****** McGraw-Hill/Irwin Understanding Business, 8e © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Nickels McHugh McHugh ** Financial Management 18 CHAPTER * **

****** 18-2 Finance & Managers What is Financial Management?What is Financial Management? FinanceFinance Financial ManagerFinancial Manager Importance of FinanceImportance of Finance

****** 18-3 Most Important Skills Needed by CFOs Source: Source: CIO Enterprise

****** 18-4 Women CFOs As of May 2006, 35 of the 500 largest companies in the US had a female CFOAs of May 2006, 35 of the 500 largest companies in the US had a female CFO Five largest companies with female CFO: Citigroup, Home Depot, Verizon, Marathon Oil, and Medco Health SolutionsFive largest companies with female CFO: Citigroup, Home Depot, Verizon, Marathon Oil, and Medco Health Solutions Top 3 reasons that helped women achieve their current position: Supportive boss, Supportive spouse, and culture of the organizationTop 3 reasons that helped women achieve their current position: Supportive boss, Supportive spouse, and culture of the organization : Source: cfo.com, June 1, 2006

****** 18-5 Non-Finance Functions of CFOs Source: CIO Enterprise

****** 18-6 What Financial Managers Do

****** 18-7 Where CFOs Get Their Financial Information : Source: USA Today

****** 18-8 Financial Managers: Ask Your Clients 1.What are the client's goals in areas like lifestyle, retirement, saving for college education and their health care as well as that of their dependents? 2.When do they want to reach their goals? 3.What steps have they already taken toward achieving their goals? 4.How do they feel about taking investment risks for a potential higher rate of return? 5.How involved do they want to be in monitoring their progress toward their goals? : Source: Fpanet.org

****** 18-9 Financial Planning Financial Plan Operating Budget Financial Controls Cash Budget Capital Budget Long-term Forecasting Short-term Forecasting Feedback

****** Budget Process Financial Plan- Financial StatementsFinancial Plan- Financial Statements Types of BudgetsTypes of Budgets CapitalCapital CashCash Operating (Master)Operating (Master) Financial Controls- FeedbackFinancial Controls- Feedback

****** Need for Operating Funds Manage Daily OperationsManage Daily Operations Controlling credit operationsControlling credit operations Acquire InventoryAcquire Inventory Capital ExpendituresCapital Expenditures

****** Why Firms Need Funds Short-Term Funds Meeting monthly expensesMeeting monthly expenses Unanticipated emergenciesUnanticipated emergencies Cash-flow problemsCash-flow problems Expanding current inventoryExpanding current inventory Temporary promotional programsTemporary promotional programs Long-Term Funds New product developmentNew product development Replacing capital expenditureReplacing capital expenditure Mergers or acquisitionsMergers or acquisitions Expansion into new marketsExpansion into new markets Building new facilitiesBuilding new facilities

****** Daily Profits Of Companies With The Highest Revenue Wal-Mart - $24.8 MillionWal-Mart - $24.8 Million ExxonMobil - $58.9 MillionExxonMobil - $58.9 Million General Motors - $10.5 MillionGeneral Motors - $10.5 Million Ford - $1.4 MillionFord - $1.4 Million General Electric - $41.1 MillionGeneral Electric - $41.1 Million ChevronTexaco - $19.8 MillionChevronTexaco - $19.8 Million Source: World Feature Syndicate, 2005

****** Sources of Funds Short-Term Trade CreditTrade Credit Promissory NotesPromissory Notes Family/FriendsFamily/Friends Banks, etc.Banks, etc. Secured LoanSecured Loan Unsecured LoanUnsecured Loan FactoringFactoring Commercial PaperCommercial Paper Credit CardsCredit CardsLong-Term DebtDebt Term-LoanTerm-Loan BondsBonds SecuredSecured UnsecuredUnsecured EquityEquity StockStock Retained EarningsRetained Earnings Venture CapitalVenture Capital

****** Federal, state, and local governments 2.Federal government agencies 3.Corporations 4.Foreign governments and corporations Who Can Issue Bonds?

****** Sources of Equity Financing Equity Capital Internal Sources External Sources Retained Earnings Owner Contributions Sale of Partnerships Venture Capital Public Sale of Stock

****** IPO Summer of companies filed plans to raise money through IPO – looking to raise $16.3 billion89 companies filed plans to raise money through IPO – looking to raise $16.3 billion 17 companies withdrew their plans to proceed with their IPO – were hoping to raise $3.89 billion17 companies withdrew their plans to proceed with their IPO – were hoping to raise $3.89 billion Withdrawing – Go Daddy Group and PNY TechnologiesWithdrawing – Go Daddy Group and PNY Technologies Filing – Double-Take Software and Hansen MedicalFiling – Double-Take Software and Hansen Medical : Source: redherring.com, August 18, 2006

****** Google IPO Launched – August 2004Launched – August 2004 IPO Price -- $ 85 per shareIPO Price -- $ 85 per share Seeking to raise $2.7 billionSeeking to raise $2.7 billion Unusual auction-style offeringUnusual auction-style offering With IPO, the company must shed light on the inner workingsWith IPO, the company must shed light on the inner workings Key competitors – Yahoo and MicrosoftKey competitors – Yahoo and Microsoft As of March 31, 2004 Google employed about 1,900 employeesAs of March 31, 2004 Google employed about 1,900 employees : Source: cnet news.com, April 30, 2004; Forbes, September 17, 2004

****** Venture Capitalists Finance new and rapidly growing companiesFinance new and rapidly growing companies Purchase equity securitiesPurchase equity securities Assist in the development of new products or servicesAssist in the development of new products or services Add value to the company through active participationAdd value to the company through active participation Take higher risks with the expectation of higher rewardsTake higher risks with the expectation of higher rewards Have a long-term orientationHave a long-term orientation : Source: NVCA.com

****** Making Use of Leverage Common Stock $ 50,000 Bonds $450,000 Funds Raised $500,000 Earnings $ 125,000 Less: Bond Interest $ 45,000 Total Earnings $ 80,000 Return to $80,000 Stockholders $50,000 Common Stock $500,000 Bonds 0 Funds Raised $500,000 Earnings $ 125,000 Total Earnings $ 125,000 Return to $125,000 Stockholders $500,000 = = 160% Leverage- Selling Bonds = = 25% Equity- Sale of Stock