Download Financial Management and Banking

Financial Management and
Banking
© Prentice Hall, 2005
Excellence in Business,
Revised Edition
Chapter 17 - 1
The Role of Financial
Management
• Current needs
• Future needs
– Sources of funds
– Uses of funds
– Maximizing company value
© Prentice Hall, 2005
Excellence in Business,
Revised Edition
Chapter 17 - 2
Implementing the Financial
Plan
• Monitoring cash flow
– Accounts receivable and payable
– Inventory control
• Managing cash reserves
– Marketable securities
– Electronic cash management
© Prentice Hall, 2005
Excellence in Business,
Revised Edition
Chapter 17 - 3
Operating Budget
• Master budget
– Cost control
– Expenditures
– Plan for the future
– Financial control
© Prentice Hall, 2005
Excellence in Business,
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Chapter 17 - 4
Capital Budget Process
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Request
Review
Evaluate
recommend
© Prentice Hall, 2005
Excellence in Business,
Revised Edition
Chapter 17 - 5
Financing Operations and
Growth
• Length of term
• Cost of capital
• Debt or equity
© Prentice Hall, 2005
Excellence in Business,
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Chapter 17 - 6
Length of Term
• Less than one year
– Short-term financing
• Greater than on year
– Long-term financing
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Excellence in Business,
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Chapter 17 - 7
Long-Term Financing
• Internal sources
– Retained earnings
– Sale of assets
• External sources
– Debt capital
– Equity capital
© Prentice Hall, 2005
Excellence in Business,
Revised Edition
Chapter 17 - 8
Cost of Capital
• Company risk
• Interest rates
• Opportunity cost
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Chapter 17 - 9
Debt versus Equity
Characteristic
Debt
Equity
Maturity
Specific
Nonspecific
Claim on Income
Fixed Cost
Discretionary Cost
Claim on Assets
Priority
Residual
Influence
Over Management
Little
Variable
© Prentice Hall, 2005
Excellence in Business,
Revised Edition
Chapter 17 - 10
Types of Debt Financing
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Trade credit
Commercial paper
Secured loans
Unsecured loans
Leases
Bonds
© Prentice Hall, 2005
Excellence in Business,
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Chapter 17 - 11
The U.S. Financial
System
Deposit
Nondeposit
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Commercial banks
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Insurance companies
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Savings and loans
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Pension funds

Mutual savings banks
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Finance companies
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Credit unions
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Brokerage firms
© Prentice Hall, 2005
Excellence in Business,
Revised Edition
Chapter 17 - 12
Financial Services
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Checking and savings accounts
Business and consumer loans
Credit, debit, and smart cards
Electronic banking
© Prentice Hall, 2005
Excellence in Business,
Revised Edition
Chapter 17 - 13
Checking and Savings
Accounts
• Demand deposits
• Statement savings
• Money market and CDs
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Excellence in Business,
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Chapter 17 - 14
Business Loans
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Expansion
Construction
Purchases
Renovation
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Excellence in Business,
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Chapter 17 - 15
Short-Term Credit
• Credit cards
• Debit cards
• Smart cards
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Chapter 17 - 16
Electronic Banking
• Automated teller
• Electronic funds transfer
• Online banking
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Excellence in Business,
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Chapter 17 - 17
Evolving U.S. Banking
Environment
• Repeal of the Glass-Steagall Act
• Emergence of financial supermarkets
• Breaches in the “Chinese Wall”
• Resurgence of community banks
• Struggling Internet banks
© Prentice Hall, 2005
Excellence in Business,
Revised Edition
Chapter 17 - 18
Repeal of Glass-Steagall
• Financial Services Modernization Act
1999
– Financial institutions
– Brokerage firms
– Insurance companies
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Excellence in Business,
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Chapter 17 - 19
Financial Supermarkets
• Financial institutions
• Securities firms
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Excellence in Business,
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Chapter 17 - 20
Breaches in the Chinese Wall
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Research functions
Lending functions
Stock brokering
Investment banking
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Excellence in Business,
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Chapter 17 - 21
Community Banks
• Target markets
• Flexibility
• Personal service
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Chapter 17 - 22
Struggling Internet Banks
• Customer service problems
• High expenses
• Negative cash flow
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Excellence in Business,
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Chapter 17 - 23
Bank Safety and Regulation
• Federal Deposit Insurance Corporation
• Savings and Loan Association
• National Credit Union Association
• State Banking Commission
• Federal Reserve System
• Comptroller of the Currency
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Excellence in Business,
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Chapter 17 - 24
Functions of the Federal
Reserve
• Influencing U.S. money supply
• Supplying currency
• Clearing checks
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Chapter 17 - 25
What is Money?
• Medium of exchange
• Measure of value
• Store of value
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Chapter 17 - 26
U.S. Money Supply
• Hard Currency
• Demand deposits
• Time deposits
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Chapter 17 - 27
Influencing the Money
Supply
• Reserve requirements
• Discount rate
• Open-market operations
• Selective credit controls
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Excellence in Business,
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Chapter 17 - 28
Federal Reserve Functions
• Supplying currency
• Clearing checks
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Excellence in Business,
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Chapter 17 - 29