MANAGING

MANAGING>THE FINANCEFUNCTIONCHAPTER 12>THE FINANCE FUNCTION: A PROCESS FLOWDETERMINATIONOF FUNDREQUIREMENTSPROCUREMENTOFFUNDSEFFECTIVE ANDEFFICIENT USEOF FUNDS

DETERMINATIONOF FUNDREQUIREMENTSCHAPTER 12THE DETERMINATION OF FUNDSTo finance daily operationsTo finance the firms credit servicesTo finance the purchase of inventoryTo finance the purchase of major assets

FINANCING DAILY OPERATIONS

FINANCING the firms credit services

FINANCING the purchase of inventory

FINANCING THE PURCHASE OF MAJOR AsSETS

SOURCESOF FUNDCHAPTER 12SOURCES OF FUNDSCash salesCollection of Accounts ReceivablesLoans and CreditsSale of AssetsOwnership ContributionAdvances from customersSHORT TERM SOURCES OF FUNDSShort-term sources of funds are those with repayment schedules of less than one year. Collaterals are sometimes required by short-term creditors.ADVANTAGESThey are easier to obtain.Short-term financing is often less costly.Short-term financing offers flexibility to the borrower.DISADVANTAGESShort-term credits mature more frequently.Short-term debts are more costly than long-term debtsSUPPLIES OF SHORT TERM FUNDSTrade CreditorsCommercial BanksCommercial Paper HouseFinance CompaniesFactorsInsurance CompaniesLONG TERM SOURCES OF FUNDSCLASSIFICATIONSLong-term debtsCommon StocksRetained EarningTERM LOANS commercial or industrial loan from a commercial bank, commonly used for plant and equipment, working capital, or debt repayment BONDSIt is a certificate of indebtedness issued by a corporation to a lenderTYPES OF BONDSDebenturesMortgage BondCollateral Trust BondGuaranteed BondSubordinated DebenturesConvertible BondsBonds with WarrantsIncome Bonds

BEST SOURCEOF FINANCINGCHAPTER 12FACTORS RECOMMENDED BY SCHALL AND HALEY:FlexibilityRiskIncomeControlTimingOther factors like collateral values, flotation costs, speed, and exposure

THE FIRMSFINANCIALCHAPTER 12HEALTHOBJECTIVES OF ENGINEERING FIRMSTo make profits for the ownersTo satisfy creditors with the repayment of loans plus interestsTo maintain the viability of the firm so that customers will be assured of a continuous supply of products or services, employees will be assured of employment, suppliers will be assured of a market, etc.

INDICATORS OFFINANCIALCHAPTER 12HEALTHBALANCE SHEET

INCOME STATEMENT

STATEMENT OF CHANGEIN FINANCIAL POSITION

RISKMANAGEMENTCHAPTER 12AND INSURANCERISKIt refers to the uncertainty concerning loss or injurySOME RISKS AN ENGINEERING FIRM CAN FACEFireTheftFloodsAccidentsNonpayment of bills by customersDisability and deathDamage claim from other partiesTYPES OF RISKPure RiskSpeculative RiskRISK MANAGEMENT an organized strategy for protecting and conserving assets and people METHODS OF DEALING WITH RISKSThe risk may be avoidedThe risk may be retainedThe hazard may be reducedThe loses may be reducedThe risk may be shiftedRISK RETENTION- Is a method of handling risks wherein the management assumes the risksHEDGING- Refers to making commitments on both sides of a transaction so the risks offset each otherEND