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16: Understanding Financial Management and Securities Markets

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    2571

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    Learning Objectives

    After reading this chapter, you should be able to answer these questions:

    1. How do finance and the financial manager affect a firm’s overall strategy?
    2. What types of short-term and long-term expenditures does a firm make?
    3. What are the main sources and costs of unsecured and secured short-term financing?
    4. What are the key differences between debt and equity, and what are the major types and features of long-term debt?
    5. When and how do firms issue equity, and what are the costs?
    6. How do securities markets help firms raise funding, and what securities trade in the capital markets?
    7. Where can investors buy and sell securities, and how are securities markets regulated?
    8. What are the current developments in financial management and the securities markets?

    • 16.0: Introduction
      This page discusses the role of finance and financial managers in a firm's strategy, focusing on short- and long-term expenditures and financing sources. It explains debt versus equity and the costs associated with long-term financing. The significance of securities markets in fund-raising and their regulation is also covered.
    • 16.1: The Role of Finance and the Financial Manager
      This page emphasizes the vital role of finance in a firm's strategy, highlighting the responsibilities of financial managers in planning, investment, and financing. Their aim is to maximize firm value for owners with a focus on long-term impacts. The significance of successful financial management is illustrated through Corning's ability to drive innovation and growth while managing market risks.
    • 16.2: How Organizations Use Funds
      This page discusses the distinction between short-term and long-term expenditures incurred by firms, highlighting the role of financial managers in managing liquidity through cash reserves and marketable securities. It emphasizes the importance of effective accounts receivable and inventory management in optimizing cash flow, and outlines long-term investments' focus on enhancing firm value via capital budgeting, which assesses costs against future benefits for expansions or acquisitions.
    • 16.3: Obtaining Short-Term Financing
      This page discusses how firms secure funding through debt, equity, and retained earnings, focusing on maximizing value. It distinguishes between short-term financing options: unsecured loans (like trade credit, bank loans, and commercial paper) and secured loans, which require collateral. It also highlights factoring as a method of finance, where firms sell accounts receivable at a discount.
    • 16.4: Raising Long-Term Financing
      This page outlines the differences between debt and equity financing, noting debt’s tax advantages and non-dilution of ownership versus equity’s permanent funding and higher costs. It details major long-term debt types like term loans, bonds, and mortgages, emphasizing their unique characteristics. Financial managers strive to balance these financing sources to optimize cost and risk for long-term investments.
    • 16.5: Equity Financing
      This page discusses how firms raise equity through new share sales, retained earnings, and venture capital. It highlights initial public offerings (IPOs), which help raise funds but involve high costs and risks. Additionally, it covers dividends' impact on shareholder value and the role of preferred stock in financial risk management. Finally, it emphasizes the importance of venture capital for small businesses seeking growth, despite the competitive nature of acquiring such funding.
    • 16.6: Securities Markets
      This page covers securities markets, including stocks and bonds, explaining their role in capital raising and highlighting the distinction between primary and secondary markets. It discusses government securities, municipal bonds, and the importance of bond ratings. The rise of online trading, mutual funds, and ETFs for diversification is also noted, alongside the risks linked to futures contracts and options.
    • 16.7: Buying and Selling at Securities Exchanges
      This page explains that investors trade securities mainly in secondary markets, which include broker markets like the NYSE and dealer markets like NASDAQ. It highlights technological advancements, hybrid trading systems, and globalization's impact on cross-border trading. Key global exchanges are noted, emphasizing the potential in international markets for U.S. investors.
    • 16.8: Trends in Financial Management and Securities Markets
      This page discusses developments in financial management and securities markets, highlighting the impact of technology on operational efficiency and stricter SEC regulations aimed at investor protection. It notes competition between NYSE and NASDAQ, leading to strategic mergers for market enhancement. Additionally, CFOs are taking on a broader role focused on compliance and accurate financial reporting, emphasizing the importance of educating stakeholders about regulations such as Sarbanes-Oxley.

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