18-1 mcgraw-hill/irwin understanding business, 7/e © 2005 the mcgraw-hill companies, inc., all...

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18-1 McGraw-Hill/Irwin Understanding Business, 7/e © 2005 The McGraw-Hill Companies, Inc., All Rights Reserved. McGraw-Hill/Irwin U nderstanding Business, 7/e © 2005 T he McG raw-Hill Companies, Inc., All R ights R eserved. Chapter 18 Condensed Financial Management

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McGraw-Hill/IrwinUnderstanding Business, 7/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.18-1McGraw-Hill/Irwin

Understanding Business, 7/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

Chapter

18Condensed

18Condensed

Financial Management

McGraw-Hill/IrwinUnderstanding Business, 7/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.18-2McGraw-Hill/Irwin

Understanding Business, 7/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

Sources of Funds

&Financing

McGraw-Hill/IrwinUnderstanding Business, 7/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.18-3McGraw-Hill/Irwin

Understanding Business, 7/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

Sources of Funds

1. Debt Capital

2. Equity Capital

McGraw-Hill/IrwinUnderstanding Business, 7/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.18-4McGraw-Hill/Irwin

Understanding Business, 7/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

Types of Financing

1. Short-Term

2. Long-Term

McGraw-Hill/IrwinUnderstanding Business, 7/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.18-6McGraw-Hill/Irwin

Understanding Business, 7/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

Short-Term Financing

McGraw-Hill/IrwinUnderstanding Business, 7/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.18-7McGraw-Hill/Irwin

Understanding Business, 7/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

Sources of FundsShort-Term

• Trade Credit– 2/10, net 30

• Promissory Notes

• Family/Friends• Banks, etc.

– Secured Loan– Unsecured Loan

• Factoring• Commercial

Paper

McGraw-Hill/IrwinUnderstanding Business, 7/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.18-8McGraw-Hill/Irwin

Understanding Business, 7/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

Different Forms of Bank Loans

• Secured Loans (collateral)– Pledging (accts receivable)– Inventory Financing (raw materials)

• Unsecured Loans• Line of Credit (not guaranteed)

– Revolving Line of Credit (guaranteed)

• Comm’l Finance Companies– Non-banks

McGraw-Hill/IrwinUnderstanding Business, 7/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.18-9McGraw-Hill/Irwin

Understanding Business, 7/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

Long-Term Financing

McGraw-Hill/IrwinUnderstanding Business, 7/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.18-10McGraw-Hill/Irwin

Understanding Business, 7/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

Sources of FundsLong-Term

• Debt– Term-Loan– Bonds

• Secured• Unsecured

• Equity– Stock– Retained

Earnings– Venture Capital

McGraw-Hill/IrwinUnderstanding Business, 7/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.18-11McGraw-Hill/Irwin

Understanding Business, 7/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

Long-Term Debt Financing

McGraw-Hill/IrwinUnderstanding Business, 7/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.18-12McGraw-Hill/Irwin

Understanding Business, 7/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

Term Loans

McGraw-Hill/IrwinUnderstanding Business, 7/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.18-13McGraw-Hill/Irwin

Understanding Business, 7/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

Bonds

Classes¢Unsecured¢Debenture

¢Secured¢Mortgage

McGraw-Hill/IrwinUnderstanding Business, 7/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.18-14McGraw-Hill/Irwin

Understanding Business, 7/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

Long-TermEquity Financing

McGraw-Hill/IrwinUnderstanding Business, 7/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.18-15McGraw-Hill/Irwin

Understanding Business, 7/e

© 2005 The McGraw-Hill Companies, Inc., All Rights Reserved.

Sources of Equity Financing

Equity CapitalEquity Capital

Internal SourcesInternal Sources

External SourcesExternal Sources

Retained Earnings

Retained Earnings

Owner Contribution

s

Owner Contribution

sSale of

Partnerships

Sale of Partnerships

Venture Capital

Venture Capital

Public Sale of Stock

Public Sale of Stock