THE GOALS AND FUNCTIONS OF FINANCIAL MANAGEMENT
THE FIELD OF
FINANCE
Economics
Structure for Decision Making
Risk Analysis
Pricing Theory
Demand Relationships
Comparative Return Analysis
Variables
Gross domestic product
Industrial
Production
Disposable Income
Unemployment
Inflation
Interest Rates
Taxes
Accounting
Language of Finance
Provides
Financial Data
Income Statements
Balance Sheets
Statement of Cash
Flows
RISK
MANAGEMENT
AND THE
FINANCIAL
CRISIS
Risk Management
Controls
at most Financial Institutions
New Unregulated Products
Credit Default
Swaps (CDS)
Subtopic
Great Depression
Pay more attention to their Risk Controls
Internet
“New Economy''
Technological Transformation
CORPORATE
GOVERNANCE
Is governed by the board of
Directors
CEO
Agency theory
Relationship between the Owners and the Managers of the Firm
Institutional Investors
Pension Funds
Mutual Funds
Sarbanes-Oxley Act
Congress passed in 2002
THE ROLE OF
THE FINANCIAL
MARKETS
Financial Markets
Meeting place
People
Corporations
Corporate Financial Markets
Institutions
Global network of individuals
Participants
National
State
Local Governments
Public Financial Markets
Divisions
Domestic
International Markets
IPO
Raise new funds
Initial Public Offering
Primary
Market
Sale of securities
Secondary Market
Securities are sold to the public
Money Markets
Short-term securities
Daily operations
Certificates of Deposit
Capital Markets
Securities have a
life of more than one year
Common stock
Preferred stock
Corporate and Government bonds
Internet
Significant impact
Creating tremendous competitive
EVOLUTION OF
THE FIELD OF
FINANCE
1930
Depression ever
1950
Finance moved away
Financial Capital
Money
Real capital
Long-term Plant and Equipment
1990
Nobel Prize
Professors Harry Markowitz and William Sharpe
Financial Theories
Professor Merton Miller
Area of Capital Structure Theory
FUNCTIONS
OF FINANCIAL
MANAGEMENT
Capital Markets
Performed on a day-to-day
Financial Management
Credit Management
Inventory Control
Receipt and Disbursement of Funds
Forms of Organization
Primary interest
Sole Proprietorship
Single-person Ownership
Offers the Advantages
Partnership
Two or more Owners
Corporation
Most important type of Economic Unit
Legal Entity
unto itself
GOALS OF
FINANCIAL
MANAGEMENT
“Earn the highest possible profit for the Firm”
''Maximize the Wealth of the Firm’s Shareholders''
FORMAT OF
THE TEXT
Parts
1. Introduction
Examines the goals and objectives
2. Financial Analysis and Planning
Study
Ratio Analysis
Budget
construction techniques
Development of comprehensive pro forma Statements
3. Working Capital Management
Risk-return Analysis
4. The Capital Budgeting Process
The decision on Capital outlays
Consideration of
Market Value Maximization
5. Long-Term Financing
Sources and uses
of funds in the Capital Markets
6. Expanding the Perspective of Corporate Finance
External growth strategy and serves
Integrative tool
Profit Management
Capital Budgeting
Portfolio Considerations
Valuation concepts