BUS X100 1nd Edition Lecture 14 Outline of Last Lecture I. Money and Characteristics and FunctionsII. Financea. DefinitionIII. The ‘Fed’ Controls the Money Supply & Economy IV. Financial Marketsa. Definitionb. Trading marketsc. InformationV. Key Concepts in Financial MarketsVI. Expected rate of ReturnVII. Financial Riska. Definitioni. Inflation Riskii. Credit Riskiii. Currency & ‘Exchange Rate’ RisksVIII. Types of Financial Marketsa. Primary marketsb. Secondary marketsIX. Key Components of Financial Marketsa. Brokersb. Dealersc. Organized exchangesX. Steps in a Typical Stock Transaction on the NYSEXI. Financial Institutions a. Definitionsb. Types of intermediariesXII. Other Key Conceptsa. Liquidityb. Diversificationc. SignalingThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Outline of Current Lecture – Financial Management & PlanningI. Financial Managementa. Definitionb. Three Types of Financial Management and Planning ToolsII. Three Steps of Financial PlanningIII. Cash Flow for a Manufacturing BusinessIV. Corporate Cash Needsa. Short-term Financing Needsb. Long-term ‘Capital Budgeting’V. Financing Debt vs Equity CapitalVI. Capital Structure – LeverageVII. Return Owner’s Equitya. DefinitionVIII. Profitabilitya. ROEb. EPSc. ROSIX. Financial Leveragea. Total Liability to Equity (Debt to equity)X. Liquiditya. Current ratiob. Acid Test/Quick RatioXI. Assets Turnovera. Accounts Receivable Turnoverb. Inventory TurnoverCurrent LectureI. Financial Managementa. Definitioni. Decisions regarding the acquisition & ‘use of money’ to maximize the value of the company while achieving corporate objects.b. Three Types of Financial Management and Planning Toolsi. Capital Budgetingii. Capital Structureiii. Financial RatiosII. Three Steps of Financial Planninga. Establish organized goals and objectivesb. Budget the money needed to meet goals and objectivesc. Identify the sources and uses of fundsi. Profit Revenue – use to retain earnings to grow businessii. Equity Capital – issuing more stocksiii. Debt Capital – borrowing more moneyiv. Use of Assets – selling assets for profitIII. Cash Flow for a Manufacturing Businessa. Expenses lead to sales revenue that leads to cash received i. To sum it all up it means that a business needs to spend money to make money.IV. Corporate Cash Needs – they need cash for two reasons:a. Short-term Financing Needsi. Day to day operationsii. Payrolliii. Inventory needsiv. Accounts receivable b. Long-term ‘Capital Budgeting’i. Business start up costsii. Research and new product development iii. Long term marketing and promotioniv. Facilities expansion V. Financing Debt vs Equity Capitala. Debt = Loan (pay back)b. Equity = Ownership (Do not pay back)VI. Capital Structure – Leveragea. Using debt provides leverage for the shareholders and increases their return on owner’s equity.b. BUT… using more debt (which must be repaid) increases the risk to the lenders and the shareholders.VII. Return Owner’s Equitya. Definitioni. Profitability ratio that provides an overall measure of a business’s performance. Net income earned (after tax) per dollar of owners’ investment.  net income divided by owners’ equity =ROEii. Typically between 15-25% for profitable companiesVIII. Profitability (From here down we will get into more detail in the next lecture)a. ROE - %b. EPSc. ROS - %IX. Financial Leveragea. Total Liability to Equity (Debt to equity) - %X. Liquiditya. Current ratio - #b. Acid Test/Quick Ratio - #XI. Assets Turnovera. Accounts Receivable Turnover X (times/year) or # of daysb. Inventory Turnover X (times/year) or # of