what are the three main components for FINANCIAL MANAGEMENT?
- Understand the company’s plans
- Convert those plans into projections that you can analyze
- Calculate the short- and long-term financial needs of the business
Cash flow
the movement of money into and out of an organization
Trade credit:
company takes delivery of goods but pays for them at a later time
what are 3 reasons companies need financing?
- Long Term financing
-Short-Term Financing
-Negative Cash flow
-Seasonality
Financial plan:
plan for obtaining and using the money needed to implement an organization’s strategic and operational plans
what is a FINANCIAL PLAN translated to?
operating and capital budgets
Debt financing
borrowing money that must be paid back, usually with interest
Equity financing:
money received from the owners or from the sale of shares of ownership in a business
Value of a company can be determined by its
net worth and earnings
Company’s history and its future prospects highly influence investors’ decisions, like…
Sales revenue and revenue growth
Profits and profit growth
Proprietary products or systems that aren’t easily copied
Short-Term Financing Options are easier to obtain than long-term debt financing because:
For the lender, the shorter repayment period means less risk of default
Dollar amounts of short-term loans are usually lower than those of long-term loans
Close working relationship normally exists between the short-term borrower and the lender
Collateral:
pledge of specific assets by the borrower to the lender that becomes the lender’s if the borrower defaults on the repayment of the loan
Unsecured loans:
short-term loans from a bank or financing company that are not secured by collateral
Secured loans:
: short-term loans from a bank or financing company that are secured by collateral
Applying for a long-term loan, companies must show the lender:
How the money will be spent
How the company plans to repay the loan
Corporate bonds
: long-term debt obligations (liabilities) issued by corporations that promise to make payments over a specified period
Shares or equity
shares of ownership in a company that are sold to investors
The 5 C’s of Credit
Character
Capacity
Capital
Collateral
Conditions
