Financial Management and Securities Markets

Slides:



Advertisements
Similar presentations
Understanding Financial Management and Securities Markets
Advertisements

Part 6 Financing the Enterprise © 2015 McGraw-Hill Education.
FINANCE IN A CANADIAN SETTING Sixth Canadian Edition Lusztig, Cleary, Schwab.
McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. Asset Classes and Financial Instruments CHAPTER 2.
Business Finance Chapter 1.
Chapter Twenty Mastering Financial Management. The Need for Financing Short-term financing –Money that will be used for one year or less Long-term financing.
Copyright © 2011 Pearson Prentice Hall. All rights reserved. Firms and the Financial Market Chapter 2.
Investments & The Stock Market
Financial Management and Securities Markets Chapter 16 *modified by other sources.
Chapter 17 1 Copyright © 2008 by Nelson, a division of Thomson Canada Limited Chapter Managing the Firm’s Finances Prepared by Norm Althouse University.
* * Chapter Nineteen Using Securities Markets for Financing and Investing Opportunities Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights.
Financial Decisions: Managing Financial Resources Mike’s Bikes Part III due Wednesday March 21 st in-class Mike’s Bikes Part II returned at the end of.
> > > > The Financial System Chapter 17. Learning Goals Outline the structure and importance of the financial system. List the various types of securities.
Finance Structures and Issues in the UAE Financial structure is a mixture of long–term debt and equity that a company uses to finance its operations, it’s.
FrontPage: Turn in Savings Calculator worksheet from yesterday if you didn’t finish. The Last Word: Ch 11 Review/Unit 4 Test Tuesday.
Financial Markets Chapter 12.
Investing Bonds and Stocks. Setting Investment Goals  Investing presents opportunities for people and businesses to increase their income.  Investing.
4 th, 5 TH and 6 th SESSION 1. Financial Markets 2.
Chapter 18 Financing and Investing Through Securities Markets
PowerPoint Presentation by Charlie Cook Copyright © 2005 Prentice Hall, Inc. All rights reserved. Chapter 15 Understanding Securities and Investments.
Financial Assets (Instruments)
Financial Markets. Saving & Investing Investment: the use of assets to earn income or profit. – Ex. Paying for college. Financial System: the system that.
Investment Basics Clench Fraud Trust Investment Workshop October 24, 2011 Jeff Frketich, CFA.
Copyright © 2005 by South-Western, a division of Thomson Learning, Inc. All rights reserved. Chapter 18 Financing and Investing through Securities Markets.
Types of Investments Stocks Bonds Mutual Funds Real Estate Savings/Certificates of Deposit Collectibles.
Financial Markets: Saving and Investing
Chapter 18 1 Copyright © 2008 by Nelson, a division of Thomson Canada Limited Chapter Understanding Money, Financial Institutions, and the Securities Markets.
Long-Term Financing. Basics of Long-Term Financing.
The Financial System Chapter 16.
Understanding Financial Management and Securities Markets
FHF Ferrell Hirt Ferrell M: Business 2 nd Edition.
FHF McGraw-Hill/Irwin Copyright © 2011 by The McGraw-Hill Companies, Inc. All rights reserved.
The Stock Market What you need to know to begin investing.
Financial Markets and Institutions. Financial Markets Financial markets provide for financial intermediation-- financial savings (Surplus Units) to investment.
Reporting and Analyzing Cash Flows Chapter 17. Purposes of the Statement of Cash Flows Designed to fulfill the following: – predict future cash flows.
NETA PowerPoint Presentations to accompany The Future of Business Fourth Edition Adapted by Norm Althouse, University of Calgary Copyright © 2014 by Nelson.
Exploring Business © 2009 FlatWorld Knowledge 13-1 Chapter 13 Managing Financial Resources.
1 Money and Banking Introduction. Week 1 Learning Goals By the end of the week, you should … Be familiar with the different types of financial instruments.
Chapter 11 Financial Markets.
Introduction to Business 3e 16 Part VI: Financial Management Copyright © 2004 South-Western. All rights reserved. FinancingFinancing.
© 2009 South-Western, a division of Cengage Learning 1 Chapter 9: FINANCE Using Funds To Maximize Value.
Chapter 2 - Understanding Financial Statements, Taxes, and Cash Flows 09/02/08.
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 1.0 Introduction to Financial Management Chapter 1.
Corporate Financing & Personal Investing. Terms for this chapter Bond Callable bond Common stock Convertible bond Cumulative preferred stock Diversification.
Financial Markets Investing: Chapter 11.
Understanding Securities and Securities Markets Chapter 22.
Financial Assets (Instruments) Chapter 2 Requests for permission to make copies of any part of the work should be mailed to: Thomson/South-Western 5191.
FIN 4140 Financial Markets & Institutions Lecture 1-2.
ALOMAR_212_31 Chapter 2 The Financial System. ALOMAR_212_32 Intermediaries, instruments, and regulations. Financial markets: bond and stock markets Financial.
Chapter 20 THE FUTURE OF BUSINESS Gitman & McDaniel 5 th Edition THE FUTURE OF BUSINESS Gitman & McDaniel 5 th Edition Chapter Managing the Firm’s Finances.
Chapter 18 Capital & Capital Market Financial Management  It deals with raising of finance, and using and allocating financial resources of a company.
© 2013 South-Western, a part of Cengage Learning. All rights reserved. Chapter 3 | Slide 1 Financial Management Chapter16.
McGraw-Hill/Irwin Corporate Finance, 7/e Eighth Edition.
* WHAT’S FINANCE? The Role of Finance and Financial Managers * LG1
Financial Management and the Securities Market 12 Chapter © 2004 by Nelson, a division of Thomson Canada Limited.
Financial Markets and Institutions 6th Edition
Chapter 17 Financing a Business Methods of Obtaining Capital Selecting a Method of Obtaining Capital Sources of Outside Capital.
PRIMARY VERSUS SECONDARY MARKETS
 Savings – income not used for consumption  Investment – the use of income today that allows for a future benefit  Financial System – all the institutions.
Financial Markets Chapter 11. Investment Act of redirecting resources from being consumed today so that they may create benefits.
Financial Management Decisions n Investment: What assets to own? n Financing: How to pay for those assets? n Dividend: What to do with Net Income?
Managing the Firm’s Finances Chapter 21. Chapter 21 Learning Goals 1.W 1.What roles do finance and the financial manager play in the firm’s overall strategy?
PowerPoint Presentation by Charlie Cook Copyright © 2005 Prentice Hall, Inc. All rights reserved. Chapter 15 Understanding Securities and Investments.
Financial Markets. Saving and Capital Formation Saving money makes economic growth possible One’s person savings can represent another person’s loan Savings.
FINANCIAL MANAGEMENT Bus The importance of finance and financial management to an organization 2. The responsibilities of financial managers. 3.
Chapter 7 Obtaining the Right Financing for Your Business University of Bahrain College of Business Administration MGT 239: Small Business MGT239 1.
INTRODUCTION TO FINANCIAL MANAGEMENT Chapter 1. WHAT IS FINANCE? Finance can be defined as science and art of managing money. KEYWORDS FINANCIAL MANAGEMENT.
* * Chapter Eighteen Financial Management Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin.
W!se Unit 5 Investing. What is Investing?  Putting money to work earning more money for the future.
Financial Markets.
Presentation transcript:

Financial Management and Securities Markets Chapter 16 1 1

Chapter 16 Learning Goals How do finance and the financial manager affect the firm’s overall strategy? What types of short-term and long-term expenditures does a firm make? What are the main sources and costs of unsecured and secured short-term financing? What are the key differences between debt and equity, and the major types and features of long-term debt? When and how do firms issue equity, and what are the costs?

Chapter 16 Learning Goals (cont’d.) How do securities markets help firms raise funding, and what securities trade in the capital markets? What are the major U.S. securities exchanges and how are they regulated? What are the current developments in financial management and the securities markets?

Learning Goal 1 How do finance and the financial manager affect the firm’s overall strategy? Finance involves managing firm’s money Financial manager decides How much money is needed and when How best to use the available funds How to get the required financing Financial manager’s responsibilities Financial planning Investing (spending money) Financing (raising money) Goal of the financial manager Maximize the value of the firm

Financial management: The art & science of managing a firm’s money so that it can meet its goals

Cash Flow Through a Business Borrowed funds Owners’ investment Sale of fixed assets $ Cash sales Collection of accounts receivable Purchase of fixed assets Payment of expenses Payment of dividends Purchase of inventory

Learning Goal 2 What types of short-term and long-term expenditures does a firm make? Short-term expenditures Supplies Inventory Wages Long-term expenditures Fixed assets Land Buildings Equipment Projects are carefully analyzed by financial managers to determine which offer best returns

How Organizations Use Funds short-term expenses cash management accounts receivable inventory long-term expenditures capital expenditures capital budgeting

Learning Goal 3 What are the main sources and costs of unsecured and secured short-term financing? Main sources of unsecured short-term financing Trade credit Bank loans Commercial paper Secured short-term financing Require pledge of assets as security for loan Selling accounts receivable outright at a discount

Obtaining Short-term Financing unsecured short-term loans trade credit, bank loans, commercial paper secured short-term loans collateral, factoring

Learning Goal 4 What are the key differences between debt and equity, and the major types and features of long-term debt? Debt financing Interest is tax-deductible Requires payment of interest and principal on specified dates Equity Common and preferred stock Permanent form of financing Firm may or may not pay dividends Dividends are not tax-deductible

Learning Goal 4 (cont’d.) What are the key differences between debt and equity, and the major types and features of long-term debt? Long-term debt Types Term loans Secured or unsecured 5- to 12-year maturity Bonds 10- to 30-year maturity Mortgage loans Secured by real estate

Learning Goal 5 When and how do firms issue equity, and what are the costs? Chief sources of equity financing Common stock Cost includes issuing costs and potential dividend payments Retained earnings Profits reinvested in firm Preferred stock More expensive than debt Dividends not tax-deductible Claims are secondary to those of debtholders Less expensive than common stock Venture capital Often a source of equity financing for young companies

Raising Long-term Financing debt financing financial risk term loan, bonds, mortgage loan equity financing common stock, dividends, retained earnings, preferred stock, venture capital

Debt vs. Equity Financing Management Claim on income & assets Maturity Tax treatment Debt creditors have none greater claim stated maturity interest is deductible Equity stockholders vote residual claim no maturity dividends not deductible

Learning Goal 6 How do securities markets help firms raise funding, and what securities trade in the capital markets? Securities markets Allow stocks, bonds, and other securities to be bought and sold quickly and at a fair price New issues are sold in primary market Securities are traded in secondary market Investment bankers Specialize in issuing and selling new security issues Stockbrokers Licensed professionals who buy and sell securities on behalf of their clients

Securities: Investment certificates issued by corporations or governments that represent either equity or debt

Types of Securities Markets Primary new securities sold to the public issuer gets proceeds Secondary already issued securities are traded stock exchanges, commodities exchanges, over-the-counter market

Other Popular Securities U.S. Government securities and municipal bonds Mutual funds pools investors’ funds Futures contracts Options

Learning Goal 7 What are the major U.S. securities exchanges and how are they regulated? Securities are resold on: Organized stock exchanges, such as the New York Stock Exchange Regional stock exchanges Over-the-counter market Securities markets are regulated by Securities Act of 1933 Requires disclosure of important information on new securities issues Securities Exchange Act of 1934 and 1964 amendment Formally empowered the SEC to regulate organized securities exchanges and over-the-counter market Investment Company Act of 1940 Places investment companies such as mutual funds under SEC control Self-regulatory groups such as the NASD “Circuit breakers” to halt trading if the Dow Jones Industrial Average drops rapidly

Securities Exchanges Organized stock exchanges Over-the-Counter Market re-sell securities in an auction-type format US stock exchanges New York Stock Exchange American Stock Exchange Global trading & foreign exchanges Over-the-Counter Market electronic-based Nasdaq

Securities Exchanges: NYSE To prevent a fast crash, the New York Stock Exchange has several “circuit breakers” a 1,100-point drop stops trading for 1 hour if it occurs before 2:00 pm a 2,250-point drop stops trading for 2 hours if it occurs before 1:00 pm a 3,350-point drop stops trading for the rest of the day Source: Associated Press in The Arizona Republic, Jan. 3, 2000, pg. D3.

Learning Goal 8 What are the current developments in financial management and the securities markets? Financial managers are spending more time on risk management Identifying and evaluating risks Selecting techniques to control and reduce risk Securities markets and the investment industry are changing considerably New York Stock Exchange no longer dominates equity market activity Nasdaq is challenging the Big Board Emergence of electronic exchanges