chapter 12-managing the finance function
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MANAGING THE
FINANCE
FUNCTION
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FINANCE FUNCTION
Important management responsibility
Procurement and administration of funds with the iew
of achieing the ob!ecties of business
One of the three basic management functions
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T"E FINANCE FUNCTION# A P$OCE%% F&O'
(eterminationof Fund
re)uirements
Procurementof funds
Effectie andefficient use of
fund
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T"E (ETE$*INATION OF FUN( $E+UI$E*ENT%
To finance daily operations
To finance the firm,s credit serices
To finance the purchase of inentory
To finance the purchase of ma!or assets
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Cash sales
Collection of accounts receiables
&oans and credits
%ale of assets
Ownership contribution
Adances from customers
T"E %OU$CE% OF FUN(%
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%"O$T TE$* %OU$CE% OF FUN(%
Advantages DisadvantagesSupplies of short-term
funds
Easier to obtain *ature more fre)uently Trade creditors
Often less costly *ore costly Commercial ban-s
Offers fle.ibility to borrowers Commercial paper houses
Finance companies
Factors
Insurance companies
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&ON/ TE$* %OU$CE% OF FUN(%
&ong term debts
Term loans
bonds
Common stoc-s
$etained earnings
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A(0ANTA/E% OF TE$* &OAN%
Funds can be generated more )uic-ly than other long1
term sources
They are fle.ible
The cost of issuance is low compared to other long1term sources
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T2PE% OF 3ON(%
Type of Bond Feature
(ebentures No collateral re)uirement
*ortgage bond %ecured by real estate
Collateral trust bond%ecured by stoc-s and bonds owned by the
issuing corporation
/uaranteed bondPayment of interest or principal is guaranteed
by one or more indiiduals or corporations
%ubordinated debentures 'ith an inferior claim oer other debts
Conertible bonds Conertible into shares of common stoc-
3onds with warrants'arrants are options which permit the holder
to buy stoc- of the issuing company at astated price
Income bonds Pays interest only when earned
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3E%T %OU$CE% OF FINANCIN/
Fle.ibility
$is-
Income
Control
Timing
Other factors
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T"E FI$*,% FINANCIA& "EA&T"
To ma-e profits for the owners
To satisfy creditors with the repayment of loans plus
interest
To maintain the iability of the firm
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IN(ICATO$% OF FINANCIA& "EA&T"
3alance sheet
Income statement
%tatement of changes in financial position
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$I%4 *ANA/E*ENT AN( IN%U$ANCE
$is-s refers to the uncertainty concerning loss or in!ury
Fire
Theft
Floods Accidents
Nonpayment of bills by customers
(isability and death
(amage claim from other parties
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T2PE% OF $I%4
Pure
%peculatie
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$I%4 *ANA/E*ENT
And organi5ed strategy for protecting and consering
assets and people
The purpose is to choose intelligently from among all
the aailable methods of dealing with ris- in order tosecure the economic surial of the firm
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*ET"O(% OF (EA&IN/ 'IT" $I%4
The ris- may be aoided
The ris- may be retained
The ha5ard may be reduced
The losses may be reduced
The ris- may be shifted
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Prepared by#
$A&P" N6 3U(ION/AN
$A&P" E$'IN P6 CA$(O%OANA 7EAN *6 CA3$I/A%
THANKYOU!
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