4. Outcomes
1. Explain the roles finance and the financial manager
play in the company’s overall strategy.
2. Describe how a company develops its financial
plans, including forecasts and budgets.
3. List the types of short- and long-term expenditures
a company makes.
4. Summarize the main sources and costs of
unsecured and secured short-term financing.
5. Identify and compare the two primary sources of
long-term financing.
5. Outcomes (cont’d)
6. Understand the major types, features, and costs of
long-term debt.
7. Discuss how companies issue equity, and the costs
to the company.
8. Understand risk, how it can be managed, and what
makes a risk insurable.
9. Describe the types of insurance coverage that
businesses should consider.
10. List some of the trends that are affecting the
practice of financial management.
6. Explain the roles finance and the
financial manager play in the company’s
overall strategy.
7. Financial Management
The spending and raising of a company’s money
is both a science and an art.
CFOs need a broad understanding of their
company’s business and industry as well as
leadership ability and creativity.
10. The Goal of the Financial Manager
Maximize Firm’s Value!
Opportunity
for Profit
Potential
for Loss
11. Risk and Return Factors
Changing Patterns of Market Demand
Interest Rates
General Economic Conditions
Market Conditions
Social Issues
12. Describe how a company develops its financial
plans, including forecasts and budgets.
13. Forecasting the Future
Short-Term Forecasts:
• Operating plans
• Less than one year
• Project revenues and costs
Long-Term Forecasts:
• Strategic plans
• More than one year
• Broader view of financial activities
14. Budgets
Operating – Forecasts of sales and expenses.
Capital – Forecasts of fixed assets.
Cash – Forecast of cash inflows and outflows.
Forecasts of Revenues and Expenses
15. List the types of short- and long-term
expenditures a company makes.
18. Summarize the main sources and costs of
unsecured and secured short-term financing.
19. Short-Term Financing
Trade Credit
Bank Loans
Commercial
Paper
Seller extends credit to the
buyer.
Lines of credit.
Loan issued by financially
strong company.
Factoring Selling of accounts receivable.
23. Long-Term Financing
Term loan – For a period of more than one year.
Bonds – Issued by corporations and governments.
Mortgage loan – Secured against real estate.
27. Basic Terms
Risk management – Identifying and evaluating risks.
Peril – Hazard or a source of danger.
Speculative risk – Chance of either loss or gain,
without the insurance against the possible loss.
29. Describe the types of insurance
coverage that businesses should
consider.
30. Basic Terms
Insurance policy – Agreement of the risks covered.
Insurable interest – Insurance applicant’s chance of
loss if a particular peril occurs.
Insurable risk – Risk that can be covered.
Law of large numbers – Predictions of the likelihood
that a peril will occur.
31. Insurable Risks
1. Loss must not be under the control of the insured.
2. There must be many similar exposures to that peril.
3. Losses must be financially measurable.
4. Peril must not be likely to affect all the insured
parties at the same time.
5. The potential loss must be significant.
6. The insurance company must have the right to set
standards for insurance coverage