Contemporary Business 15th edition Chapter 17

Financial manager

An executive who develops and implements the firm's financial plan and determines the most appropriate sources and uses of funds. Balance financial risks with expected returns. Responsible for raising and spending the firm's money. Evaluate mergers,acquisition, & others

Self-off

Assets sold by one firm to another.

Mergers

Combination of two or more firms into one company.

Short term assets

Consists of cash and assets that can be, or are expected to be converted into cash within a year. The major current assets are cash, marketable securities, accounts receivable, and inventory.

Debt capital

Consists of funds obtained through borrowing. Borrowed funds.

Equity capital

Consists of funds provided by the firm's owners when they reinvest earnings, make additional contributions, liquidate assets, issue stock to the general public, or raise capital from outside investors***ownership funds***

Long-term debt financing

Corporate bonds

Borrowed funds

Debt capital.

Financial Plan

Document that specifies the funds needed by a firm for a period of time, the timing of inflows and outflows, and the most appropriate sources and uses of funds.

Trade credit

Extended by suppliers when a firm receives goods or services, agreeing to pay for them at a later date.

Risk-return trade-off

Financial managers strive to maximize the wealth of their firm's shareholders by striking the optimal balance between risk and return.

Sovereign wealth funds

Investment companies owned by governments.

Private equity funds

Investment companies that raise funds from wealthy individuals and institutional investors and use the funds to make investments n both public and private companies (Long term financing)

Long term Financing

Larger plan or project calls for longer term funding repaid over a longer period of time from: Financial institution (commercial banks) Bonds Equity Financing

Corporate bonds

Long-term financing

Marketable securities

Low-risk securities with short maturities.

Risk return trade-off

Maximizing the wealth of the firm's shareholders by striking the optimal balance between risk and return.

Bonds

Must be repaid at a stated time.

Tender offer

Offer made by a firm to the target firm's shareholders specifying a price and the form of payment.

Divestitures

Opposite of mergers, which companies sell assets such as subsidiaries, product lines, or production facilities.

Dividend

Periodic cash payments to shareholders.

Finance

Planning, obtaining, and managing the company's funds to accomplish its objectives as effectively and efficiently as possible.

Hedge fund

Private investment companies open only to qualified large investors.(Long term financing)

Leverage

Process of increasing the rate of return on funds invested by borrowing funds.

Venture capitalist

Raises money from wealthy individuals and institutional investors and invests the funds in promising firms. (Long term financing)

Leverage and capital structure decisions

Raising needed cash by borrowing allows a firm to benefit from the principle of leverage, which is increasing the rate of return on funds invested by borrowing funds.

Factoring

Selling receivables to another party for cash.

Equity Financing

Selling stock in the firm or reinvesting company profits

Operating plans

Short-term financial plans, 1 year or 2

Commercial paper

Source of short-term financing IOU sold by a company

CFO

The highest ranking financial manager in a large organization.

Capital structure

The mix of a firm's debt and equity capital.

Synergy

The notion hat the combined firm is worth more than the buyer and the target firm individually.

Capital investment analysis

The process by which decisions are made regarding investments in long-lived assets.

Divestiture

The sale of assets by a firm including subsidiaries,product lines, or production facilities

Risk vs. reward

Trade-off for financial managers.

Acquisitions

Transaction in which one company buys another. Leveraged buyouts Divestiture

Leveraged buyout (LBO)

Transaction in which public shareholders are bought out and the firm reverts to private status.

Spin-off

When a new firm is created from the assets divested, that activity.

Asset intensity

When businesses need more assets than do other companies to support the same amount of sales.

Private placements

When new stock or bond issues are not sold publicly but instead are sold to a small group of major investors such as pension funds and insurance companies (Long term financing)