>>>>>>>> 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
financial plan and the financial options.
Describe mergers, acquisitions,
Outline how organizations manage buyouts, and divestitures.
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
• Financial Plan – the inflows and outflows and sources
• 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
What a firm owns
Use of funds
• 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
Equity Capital – investment in
the firm in exchange
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?
Public Sale of Stocks and Bonds
Private Equity Funds
Financial managers evaluate mergers,
acquisitions, and other opportunities.
– Leveraged buyouts