3-10
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- Pages: 12
Chapter 10:
Financial Management
Most Important Skills Needed by CFOs People Development
10%
Building Relationships
19%
Communication Skills
26%
Creativity
27% 38%
Objectivity Leadership
51%
Strategic Planning
55%
Analytical Thinking
75% 0%
10%
20%
30%
40%
50%
60%
70%
80%
Source: CIO Enterprise
2
Non-Finance Functions of CFOs Business Development
60%
P & L Responsibility
53%
MIS
49%
Reengineering
39%
Revenue Growth
25%
HR & Admin.
18%
Other Skills
5%
Sales Marketing Source: CIO Enterprise
2% 1% 0%
10%
20%
30%
40%
50%
60%
70% 3
What Financial Managers Do • • • •
Planning Budgeting Obtaining funds Controlling funds (fund management) • Collecting funds (credit management)
• Auditing • Managing taxes • Advising top management on financial matters
4
Uses of Excess Funds • • • • • •
Expansion Marketable securities Treasury bills Commercial paper Certificates of deposit Asset purchases
5
Financial Planning Process Forecast Cash Flow Short-term & Long-term Uses
Compare Results Modify Forecasts & Budgets
Budget Cash Needs Operating, Cash, & Capital
Control Differences Actual vs. Projected Flows
6
Financing Daily Operations- Cash Flows Money Received from: (Cash In)
Business Expenses: (Cash Out)
• Credit Sales • Cash Sales • Investment Income
• • • • • •
Inventory Purchases Payment on Loans Payment on Assets Salaries Payable Supplies Taxes 7
Ways to Cut Costs • Slash travel, consulting, & entertainment budgets • Un-bundle product service/mix, charge for things once free • Renegotiate purchasing contracts • Form partnerships to share costs • Put selected R&D, technology, etc. on hold • Speed collections/slow payments • Cut people outside core areas of production & sales 8
Sources of Equity Financing • Internal Sources – Retained earnings – Owner contributions
• External Sources – Sale of partnerships – Venture capital – Public sale of stock 9
Venture Capital Investments $120.0 $100.0
In Billions
$80.0 $60.0 $40.0 $20.0 $0.0 1998 Source: National Venture Capital Association
1999
2000
2001
2002 10
Number of Venture Capital Deals 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 1998 Source: National Venture Capital Association
1999
2000
2001
2002 11
Making Use of Leverage Leverage- Selling Bonds
Equity- Sale of Stock
Common Stock Bonds (@10%)
$ 50,000 $450,000
Common Stock Bonds (@10%)
$500,000 0
Funds Raised
$500,000
Funds Raised
$500,000
Earnings Less: Bond Interest
$ 125,000 $ 45,000
Earnings
$ 125,000
Total Earnings
$ 80,000
Total Earnings
Return to Stockholders
= $80,000 = 160% $50,000
Return to
$ 125,000
= $125,000 = 25%
Stockholders
$500,000
12
Financial Management
Most Important Skills Needed by CFOs People Development
10%
Building Relationships
19%
Communication Skills
26%
Creativity
27% 38%
Objectivity Leadership
51%
Strategic Planning
55%
Analytical Thinking
75% 0%
10%
20%
30%
40%
50%
60%
70%
80%
Source: CIO Enterprise
2
Non-Finance Functions of CFOs Business Development
60%
P & L Responsibility
53%
MIS
49%
Reengineering
39%
Revenue Growth
25%
HR & Admin.
18%
Other Skills
5%
Sales Marketing Source: CIO Enterprise
2% 1% 0%
10%
20%
30%
40%
50%
60%
70% 3
What Financial Managers Do • • • •
Planning Budgeting Obtaining funds Controlling funds (fund management) • Collecting funds (credit management)
• Auditing • Managing taxes • Advising top management on financial matters
4
Uses of Excess Funds • • • • • •
Expansion Marketable securities Treasury bills Commercial paper Certificates of deposit Asset purchases
5
Financial Planning Process Forecast Cash Flow Short-term & Long-term Uses
Compare Results Modify Forecasts & Budgets
Budget Cash Needs Operating, Cash, & Capital
Control Differences Actual vs. Projected Flows
6
Financing Daily Operations- Cash Flows Money Received from: (Cash In)
Business Expenses: (Cash Out)
• Credit Sales • Cash Sales • Investment Income
• • • • • •
Inventory Purchases Payment on Loans Payment on Assets Salaries Payable Supplies Taxes 7
Ways to Cut Costs • Slash travel, consulting, & entertainment budgets • Un-bundle product service/mix, charge for things once free • Renegotiate purchasing contracts • Form partnerships to share costs • Put selected R&D, technology, etc. on hold • Speed collections/slow payments • Cut people outside core areas of production & sales 8
Sources of Equity Financing • Internal Sources – Retained earnings – Owner contributions
• External Sources – Sale of partnerships – Venture capital – Public sale of stock 9
Venture Capital Investments $120.0 $100.0
In Billions
$80.0 $60.0 $40.0 $20.0 $0.0 1998 Source: National Venture Capital Association
1999
2000
2001
2002 10
Number of Venture Capital Deals 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 1998 Source: National Venture Capital Association
1999
2000
2001
2002 11
Making Use of Leverage Leverage- Selling Bonds
Equity- Sale of Stock
Common Stock Bonds (@10%)
$ 50,000 $450,000
Common Stock Bonds (@10%)
$500,000 0
Funds Raised
$500,000
Funds Raised
$500,000
Earnings Less: Bond Interest
$ 125,000 $ 45,000
Earnings
$ 125,000
Total Earnings
$ 80,000
Total Earnings
Return to Stockholders
= $80,000 = 160% $50,000
Return to
$ 125,000
= $125,000 = 25%
Stockholders
$500,000
12
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