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Keeping the Engine Running: Financial Management and Banking

Prentice Hall, 2007

Excellence in Business, 3e

Chapter 17 - 1

The Role of Financial Management


Current needs Future needs Sources of funds Uses of funds Maximizing company value

Prentice Hall, 2007

Excellence in Business, 3e

Chapter 17 - 2

Implementing the Financial Plan


Monitoring cash flow Accounts receivable and payable Inventory control Managing cash reserves Marketable securities Electronic cash management
Prentice Hall, 2007 Excellence in Business, 3e Chapter 17 - 3

Operating Budget
Master budget Cost control Expenditures Plan for the future Financial control

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Excellence in Business, 3e

Chapter 17 - 4

Capital Budget Process


Request Review Evaluate recommend

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Excellence in Business, 3e

Chapter 17 - 5

Financing Operations and Growth


Length of term Cost of capital Debt or equity

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Excellence in Business, 3e

Chapter 17 - 6

Length of Term
Less than one year Short-term financing Greater than on year Long-term financing

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Excellence in Business, 3e

Chapter 17 - 7

Long-Term Financing
Internal sources Retained earnings Sale of assets External sources Debt capital Equity capital
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Cost of Capital
Company risk Interest rates Opportunity cost

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Excellence in Business, 3e

Chapter 17 - 9

Debt versus Equity


Characteristic
Maturity
Claim on Income Claim on Assets Influence Over Management
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Debt
Specific
Fixed Cost Priority Little
Excellence in Business, 3e

Equity
Nonspecific
Discretionary Cost Residual Variable
Chapter 17 - 10

Types of Debt Financing


Trade credit Commercial paper Secured loans Unsecured loans Leases Bonds
Excellence in Business, 3e Chapter 17 - 11

Prentice Hall, 2007

The U.S. Financial System


Deposit

Nondeposit

Commercial banks

Insurance companies

Savings and loans


Mutual savings banks Credit unions
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Pension funds
Finance companies Brokerage firms
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Excellence in Business, 3e

Financial Services
Checking and savings accounts Business and consumer loans Credit, debit, and smart cards Electronic banking

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Excellence in Business, 3e

Chapter 17 - 13

Checking and Savings Accounts


Demand deposits Statement savings Money market and CDs

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Excellence in Business, 3e

Chapter 17 - 14

Business Loans
Expansion Construction Purchases Renovation

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Excellence in Business, 3e

Chapter 17 - 15

Short-Term Credit
Credit cards Debit cards Smart cards

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Excellence in Business, 3e

Chapter 17 - 16

Online Payment Systems


Advantages Security Ease of use Easy to set up Disadvantages Account maintenance Software Consumer protection
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Electronic Banking
Automated teller Electronic funds transfer Online banking

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Excellence in Business, 3e

Chapter 17 - 18

Bank Safety and Regulation


Federal deposit insurance corporation
National credit union association

State banking association


Office of the comptroller of Currency Credit thrift supervision Federal reserve system
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The Future of Banking


Industry competition Banking ethics Crime and terrorism

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Excellence in Business, 3e

Chapter 17 - 20

The Federal Reserve


Conducting monetary policy Stabilizing the banking system Stabilizing the economy Clearing checks

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Excellence in Business, 3e

Chapter 17 - 21

What is Money?
Medium of exchange Measure of value Store of value

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Excellence in Business, 3e

Chapter 17 - 22

U.S. Money Supply


Hard Currency Demand deposits Time deposits

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Excellence in Business, 3e

Chapter 17 - 23

Influencing the Money Supply


Reserve requirements Discount rate

Open-market operations
Selective credit controls

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Excellence in Business, 3e

Chapter 17 - 24

Federal Reserve Functions


Supplying currency Clearing checks

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Excellence in Business, 3e

Chapter 17 - 25