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