Highlights
Chapter 1
Foundations of Financial Management.
The Goals and Functions of the
Financial Manager
•
Exciting
Dynamic Arena
•
Issues of
career threatening, Business threatening and Ethical importance.
•
Careful
management of Capital
•
Economics
and Accounting
•
Commercial
banking structure
Financial Management Issues
•
Risk Return
•
Capital
Structure (Debt and Capital)
•
Inflation
Financial Management Functions
•
Best mix,
current and fixed assets
•
Dividends
•
Maximize
shareholder wealth
–
Risk return
Forms of Business
•
Sole proprietor
– Simple decision making low setup
costs
– Limited financing ability
– Liability
– taxation
•
Partnership
– More financing ability
– Liability can be big..
– Limited financing for limited
partnerships
•
Corporation
– Easy divisibility of ownership
– Conflict of interests, owners and
managers, and different ownership groups
– Huge financing opportunities
– Limited liability.
– May be double taxation.
Goals of Financial Management
•
Agency Theory
– Relationship management and
ownership
• Stock options
• Takeovers
• Inside trading
•
Maximize profit?
– What about risk
– Timings
– Different ways to measure profit.
•
Valuation (share price)
•
Maximize shareholder wealth
Financial Markets
•
Money
Markets
• Short term (less than one year)
•
Capital
Markets
–
Longer term
securities (more than one year)
•
Provide
funds for investments
•
Primary and
secondary markets
•
Restructuring