return Tradeoff

6. Financial Plan– the inflows and outflows and sources of funds. Financial plans are built by answering the following questions: What funds will the firm require during the planning period? When will it need additional funds? Where will it obtain the necessary funds? Financial plans are based on the forecasts of costs and expected sales activities for a given period. Financial Planning

7. Sound financial management requires assets to be managed and acquired. What a firm owns Use of funds Managing Assets

8. Cash Marketable Securities Accounts Receivable Inventory Short-Term Assets

9. Long-lived assets Produce economic benefit for more than one year Substantial investments Capital Investment Analysis Expansion: new assets Replacement: upgrading assets Capital Investment Analysis

10. Debt Capital– funds obtained through borrowing. Equity Capital– investment in the firm in exchange for ownership. Sources of Funds and Capital Structure

11. Goal: increasing the rate of return on funds invested by borrowing funds Leverage and Capital Structure

12. Short-term funds Current liabilities Less expensive Volatile interest rates Long-term funds Long-term debt and equity Used for long-term assets Mixing Short and Long-Term Funds

13. Dividends are cash payments to shareholders. Highest dividend yielding stocks Financial managers must make decisions regarding their dividend policy. Should we pay a dividend? When should it be paid? Dividend Policy

14. Trade Credit Short-term Loans Commercial Paper Short-Term Funding Options

15. Public Sale of Stocks and Bonds Private Placements Private Equity Funds Hedge Funds Sources of Long-Term Financing

16. Financial managers evaluate mergers, acquisitions, and other opportunities. Leveraged buyouts Divestiture Sell-off/Spin-off Mergers, Acquisitions, Buyouts, and Divestitures