Скачать презентацию FOCUS Financing a Business OBJECTIVES Find out Скачать презентацию FOCUS Financing a Business OBJECTIVES Find out

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FOCUS: Financing a Business FOCUS: Financing a Business

OBJECTIVES: Find out • How FINANCIAL MARKETS help businesses obtain CAPITAL RESOURCES • How OBJECTIVES: Find out • How FINANCIAL MARKETS help businesses obtain CAPITAL RESOURCES • How businesses BORROW • What EQUITY is and how it’s used to finance business growth • How businesses SAVE

OBJECTIVES: Find out • What the STOCK MARKET is & why it’s important • OBJECTIVES: Find out • What the STOCK MARKET is & why it’s important • How to read a STOCK TABLE • What a BALANCE SHEET is & how to use it • What an INCOME STATEMENT is & how to use it

INVESTMENT is the purchase of CAPITAL RESOURCES used to produce goods & services INVESTMENT is the purchase of CAPITAL RESOURCES used to produce goods & services

FINANCIAL MARKETS are where SAVERS exchange with BORROWERS and others who are willing to FINANCIAL MARKETS are where SAVERS exchange with BORROWERS and others who are willing to pay for the use of the money

SAVERS BUSINESSES SAVERS BUSINESSES

KEY POINT: • Every DOLLAR of INVESTMENT = one less DOLLAR of CONSUMPTION KEY POINT: • Every DOLLAR of INVESTMENT = one less DOLLAR of CONSUMPTION

Business Accounting: • ASSETS: what a company OWNS • LIABILITIES: what a company OWES Business Accounting: • ASSETS: what a company OWNS • LIABILITIES: what a company OWES

How do BUSINESSES use the FINANCIAL MARKETS to obtain money? • BORROW (debt financing) How do BUSINESSES use the FINANCIAL MARKETS to obtain money? • BORROW (debt financing) • Sell SHARES of ownership (EQUITY financing) • SAVE the money themselves (RETAINED EARNINGS – save and plow back into business!)

3 KINDS OF FINANCING • SHORT-TERM FINANCING • INTERMEDIATE-TERM FINANCING • LONG-TERM FINANCING 3 KINDS OF FINANCING • SHORT-TERM FINANCING • INTERMEDIATE-TERM FINANCING • LONG-TERM FINANCING

SHORT-TERM FINANCING: • Trade credit • Unsecured loans • Secured loans • Line of SHORT-TERM FINANCING: • Trade credit • Unsecured loans • Secured loans • Line of credit pp. 266 -7

TYPES OF SELLERS: • RETAILER – sells directly to the public (consumers) • WHOLESALER TYPES OF SELLERS: • RETAILER – sells directly to the public (consumers) • WHOLESALER – supplies businesses which sell directly to consumers; does NOT sell to the public – sells to businesses! pp. 266 -7

TRADE CREDIT: • BUY NOW, PAY LATER (30 -90 days) • Business’s CAPITAL is TRADE CREDIT: • BUY NOW, PAY LATER (30 -90 days) • Business’s CAPITAL is not tied up in INVENTORY • Extended by supplier because it increases sales & profits (interest) • DISCOUNT for quick-pay! pp. 266 -7

UNSECURED LOANS: • No COLLATERAL • Guarantees with a PROMISSORY NOTE (specified time & UNSECURED LOANS: • No COLLATERAL • Guarantees with a PROMISSORY NOTE (specified time & interest rate) pp. 266 -7

SECURED LOANS: • Backed by COLLATERAL --machinery --inventories --ACCOUNTS RECEIVABLE (money owed business by SECURED LOANS: • Backed by COLLATERAL --machinery --inventories --ACCOUNTS RECEIVABLE (money owed business by its customers) pp. 266 -7

LINE OF CREDIT: • Maximum amt. of $ a company can borrow from a LINE OF CREDIT: • Maximum amt. of $ a company can borrow from a bank during a period of time (1 yr. ) • No new loan application; auto OK up to amt. specified pp. 266 -7

SHORT-TERM FINANCING: • Trade credit • Unsecured loans • Secured loans • Line of SHORT-TERM FINANCING: • Trade credit • Unsecured loans • Secured loans • Line of credit pp. 266 -7

INTERMEDIATE-TERM FINANCING: • Loans (1 to 10 yrs. ) • Leasing (renting rather than INTERMEDIATE-TERM FINANCING: • Loans (1 to 10 yrs. ) • Leasing (renting rather than buying) pp. 266 -7

LOANS: • 1 -10 years • COLLATERAL: stocks, bonds, equipment, machinery • MORTGAGE if LOANS: • 1 -10 years • COLLATERAL: stocks, bonds, equipment, machinery • MORTGAGE if secured by property pp. 266 -7

LEASING: • Renting rather than buying • + low cost service • + income LEASING: • Renting rather than buying • + low cost service • + income tax deduction • - often more expensive than buying pp. 266 -7

INTERMEDIATE-TERM FINANCING: • Loans (1 to 10 yrs. ) • Leasing (renting rather than INTERMEDIATE-TERM FINANCING: • Loans (1 to 10 yrs. ) • Leasing (renting rather than buying) pp. 266 -7

LONG-TERM FINANCING: • BONDS • STOCKS pp. 266 -7 LONG-TERM FINANCING: • BONDS • STOCKS pp. 266 -7

PLEASE NOTE the DIRECT RELATIONSHIP between RISK and SIZE of REWARD! PLEASE NOTE the DIRECT RELATIONSHIP between RISK and SIZE of REWARD!

PLEASE NOTE the INVERSE RELATIONSHIP between RISK and LIKELIHOOD of REWARD! PLEASE NOTE the INVERSE RELATIONSHIP between RISK and LIKELIHOOD of REWARD!

BONDS: • Corporate or gov’t. I. O. U. (certificate of indebtedness) • Specified interest BONDS: • Corporate or gov’t. I. O. U. (certificate of indebtedness) • Specified interest rate • Specified time • Pd. In full upon MATURITY pp. 266 -7

BONDHOLDER = Company’s creditor BONDHOLDER = Company’s creditor

TWO KINDS of BONDS: pp. 266 -7 TWO KINDS of BONDS: pp. 266 -7

County & Municipal Bonds: • BOND ISSUE = election in which local government seeks County & Municipal Bonds: • BOND ISSUE = election in which local government seeks public approval for the sale of BONDS to raise funds usually for SCHOOL or COMMUNITY improvements

UNDERWRITING: • When a securities firm (investment bank) underwrites an issue of stocks or UNDERWRITING: • When a securities firm (investment bank) underwrites an issue of stocks or bonds, it buys a corporation’s entire issue of stock or bonds and then sells the securities to the public

BONDS = BONDS =

The BOND… • Is given to the lender (BONDHOLDER) • By a borrower (THE The BOND… • Is given to the lender (BONDHOLDER) • By a borrower (THE BOND SELLER -- the financial intermediary)

TERMS of the LOAN: The BORROWER will pay: • PRINCIPAL (entire amount borrowed) • TERMS of the LOAN: The BORROWER will pay: • PRINCIPAL (entire amount borrowed) • INTEREST (the profit paid the lender for the use of his or her money)

VOCABULARY TERMS: • FACE VALUE: the purchase price of the bond (PAR value or VOCABULARY TERMS: • FACE VALUE: the purchase price of the bond (PAR value or principal) • MATURITY DATE: the particular day at which time the borrower promises to pay back the loan in full (both principal and interest) • COUPON RATE: the predetermined rate of interest

BOND RATINGS: • RISK is measured by the credit rating of the bond’s issuer. BOND RATINGS: • RISK is measured by the credit rating of the bond’s issuer. • RATINGS indicate the ability of a corporation of local government to repay its debts. MOODY’S INVESTOR SERVICES rates bonds on a scale from AAA (highest quality) to C (no interest being paid, bankruptcy filed or in default) DDD – veeeeerry risky!

BONDS GOVERNMENT BONDS CORPORATE BONDS • Lower RISK! • Lower RETURNS! • Higher RISK! BONDS GOVERNMENT BONDS CORPORATE BONDS • Lower RISK! • Lower RETURNS! • Higher RISK! • Higher RETURNS!

STOCKS: • EQUITY financing • Shares of ownership pp. 266 -7 STOCKS: • EQUITY financing • Shares of ownership pp. 266 -7

2 Ways to Make Money from Stocks: • DIVIDENDS (share of profits pd. to 2 Ways to Make Money from Stocks: • DIVIDENDS (share of profits pd. to stockholders) • CAPITAL GAINS (profits from sale of stock)

STOCKHOLDER = Company’s part owner STOCKHOLDER = Company’s part owner

TWO KINDS of Stock Companies: pp. 266 -7 TWO KINDS of Stock Companies: pp. 266 -7

TWO KINDS of STOCK: pp. 266 -7 TWO KINDS of STOCK: pp. 266 -7

Common Stock: • issued by all public corporations • Owners have voting rights; elect Common Stock: • issued by all public corporations • Owners have voting rights; elect board of directors • Pays DIVIDENDS based on performance • Value varies with corp. performance • Last to be pd. If corp. fails pp. 266 -7

Preferred Stock: • not issued by all corps. • No voting rights Value varies Preferred Stock: • not issued by all corps. • No voting rights Value varies with performance • PREFERENTIAL treatment= --pays fixed dividend before common stockholders are pd. --If corp. fails, pd. before common stockholders are pd. pp. 266 -7

SALE of STOCKS & BONDS: • Primary or New Issues Market • Secondary Market SALE of STOCKS & BONDS: • Primary or New Issues Market • Secondary Market (what you think of commonly as the stock market)

PRIMARY MKT: • IPO = initial public offering • Investment bankers sell new shares PRIMARY MKT: • IPO = initial public offering • Investment bankers sell new shares of stock for corps. • Proceeds go to corps. w/ profit for investment bankers who UNDERWRITE the STOCK ISSUE

UNDERWRITING: • When a securities firm (investment bank) underwrites an issue of stocks or UNDERWRITING: • When a securities firm (investment bank) underwrites an issue of stocks or bonds, it buys a corporation’s entire issue of stock or bonds and then sells the securities to the public

SECONDARY MKT: • Commonly called the STOCK MARKET • Stock sold on EXCHANGES or SECONDARY MKT: • Commonly called the STOCK MARKET • Stock sold on EXCHANGES or OTC (over-the-counter) • Proceeds go to stockholder who sells w/ profit to broker NOT to corporation • w/o 2 ndary mkt to trade in, few would buy new issues

2 Ways to Make Money from Stocks: • DIVIDENDS (share of profits pd. to 2 Ways to Make Money from Stocks: • DIVIDENDS (share of profits pd. to stockholders) • CAPITAL GAINS (profits from sale of stock)

Organized Exchanges: • NYSE: New York Stock Exchange (2000+ of the largest & best-known Organized Exchanges: • NYSE: New York Stock Exchange (2000+ of the largest & best-known corps. ) • AMEX: American Stock Exchange (about 1000 midsize corps. w/ strong growth potential) • Regional exchanges: Los Angeles, Chicago, Boston • Foreign exchanges: FTSE, CAC-40

Over-the-Counter Mkt: • Decentralized, computerized markets • NASDAQ: National Assoc. of Securities Dealers Automated Over-the-Counter Mkt: • Decentralized, computerized markets • NASDAQ: National Assoc. of Securities Dealers Automated Quotation System

Securities Exchange Commission: • Federal governmental agency which regulates sales and protects investors • Securities Exchange Commission: • Federal governmental agency which regulates sales and protects investors • 5 members appt. by U. S. Pres. • Investigate charges of fraud & violations like insider trading

PROSPECTUS: • SEC requires corps. to provide a PROSPECTUS for any new issue of PROSPECTUS: • SEC requires corps. to provide a PROSPECTUS for any new issue of securities • Contains info. About the company, its stocks or other securities, & risks so you can “check it out” before you buy

SALE of STOCKS & BONDS: • Primary or New Issues Market • Secondary Market SALE of STOCKS & BONDS: • Primary or New Issues Market • Secondary Market (what you think of commonly as the stock market)

2 Ways to Make Money from Stocks: • DIVIDENDS (share of profits pd. to 2 Ways to Make Money from Stocks: • DIVIDENDS (share of profits pd. to stockholders) • CAPITAL GAINS (profits from sale of stock) --CAPITAL LOSSES don’t make any $$$!

How Things Are Going: • BULL MARKET: Good! Stocks are on the rise. • How Things Are Going: • BULL MARKET: Good! Stocks are on the rise. • BEAR MARKET: Bad! Stocks are down!

DO NOW: -Put your name, date, & period on a clean sheet titled “An DO NOW: -Put your name, date, & period on a clean sheet titled “An Interview with Mr. Stock” –Answer questions A-H. Leave space if you don’t know an answer.

FEDERAL BONDS: • Savings Bonds • Treasury Bills FEDERAL BONDS: • Savings Bonds • Treasury Bills

MUTUAL FUNDS: • Corps. that allow individuals to pool money in order to buy MUTUAL FUNDS: • Corps. that allow individuals to pool money in order to buy and sell stocks, bonds, & other securities • Investors buy SHARES in the FUND instead of shares of stock or bonds

ADVANTAGES of MUTUAL FUNDS: • Professional managers study mkt. & make investments • RISK ADVANTAGES of MUTUAL FUNDS: • Professional managers study mkt. & make investments • RISK is spread because a loss in one sec. is likely to be offset by a gain in another • Get better deals because they invest large sums

Mutual Funds • OBJECTIVES vary ---long term growth ---safety & stability ---greatest possible return Mutual Funds • OBJECTIVES vary ---long term growth ---safety & stability ---greatest possible return now ---liquidity

Mutual Funds: • GOAL: Offer • GOAL: higher stability, security, returns or capital liquidity Mutual Funds: • GOAL: Offer • GOAL: higher stability, security, returns or capital liquidity gains • STRATEGY: Invest in short. Invest in term gov’t notes common stocks, and short-term bonds, or a bonds combination (Money Market)

Money Market Mutual Funds: • GOAL: Offer stability, security, liquidity • STRATEGY: Invest in Money Market Mutual Funds: • GOAL: Offer stability, security, liquidity • STRATEGY: Invest in shortterm gov’t notes and shortterm bonds

MUTUAL FUNDS: • What fees: --buying --selling • When paid: --front load --back load MUTUAL FUNDS: • What fees: --buying --selling • When paid: --front load --back load --no load • Performance: --check against objectives

FINANCIAL DECISIONS: • Professionals - FINANCIAL ADVISORS – Trained in business at college/university – FINANCIAL DECISIONS: • Professionals - FINANCIAL ADVISORS – Trained in business at college/university – Experienced judgment – Spend all day everyday watching and studying the market • Amateurs – hobby = watching the market and managing investments – Individuals – clubs

DO NOW: BUSINESS ACCOUNTING Check out the sheet on your desk. Find out the DO NOW: BUSINESS ACCOUNTING Check out the sheet on your desk. Find out the difference in a A. BALANCE SHEET B. INCOME STATEMENT Explain briefly on a clean sheet.

Business Accounting: • ASSETS: what a company OWNS • LIABILITIES: what a company OWES Business Accounting: • ASSETS: what a company OWNS • LIABILITIES: what a company OWES Assets – Liabilities = NET WORTH or ASSETS = Liabilities + Net Worth

Business Accounting: • BALANCE SHEET • INCOME STATEMENT -- “snapshot” of a business at Business Accounting: • BALANCE SHEET • INCOME STATEMENT -- “snapshot” of a business at a given pt. – “video” of business over time (usually 1 in time yr. ) --summarizes a company’s ASSETS, --summarizes a firm’s REVENUES, COSTS, LIABILITIES, and the difference NET WORTH between the two (PROFIT or LOSS)

BALANCE SHEET BALANCE SHEET

4 Factors Affecting a Business’s Loan Choices • INTEREST COSTS • MARKET CLIMATE • 4 Factors Affecting a Business’s Loan Choices • INTEREST COSTS • MARKET CLIMATE • CONTROL OF THE CO. • FINANCIAL CONDITION OF THE CO. P. 269

When Businesses Save: • DEPRECIATION: the value lost in assets like tools or machines When Businesses Save: • DEPRECIATION: the value lost in assets like tools or machines as they wear out or become obsolete • When cost of DEPRECIATION is included in price of products or services, businesses save P. 269

How Businesses Use Profits: • Pay income taxes to state & federal gov’ts. • How Businesses Use Profits: • Pay income taxes to state & federal gov’ts. • Pay dividends to stockholders • RETAINED EARNINGS (undistributed profits) may be “plowed back” into the co. by investing in new CAPITAL RESOURCES P. 269

MERGERS • Occur when 2 or more businesses unite under the same ownership • MERGERS • Occur when 2 or more businesses unite under the same ownership • One can buy the other or they can simply combine • 3 categories: – HORIZONTAL MERGERS – VERTICAL MERGERS – CONGLOMERATE MERGERS

3 Categories of MERGERS: • HORIZONTAL MERGER: – 2 companies at the same stage 3 Categories of MERGERS: • HORIZONTAL MERGER: – 2 companies at the same stage of production join; eliminates competition – Mc. Donalds & Burger King – VERTICAL MERGER: – 2 companies at different stages of production of the same product merge – Mc. Donalds and a meat processing company • CONGLOMERATE MERGER – 2 totally UNRELATED companies merge

Celler-Kefauver Act • 1950 • Prohibits any type of merger that gives merging firms Celler-Kefauver Act • 1950 • Prohibits any type of merger that gives merging firms an unfair advantage in the marketplace (MONOPOLY)