Chapter 13 Chapter Objectives Managing Financial Resources
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12/8/2010 Chapter 13 Chapter Objectives 13-1 Managing Financial Resources 1. 2. 3. 4 4. 5. 6. 7. Exploring Business © 2009 FlatWorld Knowledge 13-2 The Functions of Money Financial Institutions The Federal Reserve System Role of the Financial Manager Understanding Securities Markets Financing the Going Concern Careers in Finance Exploring Business © 2009 FlatWorld Knowledge Functions Of Money 13-3 Medium Of Exchange Measure Of Value Bartering v. Money Bartering Money Trade Stuff For Stuff Divisible Portable Durable Hard to Counterfeit Difficult To Determine Value Store Of Value Stuff Cannot Always Be Saved Exploring Business © 2009 FlatWorld Knowledge 13-4 Easy To State Price Stores Value Exploring Business © 2009 FlatWorld Knowledge Money Supply 13-5 U.S. Money Supply 13-6 Liquidity Liquidity M1 M2 Census Population Clock Exploring Business © 2009 FlatWorld Knowledge Exploring Business © 2009 FlatWorld Knowledge 1 12/8/2010 “Plastic Money” 13-7 1) Not Spending Money 2) Buy Buy--NowNow-PayPay-Later = Loan 3) Money = Bill Paid Depository Institutions 13-8 ¾Commercial BanksBanks-most common ¾Savings (Thrifts) Banks ¾Credit Unions Unions-- group Exploring Business © 2009 FlatWorld Knowledge Exploring Business © 2009 FlatWorld Knowledge 13-9 Nondepository Institutions Where Our Money Is Deposited 13-10 ¾Finance CompaniesCompanies- don’t accept deposits ¾Insurance I Companies CompaniesC i - sell ll protection t ti ¾Brokerage Firms Exploring Business © 2009 FlatWorld Knowledge Exploring Business © 2009 FlatWorld Knowledge Services Offered By Banks 13-11 Checking/Savings Accounts ATMs Credit/Debit Cards Loans Financial Advice Sells Financial Products Insurance Electronic Banking Exploring Business © 2009 FlatWorld Knowledge Bank Regulation 13-12 *Federal Depository Insurance Corporation • 1933 • Insures Deposits ($100,000) • Periodic Examinations *Office of Thrift Supervision *National Credit Union Administration Exploring Business © 2009 FlatWorld Knowledge 2 12/8/2010 The Effect of the Money Multiplier 13-13 The Fed and Monetary Policy 13-14 wGoals wPrice Stability wSustainable Economic Growth wFull Employment Tools Reserve Requirements Discount Rate Open Market Operations Money Multiplier = 1/Reserve Requirement Exploring Business © 2009 FlatWorld Knowledge Key Interest Rates Exploring Business © 2009 FlatWorld Knowledge 13-15 Banker’s Bank & Government’s Banker 13-16 ÁClears Checks ÁHolds U.S. Treasury’s Checking Account ÁProcesses Paperwork in Buy/Sell Government Securities ÁCollecting Federal Tax Payments ÁLends to Government using TT-Bonds Exploring Business © 2009 FlatWorld Knowledge Finance Exploring Business © 2009 FlatWorld Knowledge 13-17 •“…all of the activities involved in planning for, obtaining, and managing i a company’s ’ funds.” Exploring Business © 2009 FlatWorld Knowledge Financial Manager 13-18 “…financial manager determines how much money the company needs, how and where it will get the necessary funds, and how and when it will repay the money…” Exploring Business © 2009 FlatWorld Knowledge 3 12/8/2010 Developing A Financial Plan 13-19 Where Small Businesses Get Funding 13-20 Calculate Funds Needed Estimating Sales Project Costs Getting The Money Owner’s Personal Assets Loans Loans-- Family/Friends Bank Loans Making The Financing Decision Exploring Business © 2009 FlatWorld Knowledge Loan Characteristics Exploring Business © 2009 FlatWorld Knowledge 13-21 Short-Term, Intermediate, LongShortLong-Term Line of Credit Amortization • • Collateral Unsecured • Cash Flow • Accounts Receivable • Accounts Payable Payable-- Trade Credit 2) Security S it ±Budgeting Budgeting-- financial plan • Cash • Capital 3) Interest Exploring Business © 2009 FlatWorld Knowledge Investors Exploring Business © 2009 FlatWorld Knowledge 13-23 Securities Markets vAngels and Venture o Markets vSteps in Going Public o Organized O i dE Exchanges h Capitalists •Initial Public Offering •Investment Banking Firm Exploring Business © 2009 FlatWorld Knowledge 13-22 ±Managing 1) Maturity • • • Growth Stage Financing 13-24 • Primary • Secondary • New York Stock Exchange • American Stock Exchange • Over Over--TheThe-Counter Exploring Business © 2009 FlatWorld Knowledge 4 12/8/2010 Securities & Exchange Commission •Dow Jones Industrial Average •NASDAQ Composite •S & P 500 9Reading A Stock Listing 9Bull vs. Bear Market Exploring Business © 2009 FlatWorld Knowledge Exploring Business © 2009 FlatWorld Knowledge NASDAQ for 10--Year Period 10 13-27 Exploring Business © 2009 FlatWorld Knowledge Stock Listing for Hershey Foods 13-28 Exploring Business © 2009 FlatWorld Knowledge Interpreting A Stock Quotation 13-29 Term 52--Week HI 52 Explanation 52--Week LO 52 Lowest price in last year S b l off li Symbol listing ti DIV PE 13-30 Highest price in last year Stock (Symbol) YLD % Exploring Business © 2009 FlatWorld Knowledge 13-26 9Market Indexes 1934 Prospectus p Insider Trading DJIA for 10--Year Period 10 Measuring Market Performance 13-25 Annual dividend per share D/E yield on closing price Investors pay on $1 earnings VOL Volume of shares traded Close Price at close of business day Exploring Business © 2009 FlatWorld Knowledge 5 12/8/2010 Options for Financing The Going Concern 13-31 Stockholders’ Equity 13-32 Risk/Reward TradeoffTradeoff-Dividends Types of Stock •Common •Preferred Equity q y Financing g oCumulative oConvertible Debt Financing Exploring Business © 2009 FlatWorld Knowledge Exploring Business © 2009 FlatWorld Knowledge Bonds 13-33 Ten--Year Ten Investment Returns 13-34 • “…debt securities that obligate the issuer to make interest payments to bondholders and to repay the principal when the bond matures.” Treasury Bills/Bonds & Municipals (munis) Exploring Business © 2009 FlatWorld Knowledge Exploring Business © 2009 FlatWorld Knowledge Career Positions In Finance 13-35 (Commercial Banking (Corporate Finance • • • • • Analyze Industry Trends Evaluate Corporate Investment Conduct Financial Planning g Evaluate Acquisitions Review Financial Needs (Investment Industry (Graduate Education & Certification • • • • CFA CFM CCM CFP Exploring Business © 2009 FlatWorld Knowledge 6
