Introduction to financial management ppt @ mba

  • 879 views
Uploaded on

Introduction to financial management ppt @ mba

Introduction to financial management ppt @ mba

  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Be the first to comment
No Downloads

Views

Total Views
879
On Slideshare
0
From Embeds
0
Number of Embeds
0

Actions

Shares
Downloads
29
Comments
0
Likes
1

Embeds 0

No embeds

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
    No notes for slide

Transcript

  • 1. Introduction to Financial Management
    • Forms of Businesses
    • Goals of the Corporation
    • Stock Prices and Intrinsic Value
    • Some Recent Trends
    • Conflicts Between Managers and Shareholders
  • 2. Alternative Forms of Business Organization
    • Proprietorship
    • Partnership
    • Corporation
  • 3. Proprietorships & Partnerships
    • Advantages
      • Ease of formation
      • Subject to few regulations
      • No corporate income taxes
    • Disadvantages
      • Difficult to raise capital
      • Unlimited liability
      • Limited life
  • 4. Corporation
    • Advantages
      • Unlimited life
      • Easy transfer of ownership
      • Limited liability
      • Ease of raising capital
    • Disadvantages
      • Double taxation
      • Cost of set-up and report filing
  • 5.
    • Double Taxation of Corporate Profits/Income
    • Assume Corporate and Individual Tax = 50%
    • Earnings Before Taxes $100 EBT
    • ($50) Corporate Tax
    • Net Income After Tax $50 NIAT (Profits)
    • Assume 100% Div. Payout $50 Dividend Income
    • ($25) Personal Income Tax
    • $25 After-tax Income
    • New Tax Code (2003): Max. Tax Rate of 15% for DIV
    • Earnings Before Taxes $100 EBT
    • ($50) Corporate Tax
    • Net Income After Tax $50 NIAT
    • Assume 100% DIV $50 Dividend Income
    • ($7.50) Income Tax @ 15%
    • $42.50 After-tax Income
  • 6.
    • Corporate Income Taxes – 2006
    • More than But not more than Then the tax is of the amount over
    • $0 $50,000 15% $0
    • $50,000 $75,000 $7,500 + 25% $50,000
    • $75,000 $100,000 $13,750 + 34% $75,000
    • $100,000 $335,000 $22,250 + 39% $100,000
    • $335,000 $10 million $113,900 + 34% $335,000
    • $10 million $15 million $3,4 million + 35% $10 million
    • $15 million $18.33 million $5.15 million + 38% $15 million
    • $18.33 million --35% --
  • 7.
    • 2005 federal personal income tax rates Ordinary taxable income for use in filing returns due April 15, 2006.
    • Tax rate Single filers Married filing jointly Married filing separately Head of household
    • 10% Up to $7,300 Up to $14,600 Up to $7,300 Up to $10,450
    • 15% $7,301 - $29,700 $14,601 - $59,400 $7,301 - $29,700 $10,451 - $39,800
    • 25% $29,701 - $71,950 $59,401 - $119,950 $29,701 - $59,975 $39,801-$102,800
    • 28% $71,951 - $150,150 $119,951 - $182,800 $59,976 - $91,400 $102,801 - 166,450
    • 33% $150,151 - $326,450 $182,801 - $326,450 $91,401 - $163,225 $166,451 - $326,450
    • 35% $326,451 or more $326,451 or more $163,226 or more $326,451 or more
  • 8. Alternative Forms of Business Organization
    • Sole proprietorship – 73% of firms, but only 7% of sales revenue
    • Partnership – 7% of firms, 5% of sales
    • Corporation – 20% of firms, but 88% of sales revenue.
  • 9. Financial Goals of the Corporation
    • The primary financial goal is shareholder wealth maximization, which translates to maximizing stock price.
      • Do firms have any responsibilities to society at large?
      • Is stock price maximization good or bad for society?
      • Should firms behave ethically?
  • 10. Factors that affect stock price
    • Projected cash flows to shareholders
    • Timing of the cash flow stream
    • Riskiness of the cash flows
  • 11. Stock Prices and Intrinsic Value
    • In equilibrium, a stock’s price should equal its “true” or intrinsic value.
    • To the extent that investor perceptions are incorrect, a stock’s price in the short run may deviate from its intrinsic value.
    • Ideally, managers should avoid actions that reduce intrinsic value, even if those decisions increase the stock price in the short run.
  • 12. Determinants of Intrinsic Value and Stock Prices (Figure 1-1)
  • 13. Some Important Trends
    • Recent corporate scandals have reinforced the importance of business ethics, and have spurred additional regulations and corporate oversight.
    • The effects of changing information technology have had a profound effect on all aspects of business finance.
    • The continued globalization of business.
  • 14. Financial Management Issues of the New Millennium
    • The effect of changing technology
    • The globalization of business
    • 1. Improvements in communications and transportation – lower transactions cost
    • 2. Increased power of consumers – more choice, consumer sovereignty
    • 3. Increased cost of developing new products – global markets spread fixed costs over more units
    • 4. MNCs must be able to shift production globally to take advantage of cost efficiencies.
  • 15. Percentage of Revenue and Net Income from Overseas Operations for 10 Well-Known Corporations, 2001 Company % of Revenue from overseas % of Net Income from overseas Coca-Cola 60.8 35.9 Exxon Mobil 69.4 60.2 General Electric 32.6 25.2 General Motors 26.1 60.6 IBM 57.9 48.4 JP Morgan Chase & Co. 35.5 51.7 McDonald’s 63.1 61.7 Merck 18.3 58.1 3M 52.9 47.0 Sears, Roebuck 10.5 7.8
  • 16. Conflicts Between Managers and Stockholders
    • Managers are naturally inclined to act in their own best interests (which are not always the same as the interest of stockholders).
    • But the following factors affect managerial behavior:
      • Managerial compensation plans
      • Direct intervention by shareholders
      • The threat of firing
      • The threat of takeover
  • 17. Responsibility of the Financial Staff
    • Maximize stock value by:
      • Forecasting and planning
      • Investment and financing decisions
      • Coordination and control
      • Transactions in the financial markets
      • Managing risk