Chapter 18 Jobs 493 to customers Activities of Finance Rather than open new locations they will improve the technology they offer Home Depot is trying to improve financials of company What Finance Managers do 494 Gathering money the firm needs and then managing it Have lots of people reporting to you Setting up budgets what you want to use to get all people involved in company signed on match budget to actual results 495 Chart What is involved in financial management 18 1 Collecting funds o Accounts receivable o Collect as quickly as possible Controlling funds funds manageable Obtaining funds selling stocks loans Budgeting o get everyone involved Planning Auditing Managing taxes minimize taxes Advising top management on financial info Inversion moving headquarters to a low tax country Reasons a firm fails Poor cash control o Employees expect to be paid every 2 weeks o Checks bounce Inadequate expense controls Under capitalized o Don t have enough money 496 If you have a number of different products need to know which products are bringing in more revenue than expenses o If more expenses than revenue either raise prices or don t offer it for o SKU Stock keeping unit know which SKU s are bringing in more sale revenues than expenses What is financial management Collects quickly pay slowly Keep low inventory o Want to just barely keep shelf filled Know which products are bringing in money Ask for audit of the company Minimize expenses including taxes while making sure financial statements are timely and accurate Internal auditors look over financial statements tell CEO External auditors KPMG EY PWC Deloitte 497 Financial planning Forecasting financial needs of company how much money do we need and when Developing budgets compare what was planned to actual results Establishing financial controls within the company 497 Forecasting financial needs Financial needs are short and long termed Short term year or less Long term longer Estimate how much cash you need Forecast revenue expenses net income income statement o Net income should be positive Do we have enough cash to pay short and long term bills 498 When the actual is out of tolerance with the plan then something is wrong Cash on a recurring basis need to ask questions Never change the budget or else it becomes meaningless Continue to compare it to the actual results of the company How tax rates are determined Tax rates everywhere How much money does the county want to spend Budget how much they want including the services and what is the value that can be taxed to match the budget they want to have to spend How much a county taxes how much they want to spend Less taxes less services P 499 Minimum cash balance Cash budget Minimum cash balance management decision Rainy day fund Retained earnings source of funding Compare forecast with actual o Connects balance sheet to income statement Need for operating funds 500 Managing day by day needs of the business Controlling credit operations Acquiring needed inventory Making capital expenditures 501 Managing day by day funds Minimize inventory but don t have bare funds Have funds from capital expenditures 502 Collect accounts receivable quickly pay accounts payable slowly Time value of money if you collect 100 dollars now it is more valuable because if invested you can gain interest Controlling credit not extending credit to companies that wont pay you o Collect early invest it o Tables Controlling credit operations 502 Minimize losses w people that don t pay you but don t want to cut off your business with them Payday loans individual pays loan off when they get paycheck high interest rates Financial managers will offer discounts for people who pay quickly o 210 Net 30 o Ex 2 less if they pay in 10 days 502 Inventory Just in time inventory have suppliers of parts deliver parts just in time to make the product o Not sitting in warehouse o Going to charge you for it increase transportation o Hopefully cost less than it will keeping it in the warehouse Only want to have stuff that will sell quickly in inventory Inventory Turnover Cost of goods sold from income statement Average inventory from balance sheet How many times inventory has sold in a year 503 capital expenditures Tangible and intangible assets Cost benefit analysis o How much net profit are we going to make o Quickly pay off expenditure o Divide net profit into expenditure find out how long it will take to pay off expenditure Sources of funds benefits of each Selling bonds Selling stocks Retained earnings 504 505 Promissory Notes A written contract with a promise to pay a supplier a specific sum of money at a definite time How to pay family and friends or commercial bank loans Short term o Secured or not secured with collateral 508 Factoring Selling accts receivable to a business for cash Commercial paper Unsecured promissory notes Long term financing Selling bonds Getting a loan from a bank By US govt Corporations Equity financing selling ownership of company 2 types of stockholders Retained earnings stock of funds great source of funding for the company no fees no regulations Venture capital 512 Emerging company goes to investor and wants funds in exchange for some ownership in company Compare projected profits to how much they want how quickly they will be repaid Debt equity financing 18 6 p 513 Debt o Management influence usually none unless special conditions have been agreed on o Repayment maturity date principal must be repaid o Yearly obligations payment of interest is a contractual obligation o Tax benefits interest is tax deductible Equity o Management influence common stockholders have voting rights o Repayment stock has no maturity date the company is never required to repay equity o Yearly obligations firm isn t legally liable to pay dividends o Tax benefits dividends are paid from after tax income and aren t deductible
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