Business in a
Financial Management and Securities
Copyright © 2009 by the McGraw-Hill Companies, Inc. All rights
Sears Holding Corporation –
Using brand names to create
Sears Holding Corporation (SHC) parent of Kmart
and Sears, Roebuck and Co.
Current Assets and Current Liabilities
• Current assets -- short-term resources
• Current liabilities -- short-term debts
Short-term bank loans
Working capital management – managing of
short-term assets and liabilities.
Transaction balances – cash kept on hand by a firm
to pay normal daily expenses such as employee
wages and bills for supplies utilities.
Lockbox – an address, usually a commercial bank, at
which a company receives payments in order to
speed collections from customers.
Going Green or Greenwashing?
Eco Chic line – products made with organic materials. The Pottery Barn
Marketable securities – temporary investment of
extra cash by organizations up to one year in U.S.
Treasury bills, certificates of deposit, commercial
paper, or Eurodollar.
Treasury bills– short-term debt obligations the
U.S. government sells to raise money.
Commercial certificates of deposit (CD’s) – issued
by commercial banks and brokerages available in
minimum amounts of $100,000 and can be traded
prior to maturity
Commercial paper – a written promise from one
company to another to pay a specific amount of
Seller of Security
Short-term Investment Possibilities for Idle Cash
Eurodollar market – a market created in London
for trading U.S. dollars in foreign countries.
Accounts Receivable – money owed to a business
by credit customers.
Optimizing inventory – minimize firm’s investment
in inventory without experiencing production
Maximizing Current Liabilities
Accounts payable – money an organization
owes to suppliers for goods and services.
Trade credit – credit extended by suppliers for
the purchase of their goods and services
Line of Credit -- An arrangement by which a
bank agrees to lend a specified amount of
money to an organization upon request
Secured Loans -- Loans backed by collateral that
the bank can claim if the borrowers do not
repay the debt
Unsecured loan – loans backed only by the
borrower’s good reputation and previous credit
Prime rate – the interest rate that commercial
banks charge their best customers for short
Short-term loans from insurance companies, pension funds, money
market funds, or finance companies
– Purchases accounts receivable at a discount
Taxes and employees’ wages
Managing Fixed Assets
Long-term (fixed) assets – production facilities
(plants), offices, and equipment—all of which
are expected to last for many years.
Budgeting & Planning
How Reliable is Budgeting and Planning?
Capital budgeting -- is the process of analyzing
the needs of business and selecting the assets
that will maximize its value
Introduce a New Product in Foreign Markets (risk
depends on stability of country)
Expand into a New Market
Introduce a New Product in a Familiar Area
Add to a Product Line
Buy New Equipment for
an Established Market
Repair Old Machinery
Qualitative Assessment of Capital Budgeting Risk
Profitability & Pricing Long Term Money
-Factors to Consider:
How much cash will be generated
Cost of financing
Supply of funds available for investment
Accurately identifying opportunities with the greatest
potential for ROI
Financing with Long-Term Liabilities
Debts that will be repaid over a number of years
– Long-term loans
– Bond issues