Joseph Fabiilli is telling the understand the major types, features, and costs of long-term debt. Joseph Fabiilli is a funding consultant for future-thinking entrepreneurs and agencies. Joseph helps people secure funding for their environmental projects and programs.

1. Understand the major types, features, and
costs of long-term debt
Joseph Fabiilli

2. Maximizing the Value
Finance

3. Making the Connection

4. Learning Outcomes
1. Explain the roles finance and the financial manager
play in the company’s overall strategy.
2. Describe how a company develops its financial
plans, including forecasts and budgets.
3. List the types of short- and long-term expenditures
a company makes.
4. Summarize the main sources and costs of
unsecured and secured short-term financing.
5. Identify and compare the two primary sources of
long-term financing.
4

5. Learning Outcomes (cont’d)
6. Understand the major types, features, and costs of
long-term debt.
7. Discuss how companies issue equity, and the costs
to the company.
8. Understand risk, how it can be managed, and what
makes a risk insurable.
9. Describe the types of insurance coverage that
businesses should consider.
10. List some of the trends that are affecting the
practice of financial management.
5

6. Explain the roles finance and the financial
manager play in the company’s overall
strategy.
6

7. Financial Management
7
 The spending and raising of a company’s money
is both a science and an art.
 CFOs need a broad understanding of their
company’s business and industry as well as
leadership ability and creativity.

8. Exhibit 18.1: How Cash Flows through a
Business
8

9. Financial Manager’s Responsibilities
9
Financial Planning
Investment
(spending money)
Financing
(raising money)
Key
Activities

10. The Goal of the Financial Manager
10
Maximize Firm’s Value!
Opportunity
for Profit
Potential
for Loss

11. Risk and Return Factors
11
Changing Patterns of Market Demand
Interest Rates
General Economic Conditions
Market Conditions
Social Issues

12. Describe how a company develops its financial
plans, including forecasts and budgets.
12

13. Forecasting the Future
13
Short-Term Forecasts:
• Operating plans
• Less than one year
• Project revenues and costs
Long-Term Forecasts:
• Strategic plans
• More than one year
• Broader view of financial activities

14. Budgets
14
Operating – Forecasts of sales and expenses.
Capital – Forecasts of fixed assets.
Cash – Forecast of cash inflows and outflows.
Forecasts of Revenues and Expenses

15. List the types of short- and long-term
expenditures a company makes.
15

16. Short-Term Expenses
16
Management
of Current
Assets
Cash
Accounts
Receivable
Inventory

17. Long-Term Expenditures
17
Management
of Capital
Expenditures
Land
Buildings
Machinery/Equipme
nt
Information Systems

18. Summarize the main sources and costs of
unsecured and secured short-term financing.
18

19. Short-Term Financing
19
Trade Credit
Bank Loans
Commercial
Paper
Seller extends credit to the
buyer.
Lines of credit.
Loan issued by financially
strong company.
Factoring Selling of accounts receivable.

20. Identify and compare the two primary
sources of long-term financing.
20

21. Major Differences between Debt and Equity
Financing
21

22. Understand the major types, features,
and costs of long-term debt.
22

23. Long-Term Financing
23
 Term loan – For a period of more than one year.
 Bonds – Issued by corporations and governments.
 Mortgage loan – Secured against real estate.

24. Discuss how companies issue equity
and the costs to the company.
24

25. Equity Financing
25
Common Shares
Preferred Shares
Dividends and
Retained Earnings
Venture Capital

26. Understand risk, how it can be
managed, and what makes a risk
insurable.
26

27. Basic Terms
27
Risk management – Identifying and evaluating risks.
Peril – Hazard or a source of danger.
Speculative risk – Chance of either loss or gain,
without the insurance against the possible loss.

28. Risk Management
28
Strategies to
Manage Risk
Risk Avoidance
Self-Insurance
Risk Reduction
Risk Transfer

29. Describe the types of insurance
coverage that businesses should
consider.
29

30. Basic Terms
30
Insurance policy – Agreement of the risks covered.
Insurable interest – Insurance applicant’s chance of
loss if a particular peril occurs.
Insurable risk – Risk that can be covered.
Law of large numbers – Predictions of the likelihood
that a peril will occur.

31. Insurable Risks
31
1. Loss must not be under the control of the insured.
2. There must be many similar exposures to that peril.
3. Losses must be financially measurable.
4. Peril must not be likely to affect all the insured
parties at the same time.
5. The potential loss must be significant.
6. The insurance company must have the right to set
standards for insurance coverage

32. Types of Insurance
32
Property
Liability
Health
Life

33. List some of the trends that are
affecting the practice of financial
management.
33

34. The Future of the Financial Industry
34
 The CFO’s role continues to expand.
 Weighing the risks.

35. Thank You