© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Chapter Nineteen Mastering Financial Management 19 | 1

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Learning Objectives 1. Explain the need for financial management in business 2. Summarize the process of planning for financial management 3. Describe the advantages and disadvantages of different methods of short-term debt financing 4. Evaluate the advantages and disadvantages of equity financing 5. Evaluate the advantages and disadvantages of long-term debt financing 19 | 2

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. What Is Financial Management?  Define Financial Management Why is financing an important concern for businesses?  Define Short-Term Financing -Inventory -Cash Flow Long-Term Financing  Be prepared to compare short- and long-term financing, including when a business needs each kind 19 | 3

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. The Need for Financial Management  Be prepared to discuss Financial Management during the most recent Economic Crisis Obtaining Financing Stock Prices Bankruptcies  What must financial management ensure at all times?  What steps have been taken after the financial crisis to enact Financial Reform? Goals and controversies  Define the Risk-Return Ratio 19 | 4

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Careers in Finance  What are the skills and traits of successful financial managers?  What jobs are available in the financial field? 19 | 5

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Financial Planning  Define Financial Plan  What goes into Developing the Financial Plan?  Know the Three Steps of Financial Planning  Define Organizational Goal What are key characteristics of an organizational goal? 19 | 6

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Developing the Financial Plan  Define Budget Cash Budget -Traditional -Zero-Based Budgeting Capital Budget  Know the Sources of Funds Sales Revenues Equity Capital Debt Capital Proceeds from the Sale of Assets  Why is Monitoring and Evaluating Financial Performance important? 19 | 7

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Sources of Short-Term Debt Financing  Know the main Sources of Unsecured Short- Term Debt Financing What is the appeal of short-term financing over long- term? What is the downside?  Define Unsecured Financing Trade Credit Promissory Notes Unsecured Bank Loans Commercial Paper 19 | 8

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Sources of Secured Short-Term Financing  What is the difference between Loans Secured by Inventory and Loans Secured by Receivables?  Define Factor Be able to describe how factors handle accounts receivables  Be able to make comparisons between different sources of short-term financing 19 | 9

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Sources of Equity Financing  Know the Sources of Equity Financing for Sole Proprietorships/Partnerships and Corporations How does financing differ between these different organizational forms?  Be prepared to discuss Stock and Initial Public Offerings (IPOs) What are the advantages and disadvantages of selling stock over other forms of financing? 19 | 10

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Selling Stock  Define The Secondary Market -Securities Exchange Market -Over-the-Counter (OTC) Market Common Stock Preferred Stock Par Value 19 | 11

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Equity Financing  Define Retained Earnings Venture Capital Private Placement Financial Leverage  Be prepared to discuss how additional capital affects a firm and its earnings potential 19 | 12

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Sources of Long-Term Debt Financing  Discuss Long-Term Loans and other Long- Term Debt Financing  What is a Term-Loan Agreement?  Know the basics of getting a loan  Define Corporate Bond Different types of bonds -Registered Bond -Debenture Bond -Mortgage Bond -Convertible Bond  What is a Maturity Date? 19 | 13

© 2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Repaying Corporate Bonds  Be able to define and discuss the Repayment Provisions for Corporate Bonds Bond Indenture Call Premium Serial Bonds Sinking Fund Trustee  Be prepared to compare different long-term financing methods 19 | 14