<ul><li>Stock Market </li></ul><ul><ul><li>Trading and insider trading </li></ul></ul><ul><ul><li>Daily trading volatility...
<ul><li>The Four Basic Areas of Finance </li></ul><ul><ul><li>Investments </li></ul></ul><ul><ul><li>Financial Institution...
Investment <ul><li>What kinds of investment tools we have? </li></ul><ul><li>How to issue new securities? </li></ul><ul><l...
Financial Institutions <ul><li>Commercial Banks </li></ul><ul><li>Savings institutions </li></ul><ul><li>credit unions </l...
International Finance <ul><li>Foreign Exchange Risk </li></ul><ul><li>Political Risk </li></ul><ul><li>Terms like LIBOR, E...
<ul><li>Corporate Finance </li></ul>
What is Corporate Finance? <ul><li>Corporate Finance addresses the following three questions: </li></ul><ul><ul><li>What l...
The Balance-Sheet Model of the Firm <ul><ul><li>What long-term investments should the firm engage in? </li></ul></ul>Curre...
The Balance-Sheet Model of the Firm How can the firm raise the money for the required investments? Current Assets Fixed As...
The Balance-Sheet Model of the Firm Net working capital Current Assets Fixed Assets 1 Tangible 2 Intangible <ul><ul><li>To...
Capital Structure The value of the firm can be thought of as a pie. The goal of the manager is to increase the size of the...
The Financial Manager <ul><li>To create value, the financial manager should: </li></ul><ul><li>Try to make smart investmen...
The Corporate Firm <ul><li>The corporate form of business is the standard method for solving the problems encountered in r...
Organization Chart
Forms of Business Organization <ul><li>The Sole Proprietorship </li></ul><ul><li>The Partnership </li></ul><ul><ul><li>Gen...
Goals of the Corporate Firm <ul><li>The traditional answer is that the managers of the corporation are obliged to make eff...
Managerial Goals <ul><li>Managerial goals may be different from shareholder goals </li></ul><ul><ul><li>Expensive perquisi...
Separation of Ownership and Control Board of Directors Management Assets Debt Equity Shareholders Debtholders
Do Shareholders Control Managerial Behavior? <ul><li>Shareholders vote for the board of directors, who in turn hire the ma...
Financial Markets <ul><li>Primary Market </li></ul><ul><ul><li>When a corporation issues securities, cash flows from inves...
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Introduction

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Transcript of "Introduction"

  1. 1. <ul><li>Stock Market </li></ul><ul><ul><li>Trading and insider trading </li></ul></ul><ul><ul><li>Daily trading volatility </li></ul></ul><ul><li>Mutual fund scandals </li></ul><ul><ul><li>late trading and market timing </li></ul></ul><ul><ul><li>fees </li></ul></ul><ul><li>IPO allocations </li></ul><ul><ul><li>Google </li></ul></ul><ul><ul><li>Frank Quattrone </li></ul></ul><ul><li>Executive Compensations </li></ul><ul><ul><li>Tyco </li></ul></ul><ul><li>Corporate Governance and Earnings Management </li></ul><ul><ul><li>Enron, Worldcom </li></ul></ul>What do you read in WSJ?
  2. 2. <ul><li>The Four Basic Areas of Finance </li></ul><ul><ul><li>Investments </li></ul></ul><ul><ul><li>Financial Institutions </li></ul></ul><ul><ul><li>International Finance </li></ul></ul><ul><ul><li>Corporate Finance </li></ul></ul>
  3. 3. Investment <ul><li>What kinds of investment tools we have? </li></ul><ul><li>How to issue new securities? </li></ul><ul><li>Security Markets </li></ul><ul><li>Listing and listing requirements </li></ul><ul><li>What do Investment banks do? </li></ul><ul><ul><li>Goldman Sachs, Merrill Lynch, JPMorgan, Lehman Brother, Saloman Smith Barney, Morgan Stanley </li></ul></ul><ul><ul><li>Investment banking (underwriting): Underwrites IPOs, SEOs, places private equity ... </li></ul></ul><ul><ul><li>Brokage Service: execute security transaction, offers M&A advisory services ... </li></ul></ul><ul><ul><li>Asset management </li></ul></ul>
  4. 4. Financial Institutions <ul><li>Commercial Banks </li></ul><ul><li>Savings institutions </li></ul><ul><li>credit unions </li></ul><ul><li>mutual funds </li></ul><ul><li>insurance companies </li></ul><ul><li>pension funds </li></ul>
  5. 5. International Finance <ul><li>Foreign Exchange Risk </li></ul><ul><li>Political Risk </li></ul><ul><li>Terms like LIBOR, EURO, Eurodollar </li></ul><ul><li>What would be the impact on Japanese products if Yen Strengthens against Dollar? </li></ul>
  6. 6. <ul><li>Corporate Finance </li></ul>
  7. 7. What is Corporate Finance? <ul><li>Corporate Finance addresses the following three questions: </li></ul><ul><ul><li>What long-term investments should the firm engage in? </li></ul></ul><ul><ul><li>How can the firm raise the money for the required investments? </li></ul></ul><ul><ul><li>How much short-term cash flow does a company need to pay its bills? </li></ul></ul>
  8. 8. The Balance-Sheet Model of the Firm <ul><ul><li>What long-term investments should the firm engage in? </li></ul></ul>Current Assets Fixed Assets 1 Tangible 2 Intangible <ul><ul><li>Total Value of Assets: </li></ul></ul>Shareholders’ Equity Current Liabilities Long-Term Debt <ul><ul><li>Total Firm Value to Investors: </li></ul></ul>
  9. 9. The Balance-Sheet Model of the Firm How can the firm raise the money for the required investments? Current Assets Fixed Assets 1 Tangible 2 Intangible <ul><ul><li>Total Value of Assets: </li></ul></ul>Shareholders’ Equity Current Liabilities Long-Term Debt <ul><ul><li>Total Firm Value to Investors: </li></ul></ul>
  10. 10. The Balance-Sheet Model of the Firm Net working capital Current Assets Fixed Assets 1 Tangible 2 Intangible <ul><ul><li>Total Value of Assets: </li></ul></ul>Shareholders’ Equity Current Liabilities Long-Term Debt <ul><ul><li>Total Firm Value to Investors: </li></ul></ul>
  11. 11. Capital Structure The value of the firm can be thought of as a pie. The goal of the manager is to increase the size of the pie. The Capital Structure decision can be viewed as how best to slice up a the pie. If how you slice the pie affects the size of the pie, then the capital structure decision matters. 50% Debt 50% Equity 25% Debt 75% Equity 70% Debt 30% Equity
  12. 12. The Financial Manager <ul><li>To create value, the financial manager should: </li></ul><ul><li>Try to make smart investment decisions. </li></ul><ul><li>Try to make smart financing decisions. </li></ul>
  13. 13. The Corporate Firm <ul><li>The corporate form of business is the standard method for solving the problems encountered in raising large amounts of cash. </li></ul><ul><li>However, businesses can take other forms. </li></ul>
  14. 14. Organization Chart
  15. 15. Forms of Business Organization <ul><li>The Sole Proprietorship </li></ul><ul><li>The Partnership </li></ul><ul><ul><li>General Partnership </li></ul></ul><ul><ul><li>Limited Partnership </li></ul></ul><ul><li>The Corporation </li></ul><ul><li>Advantages and Disadvantages </li></ul><ul><ul><li>Liquidity and Marketability of Ownership </li></ul></ul><ul><ul><li>Control </li></ul></ul><ul><ul><li>Liability </li></ul></ul><ul><ul><li>Continuity of Existence </li></ul></ul><ul><ul><li>Tax Considerations </li></ul></ul>
  16. 16. Goals of the Corporate Firm <ul><li>The traditional answer is that the managers of the corporation are obliged to make efforts to maximize shareholder wealth. </li></ul>
  17. 17. Managerial Goals <ul><li>Managerial goals may be different from shareholder goals </li></ul><ul><ul><li>Expensive perquisites </li></ul></ul><ul><ul><li>Survival </li></ul></ul><ul><ul><li>Independence </li></ul></ul><ul><li>Increased growth and size are not necessarily the same thing as increased shareholder wealth. </li></ul>
  18. 18. Separation of Ownership and Control Board of Directors Management Assets Debt Equity Shareholders Debtholders
  19. 19. Do Shareholders Control Managerial Behavior? <ul><li>Shareholders vote for the board of directors, who in turn hire the management team. </li></ul><ul><li>Contracts can be carefully constructed to be incentive compatible . </li></ul><ul><li>There is a market for managerial talent—this may provide market discipline to the managers—they can be replaced. </li></ul><ul><li>If the managers fail to maximize share price, they may be replaced in a hostile takeover. </li></ul>
  20. 20. Financial Markets <ul><li>Primary Market </li></ul><ul><ul><li>When a corporation issues securities, cash flows from investors to the firm. </li></ul></ul><ul><ul><li>Usually an underwriter is involved </li></ul></ul><ul><li>Secondary Markets </li></ul><ul><ul><li>Involve the sale of “used” securities from one investor to another. </li></ul></ul><ul><ul><li>Securities may be exchange traded or trade over-the-counter in a dealer market. </li></ul></ul>
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