Chapter 18 Finance function in a business that acquires funds for a firm and manages them within the firm preparing budgets creating cash flow analysis planning for expenditures Financial managements jobs of managing a firm s resources to meet its goals and objectives Financial managers examine financial data and recommend strategies for improving financial performance of the firm auditing managing taxes advising top management collecting funds controlling funds obtaining funds budgeting and planning Worries consumer demand credit markets interest rates financial regulations from government volatility of the dollar foreign competition environmental regulations Firms fail financially because they are undercapitalized poor cash flow control inadequate expense control Concerns financial results maintain productivity balance sheet weakness rising cost of healthcare attracting and retaining top quality employees Financial planning analyzing short term and long term money flows to and from the Short term forecast predicts revenues costs and expenses for a period of one year or less Cash flow forecast predicts the cash inflows and outflows in future periods usually in company months or quarters Long term forecast predicts revenues costs and expenses for a period longer than one year and sometimes for as long as 5 10 years Budget sets forth managements expectations for revenues and allocates the use of specific resources throughout the firm Budgets depends heavily on balance sheet income statement statement of cash flows and short long term financial forecasts guide for financial operations Capital budget highlights a firm s spending plans for major asset purchases that often Cash budget estimates cash informs and outflows during a particular period like a month Operating budget ties together he firms other budgets and summarizes its proposed require large sums of money or quarter financial activities Debt financing funds raised through various forms of borrowing that must be repaid Equity financing money raised from within the firm from operations through the sale of management in the firm stock Short term financing funds needed for a year or less Long term financing funds need for more than a year Trade credit practice of buying goods or services now and paying for them later Promissory note written contract agreeing to pay a supplier a specific sum of money at a definite time Short term loans available Secured loans backed by collateral Unsecured loans don t require collateral Line of credit given amount of money the bank will provide so long as the funds are Revolving credit agreement line of credit that s guaranteed but comes with a fee Commercial paper unsecured promissory notes in amounts of 100 000 and come due in 270 days or less Five C s of credit Character Capacity Capital Conditions Collateral Term loan agreement promissory note that requires the borrower to repay the loan with interest in specified monthly or annual installments Indenture terms terms of agreement in a bond issue Secured bond bond issue with some form of collateral Unsecured bond bond backed by only the reputation of the issuing company Leverage raising funds through borrowing to increase firm s state of return Cost of capital rate of return a company must earn in order to meet the demands of its lenders and expectations of equity holders
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