© Prentice Hall, 2007Excellence in Business, 3eChapter Keeping the Engine Running: Financial Management and Banking

© Prentice Hall, 2007Excellence in Business, 3eChapter The Role of Financial Management Current needs Future needs –Sources of funds –Uses of funds –Maximizing company value

© Prentice Hall, 2007Excellence in Business, 3eChapter Implementing the Financial Plan Monitoring cash flow –Accounts receivable and payable –Inventory control Managing cash reserves –Marketable securities –Electronic cash management

© Prentice Hall, 2007Excellence in Business, 3eChapter Operating Budget Master budget –Cost control –Expenditures –Plan for the future –Financial control

© Prentice Hall, 2007Excellence in Business, 3eChapter Capital Budget Process Request Review Evaluate recommend

© Prentice Hall, 2007Excellence in Business, 3eChapter Financing Operations and Growth Length of term Cost of capital Debt or equity

© Prentice Hall, 2007Excellence in Business, 3eChapter Length of Term Less than one year –Short-term financing Greater than on year –Long-term financing

© Prentice Hall, 2007Excellence in Business, 3eChapter Long-Term Financing Internal sources –Retained earnings –Sale of assets External sources –Debt capital –Equity capital

© Prentice Hall, 2007Excellence in Business, 3eChapter Cost of Capital Company risk Interest rates Opportunity cost

© Prentice Hall, 2007Excellence in Business, 3eChapter Debt versus Equity CharacteristicDebtEquity MaturitySpecificNonspecific Claim on IncomeFixed CostDiscretionary Cost Claim on AssetsPriorityResidual Influence Over Management LittleVariable

© Prentice Hall, 2007Excellence in Business, 3eChapter Types of Debt Financing Trade credit Commercial paper Secured loans Unsecured loans Leases Bonds

© Prentice Hall, 2007Excellence in Business, 3eChapter The U.S. Financial System Deposit  Commercial banks  Savings and loans  Mutual savings banks  Credit unions Nondeposit  Insurance companies  Pension funds  Finance companies  Brokerage firms

© Prentice Hall, 2007Excellence in Business, 3eChapter Financial Services Checking and savings accounts Business and consumer loans Credit, debit, and smart cards Electronic banking

© Prentice Hall, 2007Excellence in Business, 3eChapter Checking and Savings Accounts Demand deposits Statement savings Money market and CDs

© Prentice Hall, 2007Excellence in Business, 3eChapter Business Loans Expansion Construction Purchases Renovation

© Prentice Hall, 2007Excellence in Business, 3eChapter Short-Term Credit Credit cards Debit cards Smart cards

© Prentice Hall, 2007Excellence in Business, 3eChapter Online Payment Systems Advantages –Security –Ease of use –Easy to set up Disadvantages –Account maintenance –Software –Consumer protection

© Prentice Hall, 2007Excellence in Business, 3eChapter Electronic Banking Automated teller Electronic funds transfer Online banking

© Prentice Hall, 2007Excellence in Business, 3eChapter Bank Safety and Regulation Federal deposit insurance corporation National credit union association State banking association Office of the comptroller of Currency Credit thrift supervision Federal reserve system

© Prentice Hall, 2007Excellence in Business, 3eChapter The Future of Banking Industry competition Banking ethics Crime and terrorism

© Prentice Hall, 2007Excellence in Business, 3eChapter The Federal Reserve Conducting monetary policy Stabilizing the banking system Stabilizing the economy Clearing checks

© Prentice Hall, 2007Excellence in Business, 3eChapter What is Money? Medium of exchange Measure of value Store of value

© Prentice Hall, 2007Excellence in Business, 3eChapter U.S. Money Supply Hard Currency Demand deposits Time deposits

© Prentice Hall, 2007Excellence in Business, 3eChapter Influencing the Money Supply Reserve requirements Discount rate Open-market operations Selective credit controls

© Prentice Hall, 2007Excellence in Business, 3eChapter Federal Reserve Functions Supplying currency Clearing checks