The Financial Planning Process Liquidity Liquidity Working Capital Working Capital Inventories Inventories Capital Budgeting Capital Budgeting Capital Structure Capital Structure Dividends Dividends A firm’s financial plan involves decisions about:

3 Rules of Financial Management What are the three primary rules of successful financial management?

3 Rules of Financial Management 1. Get the cash 2. Get the cash 3. Get the cash What are the three primary rules of successful financial management?

The Cash Plumbing System Equity LT Debt Taxes Dividends

The Cash Plumbing System Equity LT Debt Taxes Dividends

The Cash Plumbing System Equity LT Debt Taxes Dividends

The Cash Plumbing System Equity LT Debt Taxes Dividends

The Cash Plumbing System Equity LT Debt Taxes Dividends

The Cash Plumbing System Equity LT Debt Taxes Operating Expenses Dividends

The Cash Plumbing System Equity LT Debt TaxesST Debt Mkt’l Sec Operating Expenses Dividends

The Cash Plumbing System Equity LT Debt TaxesST Debt Mkt’l Sec Operating Expenses Dividends Fixed Assets Materials/Inventory Finished Goods Accts Pay’l Labor

The Cash Plumbing System Equity LT Debt TaxesST Debt Mkt’l Sec Operating Expenses Dividends Fixed Assets Materials/Inventory Finished Goods Accts Pay’l Labor

The Cash Plumbing System Equity LT Debt TaxesST Debt Mkt’l Sec Operating Expenses Dividends Fixed Assets Materials/Inventory Finished Goods Accts Pay’l Labor

The Cash Plumbing System Equity LT Debt TaxesST Debt Mkt’l Sec Operating Expenses Dividends Fixed Assets Materials/Inventory Finished Goods Accts Pay’l Labor

The Cash Plumbing System Equity LT Debt TaxesST Debt Mkt’l Sec Operating Expenses Dividends Fixed Assets Finished Goods Accounts Rec’l Materials/Inventory Accts Pay’l Labor

The Cash Plumbing System Equity LT Debt TaxesST Debt Mkt’l Sec Operating Expenses Dividends Fixed Assets Finished Goods Accounts Rec’l Materials/Inventory Accts Pay’l Labor

Estimating Cash Flow Since the Income Statement does not give us the firm’s cash flow, how do we back it out of the statements that are provided?

Statement of Cash Flows Cash flow from operations Cash flow from operations Cash flow from investing Cash flow from investing Cash flow from financing Cash flow from financing The 3 rd primary statement is an estimate of cash flows for the company:

Statement of Cash Flows Positive Net Income less cash dividends paid = Change in Retained Earnings (plus depreciation because it is a non- cash expense) Positive Net Income less cash dividends paid = Change in Retained Earnings (plus depreciation because it is a non- cash expense) A DECREASE in any asset (gross, not net, for fixed assets) A DECREASE in any asset (gross, not net, for fixed assets) An INCREASE in any liability or equity account (except retained earnings because it was included above) An INCREASE in any liability or equity account (except retained earnings because it was included above) Positive cash flow comes from:

Statement of Cash Flows See the example spreadsheet for Chapter 2