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,
                                        7
    Outline how organizations manage        buyouts, and divestitures.
3
    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
    questions:
      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
  worldwide.
• 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
funds.
• 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
  shareholders.

• 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