BA 101 1st Edition Lecture 10 Outline of Last Lecture 1 Foundation update 2 Lecture A Total Quality Management B Human Resources Outline of Current Lecture I Foundation II Lecture Financing your Business Current Lecture I Foundation remember that the live rounds have started Round 1 due Tuesday 10th at 11 59 pm Round 2 due Thursday 12th at 11 59 pm Also quiz 4 due before class Tuesday 17th Be on time with each round You get 5 points just for updating your decisions on time Remember your performance targets Contribution margin about 30 Have a cash balance greater than 0 at the end of the year Don t run out of inventory don t have more than 60 days worth of inventory at the end of the year Have a net income that is greater than 0 Increase the owner s wealth by increasing your stock price Each of these categories is worth a star in foundation they are each worth 3 points towards your final grade II Lecture Financing your Business Financing where do you get the money to start run your company You can borrow reinvest some of your retained earnings or sell stock which dilutes the ownership of your company but also raises money Operating What you do with the money you have on hand to keep your business running smoothly Buying materials paying workers etc are all operating costs Investing Buying capacity is an example of investing in your business Your investments pay off over the long term These 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 Planning and Finance How much money do you need for operations and growth The money you receive minus the money you spend is what you have to work with If you have more cash than you need invest it If you have less than you need search for sources to get more Investing in the short and long term Accounts receivable credit sales to customers short term Inventory short term New product development short term Equipment automation levels long term Facilities additional capacity long term Buy other companies not an option in foundation long term Sources too little cash You can Borrow take on debt pay interest to use someone else s money Reinvest earnings Retained earnings use your own net income to finance your own investments Sell stock dilute the ownership of your company for a price Bank Loans apply the risk determined by your debt influences the amount of interest you pay More debt more interest Interest rates in foundation All companies are facing the same market risk More debt pay more interest longer the loan means higher risk and higher interest also Debt Created by borrowing money from financial institutions Loans from banks savings and loans etc They can be short or long term 1 10 years usually Or you can borrow money from the market in the form of bonds Usually about 10 year loans Risk rated by Standard Poor or Moodys return based on degree of risk and the interest rate Equity Financing Another way to bring in more cash Instead of borrowing funds you take on new owners by selling stock This can dilute ownership and be a negative factor for a company but you don t need to repay the money Securities Market Primary market firm sells new issues of security stocks or bonds publicly to the first time to investment bankers or underwriters Secondary market Owners of stocks and bonds trade shares Ex New York Stock Exchange AMEX London Jakarta etc Stock Ownership if you as an individual purchase a share or shares of stock you now own a piece of the company This means you share in the risk and reward of the company and benefit when the stock price goes up and when the company offers dividends The company who issued the stock benefited by people buying it They received money for the stock Stock terms Close the value of a share at the end of a trading day Change how much higher or lower the price is today than yesterday in foundation this is yearly Shares the amount number of shares of outstanding stock Dividends the cash payment to owners Yield dividends divided by stock price P E or price to earnings ratio closing price divided by EPS EPS or earnings per share net income divided by total shares The effect of Accounts Receivable on CSS Accounts receivable refers to selling to your customers on credit How many days before they need to pay you 0 days 35 of your CSS The least appealing lose some customers but you get your cash right away 30 days 8 of your CSS About right 8 of your base CSS 60 days 1 5 of your CSS 120 days 0 of your CSS Most appealing to your customers no reduction of your CSS but you have to wait a long time for your money deal with squirrely customers