Exploring Business © 2009 FlatWorld Knowledge 13-1 Chapter 13 Managing Financial Resources.

Exploring Business © 2009 FlatWorld Knowledge

13-1Chapter 13Chapter 13

Managing Financial Managing Financial ResourcesResources


13-2

Chapter ObjectivesChapter Objectives1.1. The Functions of MoneyThe Functions of Money2.2. Financial InstitutionsFinancial Institutions3.3. The Federal Reserve SystemThe Federal Reserve System4.4. Role of the Financial ManagerRole of the Financial Manager5.5. Understanding Securities MarketsUnderstanding Securities Markets6.6. Financing the Going ConcernFinancing the Going Concern7.7. Careers in FinanceCareers in Finance


13-3

Functions Of MoneyFunctions Of Money

Medium Of ExchangeMedium Of Exchange

Measure Of ValueMeasure Of Value

Store Of ValueStore Of Value


13-4

Bartering v. MoneyBartering v. MoneyBarteringBartering

Trade StuffTrade StuffFor StuffFor Stuff

Difficult ToDifficult ToDetermine ValueDetermine Value

Stuff Cannot Stuff Cannot Always Be SavedAlways Be Saved

DivisibleDivisiblePortablePortableDurableDurable

Hard to CounterfeitHard to Counterfeit

Easy To Easy To State PriceState Price

Stores ValueStores Value

Money Money


13-5

Money SupplyMoney Supply

M1M1

Census Population Clock

M2M2

Liquidity

Liq

uid

ity


13-6U.S. Money SupplyU.S. Money Supply


13-7

““Plastic Money”Plastic Money”

1)1) Not Spending MoneyNot Spending Money

2)2) Buy-Now-Pay-Later = LoanBuy-Now-Pay-Later = Loan

3)3) Money = Bill PaidMoney = Bill Paid


13-8

Depository InstitutionsDepository Institutions

Commercial Banks-most Commercial Banks-most commoncommon

Savings (Thrifts) BanksSavings (Thrifts) Banks

Credit Unions- groupCredit Unions- group


13-9

Nondepository InstitutionsNondepository Institutions

Finance Companies- don’t accept Finance Companies- don’t accept depositsdeposits

Insurance Companies- sell Insurance Companies- sell protectionprotection

Brokerage FirmsBrokerage Firms


13-10Where OurWhere OurMoney Is DepositedMoney Is Deposited


13-11Services Offered By Services Offered By BanksBanks

Checking/Savings AccountsChecking/Savings Accounts ATMsATMs Credit/Debit CardsCredit/Debit Cards LoansLoans Financial AdviceFinancial Advice Sells Financial ProductsSells Financial Products InsuranceInsurance Electronic BankingElectronic Banking


13-12Bank RegulationBank Regulation Federal Depository Insurance CorporationFederal Depository Insurance Corporation

• 19331933

• Insures Deposits ($100,000)Insures Deposits ($100,000)

• Periodic ExaminationsPeriodic Examinations

Office of Thrift SupervisionOffice of Thrift Supervision

National Credit Union AdministrationNational Credit Union Administration


13-13The Effect of the Money The Effect of the Money MultiplierMultiplier

Money Multiplier = 1/Reserve RequirementMoney Multiplier = 1/Reserve Requirement


13-14The Fed and Monetary The Fed and Monetary PolicyPolicy

GoalsGoals Price StabilityPrice Stability Sustainable Economic GrowthSustainable Economic Growth Full EmploymentFull Employment

ToolsToolsReserve RequirementsReserve RequirementsDiscount RateDiscount RateOpen Market OperationsOpen Market Operations


13-15Key Interest RatesKey Interest Rates


13-16Banker’s Bank &Banker’s Bank &Government’s BankerGovernment’s Banker

Clears ChecksClears Checks

Holds U.S. Treasury’s Checking AccountHolds U.S. Treasury’s Checking Account

Processes Paperwork in Buy/Sell Government Processes Paperwork in Buy/Sell Government SecuritiesSecurities

Collecting Federal Tax PaymentsCollecting Federal Tax Payments

Lends to Government using T-BondsLends to Government using T-Bonds


13-17FinanceFinance•“…“…all of the activities all of the activities involved in planning for, involved in planning for,

obtaining, and managing a obtaining, and managing a company’s funds.” company’s funds.”


13-18

Financial ManagerFinancial Manager

“…“…financial manager financial manager determines how much determines how much

money the company needs, money the company needs, how and where it will get how and where it will get the necessary funds, and the necessary funds, and

how and when it will repay how and when it will repay the money…”the money…”


13-19Developing A Financial PlanDeveloping A Financial Plan

Calculate Funds NeededCalculate Funds NeededEstimating SalesEstimating Sales

Project CostsProject Costs

Getting The MoneyGetting The Money Owner’s Personal AssetsOwner’s Personal Assets

Loans- Family/FriendsLoans- Family/Friends

Bank LoansBank Loans

Making The Financing DecisionMaking The Financing Decision


13-20Where SmallWhere SmallBusinesses Get FundingBusinesses Get Funding


13-21

Loan CharacteristicsLoan Characteristics

1)1) MaturityMaturity• Short-Term, Intermediate, Long-TermShort-Term, Intermediate, Long-Term• Line of CreditLine of Credit• AmortizationAmortization

2)2) SecuritySecurity• CollateralCollateral• UnsecuredUnsecured

3)3) InterestInterest


13-22

Growth Stage FinancingGrowth Stage Financing

Managing Managing • Cash FlowCash Flow

• Accounts ReceivableAccounts Receivable

• Accounts Payable- Trade CreditAccounts Payable- Trade Credit

Budgeting- financial planBudgeting- financial plan• CashCash

• CapitalCapital


13-23InvestorsInvestors Angels and Venture Angels and Venture

Capitalists Capitalists

Steps in Going PublicSteps in Going Public

•Initial Public OfferingInitial Public Offering

•Investment Banking FirmInvestment Banking Firm


13-24Securities Securities MarketsMarkets

o MarketsMarkets

• PrimaryPrimary

• SecondarySecondary

o Organized ExchangesOrganized Exchanges

• New York Stock ExchangeNew York Stock Exchange

• American Stock ExchangeAmerican Stock Exchange

• Over-The-CounterOver-The-Counter


13-25Securities &Securities &Exchange CommissionExchange Commission

19341934ProspectusProspectus Insider TradingInsider Trading


13-26MeasuringMeasuringMarket PerformanceMarket Performance

Market IndexesMarket Indexes•Dow Jones Industrial AverageDow Jones Industrial Average•NASDAQ CompositeNASDAQ Composite•S & P 500S & P 500

Reading A Stock ListingReading A Stock ListingBull vs. Bear MarketBull vs. Bear Market


13-27DJIA forDJIA for10-Year Period10-Year Period


13-28NASDAQ forNASDAQ for10-Year Period10-Year Period


13-29Stock Listing for Hershey Stock Listing for Hershey FoodsFoods


13-30Interpreting AInterpreting AStock QuotationStock Quotation

TermTerm ExplanationExplanation

52-Week HI52-Week HI Highest price in last yearHighest price in last year

52-Week LO52-Week LO Lowest price in last yearLowest price in last year

Stock Stock (Symbol)(Symbol) Symbol of listingSymbol of listing

DIVDIV Annual dividend per shareAnnual dividend per share

YLD %YLD % D/E yield on closing priceD/E yield on closing price

PEPE Investors pay on $1 earningsInvestors pay on $1 earnings

VOLVOL Volume of shares tradedVolume of shares traded

CloseClose Price at close of business dayPrice at close of business day


13-31Options for FinancingOptions for FinancingThe Going ConcernThe Going Concern

Equity FinancingEquity Financing

Debt FinancingDebt Financing


13-32Stockholders’ Stockholders’ EquityEquity

Risk/Reward Tradeoff-DividendsRisk/Reward Tradeoff-DividendsTypes of StockTypes of Stock

•CommonCommon•PreferredPreferred

oCumulativeCumulativeoConvertibleConvertible


13-33BondsBonds• “…“…debt securities that obligate the issuer to debt securities that obligate the issuer to make interest payments to bondholders and to make interest payments to bondholders and to repay the principal when the bond matures.”repay the principal when the bond matures.”

Treasury Bills/Bonds & Municipals (munis)Treasury Bills/Bonds & Municipals (munis)


13-34Ten-YearTen-YearInvestment ReturnsInvestment Returns


13-35Career Positions In Career Positions In FinanceFinance

Commercial BankingCommercial BankingCorporate FinanceCorporate Finance

• Analyze Industry TrendsAnalyze Industry Trends

• Evaluate Corporate Evaluate Corporate InvestmentInvestment

• Conduct Financial PlanningConduct Financial Planning

• Evaluate AcquisitionsEvaluate Acquisitions

• Review Financial NeedsReview Financial Needs

Investment IndustryInvestment IndustryGraduate Education & Graduate Education & CertificationCertification

• CFACFA

• CFMCFM

• CCMCCM

• CFPCFP

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Exploring Business © 2009 FlatWorld Knowledge 13-1 Chapter 13 Managing Financial Resources.

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