* * * Financial Management * CHAPTER ** 18 Nickels * McHugh McGraw-Hill/Irwin Understanding Business, 8e * McHugh 1-1 18-1 © 2008 The McGraw-Hill Companies, Inc., All Rights * * * Finance & Managers • What is Financial Management? • Finance • Financial Manager • Importance of Finance 18-2 * * * Most Important Skills Needed by CFOs Source: CIO Enterprise 18-3 * * * Women CFOs • • • As of May 2006, 35 of the 500 largest companies in the US had a female CFO Five largest companies with female CFO: Citigroup, Home Depot, Verizon, Marathon Oil, and Medco Health Solutions Top reasons that helped women achieve their current position: Supportive boss, Supportive spouse, and culture of the organization Source:: cfo.com, June 1, 2006 18-4 * * * Non-Finance Functions of CFOs Source: CIO Enterprise 18-5 * * * What Financial Managers Do 18-6 * * * Where CFOs Get Their Financial Information Source:: USA Today 18-7 * * * Financial Managers: Ask Your Clients What are the client's goals in areas like lifestyle, retirement, saving for college education and their health care as well as that of their dependents? When they want to reach their goals? What steps have they already taken toward achieving their goals? How they feel about taking investment risks for a potential higher rate of return? How involved they want to be in monitoring Source:: Fpanet.org their progress toward their goals? 18-8 * * * Financial Planning Short-term Forecasting Capital Budget Feedback Financial Plan Operating Budget Financial Controls Long-term Forecasting Cash Budget Feedback 18-9 * * * Budget Process • Financial Plan- Financial Statements • Types of Budgets • Capital • Cash • Operating (Master) • Financial Controls- Feedback 18-10 * * * Need for Operating Funds • Manage Daily Operations • Controlling credit operations • Acquire Inventory • Capital Expenditures 18-11 * * * Why Firms Need Funds Short-Term Funds • Meeting monthly expenses • Unanticipated emergencies • Cash-flow problems • Expanding current inventory • Temporary promotional programs Long-Term Funds • New product development • Replacing capital expenditure • Mergers or acquisitions • Expansion into new markets • Building new facilities 18-12 * * * Daily Profits Of Companies With The Highest Revenue • Wal-Mart - $24.8 Million • ExxonMobil - $58.9 Million • General Motors - $10.5 Million • Ford - $1.4 Million • General Electric - $41.1 Million • ChevronTexaco - $19.8 Million Source: World Feature Syndicate, 2005 18-13 * * * Sources of Funds Short-Term • Trade Credit • Promissory Notes • Family/Friends • Banks, etc • • • • • Secured Loan Unsecured Loan Factoring Commercial Paper Credit Cards Long-Term • Debt • • • Term-Loan Bonds • Secured • Unsecured Equity • • • Stock Retained Earnings Venture Capital 18-14 * * * Who Can Issue Bonds? Federal, state, and local governments Federal government agencies Corporations Foreign governments and corporations 18-15 * * * Sources of Equity Financing Internal Internal Sources Sources Equity Equity Capital Capital External External Sources Sources Retained Retained Earnings Earnings Owner Owner Contribution Contribution ss Sale Sale of of Partnerships Partnerships Venture Venture Capital Capital Public Public Sale Sale of of Stock Stock 18-16 * * * IPO Summer of 2006 • 89 companies filed plans to raise money through IPO – looking to raise $16.3 billion • 17 companies withdrew their plans to proceed with their IPO – were hoping to raise $3.89 billion • Withdrawing – Go Daddy Group and PNY Technologies • Filing – Double-Take Software and Hansen Medical Source:: redherring.com, August 18, 2006 18-17 * * * Google IPO • • • • • • • Launched – August 2004 IPO Price $ 85 per share Seeking to raise $2.7 billion Unusual auction-style offering With IPO, the company must shed light on the inner workings Key competitors – Yahoo and Microsoft As of March 31, 2004 Google employed about 1,900 employees Source:: cnet news.com, April 30, 2004; Forbes, September 17, 2004 18-18 * * * Venture Capitalists • • • • • • Finance new and rapidly growing companies Purchase equity securities Assist in the development of new products or services Add value to the company through active participation Take higher risks with the expectation of higher rewards Have a long-term orientation Source:: NVCA.com 18-19 * * * Making Use of Leverage Leverage- Selling Bonds Equity- Sale of Stock Common Stock Bonds (@10%) $ 50,000 $450,000 Common Stock Bonds (@10%) $500,000 Funds Raised $500,000 Funds Raised $500,000 Earnings Less: Bond Interest $ 125,000 $ 45,000 Earnings $ 125,000 Total Earnings $ 80,000 Total Earnings $ 125,000 Return to = Stockholders $80,000 $50,000 = 160% Return to = Stockholders $125,000 $500,000 = 25% 18-20 ... 1, 2006 18- 4 * * * Non-Finance Functions of CFOs Source: CIO Enterprise 18- 5 * * * What Financial Managers Do 18- 6 * * * Where CFOs Get Their Financial Information Source:: USA Today 18- 7 * *... Management? • Finance • Financial Manager • Importance of Finance 18- 2 * * * Most Important Skills Needed by CFOs Source: CIO Enterprise 18- 3 * * * Women CFOs • • • As of May 2006, 35 of the 500 largest... their goals? 18- 8 * * * Financial Planning Short-term Forecasting Capital Budget Feedback Financial Plan Operating Budget Financial Controls Long-term Forecasting Cash Budget Feedback 18- 9 * * *