Cn to the Blue

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Learning Objectives
For Chapter 12
Explain the needs of financial management in business. Summarize the process of planning for financial management Describe the advantages and disadvantages of different methods of short-term debt financing. Evaluate the advantages and disadvantages of equity financing. Evaluate the advantages and disadvantages of long-term debt financing.

Chapter 12
MGT1101 Introduction to Business

Mastering Financial Management
Chapter 12

MGT1101 Introduction to Business

Refer to page 357

Financial Plan

Refer to page 362

Financial Management

A plan for obtaining and using the money needed to implement an organization’s goals Human // Material // Information // Financial

The Definition

Resources are needed to achieve a company’s goal

goals

Chapter-6 Recall: Management

Human // Material // Information // Financial

Developing the financial plan

Resources are needed to achieve a company’s goal

goals

So, Financial Management is all the activities concerned with using money effectively ensuring money is used in keeping with the goal
Chapter 12 MGT1101 Introduction to Business

o obtaining money (financing)

D Determining the best ways to raise money w

(one of the resources)
Chapter 12

MONEY

MGT1101 Introduction to B Business

Refer to page 362

Refer to page 362

3 Steps in Developing the Financial Plan
Sources of funds Budgeting Define Goals Sources of funds

3 Steps in Developing the Financial Plan
To determine how much money is needed
Budget
A financial report that projects income and/or expenditures over a specified future period

Define Goals

Budgeting

To establish organizational goals

Goal An end result that an organization expects to achieve over a one- to ten-year period

• Must be specific and measurable • Must be realistic

MGT1101 Introduction to Business Chapter 12

MGT1101 Introduction to Business

Chapter 12

Refer to page 362 Sources of funds Define Goals

Refer to page 362

3 Steps in Developing the Financial Plan

3 Steps in Developing the Financial Plan
Budgeting Sources of funds

Define Goals

Budgeting

To determine how much money is needed

To determine how much money is needed
New Factory (Plant)

1. Cash budget: To project cash receipts and expenditures over a specified

2. Capital budget
Estimates a firm’s expenditures for major assets and its long-term financing needs

period

Traditional budgeting Based on dollar amounts in budget for preceding year

Zero-based budgeting Every expense in every budget must be justified

MGT1101 Introduction to Business

Chapter 12

MGT1101 Introduction to Business

Chapter 12

Refer to page 363

3 Steps in Developing the Financial Plan
Long-term Debt Financing Retained Earning
Sources of funds

Define Goals

Budgeting

To identify the sources of funds Short-term Debt Financing Debt Financing Debt Sales of Assets

Selling Stock Equity Financing

Sources of Fund

Sales Revenues

Equity

Sources of Funds

MGT1101 Introduction to Business
19 Chapter 12| 9

MGT1101 Introduction to Business

Chapter 19 | 10 12

Sources of Funds
Equity S-T Debt

Refer to page 365

Sources of Funds
L-T Debt

Refer to page 366-367 Equity

S-T Debt

L-T Debt

Short-term debt financing is usually easier to obtain than long-term

Short-term debt financing is usually easier to obtain than long-term • Shorter repayment period means less risk of nonpayment • Amounts of short-term loans are smaller than long-term loans

• Shorter repayment period means less risk of nonpayment

• Amounts of short-term loans are smaller than long-term loans

Unsecured S-T debt

Secured S-T debt

Unsecured S-T debt
Financing not backed by collateral 3. Unsecured bank loans

Secured S-T debt

Financing not backed by collateral

1. Trade credit

Financing extended by a seller who does not require...
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