Financing and Investing Through Securities Markets

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					>>>>>>>>         Chapter 18

 Financing and Investing
Through Securities Markets
1   Define finance, and explain the     5   Identify sources of short-term
    role of financial managers.             financing for business operations.

    Describe the components of a            Discuss long-term financing
2                                       6
    financial plan and the financial        options.
    planning process.
                                            Describe mergers, acquisitions,
    Outline how organizations manage        buyouts, and divestitures.
    their assets.

    Compare the two major sources of
4   funds for a business, and explain
    the concept of leverage.
• Finance – planning, obtaining, and
  managing the company’s funds in order to
  accomplish its objectives.
  – Maximizing overall worth
  – Meeting expenses
  – Investing in assets
  – Increasing profits to shareholders
• Implement the firm’s financial plan.

• Determine the most appropriate source of funds.

• Many CFOs are members of the board of directors.
 The process of maximizing
   the wealth of the firm’s
shareholders by striking the
optimal balance between risk
         and return.
•   Financial Plan – the inflows and outflows and sources
    of funds.
•   Financial plans are built by answering the following
      1) What funds will the firm require during the planning period?
      2) When will it need additional funds?
      3) Where will it obtain the necessary funds?

•   Financial plans are based on the forecasts of costs and
    expected sales activities for a given period.
Sound financial management
requires assets to be managed
and acquired
   What a firm owns
   Use of funds
 Cash
 Marketable Securities
 Accounts Receivable
 Inventory
• Long-lived assets
• Produce economic benefit for
  more than one year
• Substantial investments
• Capital Investment Analysis
  – Expansion: new assets
  – Replacement: upgrading assets
• Today’s firms have facilities and assets
• Sales occur outside of the home country
• International Assets require the
  management of activities to reduce the
  financial risk of exchange rates.
Debt Capital –funds obtained
     through borrowing.

Equity Capital – investment in
     the firm in exchange
        for ownership.
Goal: increasing the
rate of return on funds
invested by borrowing
• Short-term funds
  – Current liabilities
  – Less expensive
  – Volatile interest rates
• Long-term funds
  – Long-term debt and equity
  – Used for long-term assets
• Dividends are cash payments to

• Financial Managers must make decisions
  regarding their dividend policy.
  – Should we pay a dividend?

  – When should it be paid?
Trade Credit

Short-term Loans

Commercial Paper
 Public Sale of Stocks and Bonds

 Private Placements

 Venture Capitalists

 Private Equity Funds

 Hedge Funds
Financial managers evaluate mergers,
acquisitions, and other opportunities.
  – Leveraged buyouts
  – Divestiture
     • Sell-off/Spin-off