Slides-1. Financial Management. Lecture 1


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  • like the write up, nice but can you give a example of the finincail manager role, pls
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  • its very nice and helpful for understanding the main responsibilities of FM
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  • it really helps for my dad who currently enrolled Financial management in his MBA .
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  • It is sometimes helpful to relate corporate decisions to individual circumstances. For example, consider discussing how individuals choose to buy cars or homes and how this decision would affect a personal balance sheet.
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  • Slides-1. Financial Management. Lecture 1

    1. 1. Lesson 1 Introduction to Financial Management
    2. 2. Key Concepts and Skills <ul><li>Know the basic types of financial management decisions and the role of the Financial Manager </li></ul><ul><li>Know the financial implications of the various forms of business organization </li></ul><ul><li>Know the goal of financial management </li></ul><ul><li>Understand the conflicts of interest that can arise between owners and managers </li></ul><ul><li>Understand the various types of financial markets </li></ul>
    3. 3. Career opportunities in finance <ul><li>Finance consists of three interrelated areas: </li></ul><ul><li>Money and capital markets </li></ul><ul><li>Investments </li></ul><ul><li>Financial management (business finance) – actual management of the firm. </li></ul>
    4. 4. The role of the Financial Manager <ul><li>raising cash in financial markets ( the financing decision ); </li></ul><ul><li>investing cash ( capital budgeting decision ); </li></ul><ul><li>generating cash from operation </li></ul><ul><li>allocating cash flows </li></ul>
    5. 5. Balance Sheet Model of the Firm <ul><li>Current Assets </li></ul><ul><li>Fixed Assets </li></ul><ul><li>1 Tangible </li></ul><ul><li>2 Intangible </li></ul><ul><ul><li>Total Value of Assets: </li></ul></ul><ul><li>Shareholders’ Equity </li></ul><ul><li>Current Liabilities </li></ul><ul><li>Long-Term Debt </li></ul><ul><ul><li>Total Firm Value to Investors: </li></ul></ul>
    6. 6. The Role of The Financial Manager <ul><li>Capital Budgeting Decision </li></ul><ul><ul><li>Decision to invest in tangible or intangible assets. </li></ul></ul><ul><li>… also called the Investment Decision </li></ul>
    7. 7. The Capital Budgeting Decision <ul><li>Current Assets </li></ul><ul><li>Fixed Assets </li></ul><ul><li>1 Tangible </li></ul><ul><li>2 Intangible </li></ul><ul><li>Shareholders’ Equity </li></ul><ul><li>Current Liabilities </li></ul><ul><li>Long-Term Debt </li></ul><ul><ul><li>What long-term investments should the firm choose? </li></ul></ul>
    8. 8. The Role of The Financial Manager <ul><li>Financing Decision </li></ul><ul><ul><li>Raising money that the firm needs for its investments and operations. </li></ul></ul><ul><li>Capital Structure </li></ul><ul><ul><li>The mix of long term debt and equity financing. </li></ul></ul>
    9. 9. The Capital Structure Decision <ul><li>How should the firm raise funds for the selected investments? </li></ul><ul><li>Current Assets </li></ul><ul><li>Fixed Assets </li></ul><ul><li>1 Tangible </li></ul><ul><li>2 Intangible </li></ul><ul><li>Shareholders’ Equity </li></ul><ul><li>Current Liabilities </li></ul><ul><li>Long-Term Debt </li></ul>
    10. 10. Short-Term Asset Management <ul><ul><li>How should short-term assets be managed and financed? </li></ul></ul><ul><li>Net Working Capital </li></ul><ul><li>Shareholders’ Equity </li></ul><ul><li>Current Liabilities </li></ul><ul><li>Long-Term Debt </li></ul><ul><li>Current Assets </li></ul><ul><li>Fixed Assets </li></ul><ul><li>1 Tangible </li></ul><ul><li>2 Intangible </li></ul>
    11. 11. The Role of The Financial Manager Financial Manager Firm's operations Investors Real assets (1 ) Cash raised from investors (1) (2) Cash invested in firm (2) (3) Cash generated by operations (3) (4a ) Cash reinvested (4a) (4b) Cash returned to investors (4b)
    12. 12. The financial manager’s responsibilities <ul><li>Forecasting and planning </li></ul><ul><li>Major investment and financing decisions </li></ul><ul><li>Coordination and control </li></ul><ul><li>Dealing with capital markets </li></ul>
    13. 13. What is corporation? <ul><li>It is a separate legal entity owned by shareholders; </li></ul><ul><li>It is a taxable entity; </li></ul><ul><li>It has perpetual life; </li></ul><ul><li>It is able to combine the capital of many shareholders; </li></ul><ul><li>It has greater organizational and legal costs; </li></ul>
    14. 14. What is a Corporation? <ul><li>Types of Corporations </li></ul><ul><ul><li>Public Companies </li></ul></ul><ul><ul><li>Private Corporations </li></ul></ul><ul><ul><li>Limited Liability Corporations (LLC) </li></ul></ul>
    15. 15. Organizing a Business <ul><li>Types of Business Organizations </li></ul><ul><ul><li>Sole Proprietorships </li></ul></ul><ul><ul><li>Partnerships </li></ul></ul><ul><ul><li>Corporations </li></ul></ul><ul><ul><li>Limited Liability Partnerships </li></ul></ul>
    16. 16. Organizing a Business
    17. 17. Corporate Structure Sole Proprietorships Corporations Partnerships Limited Liability Corporate tax on profits + Personal tax on dividends Unlimited Liability Personal tax on profits
    18. 18. The role of the financial manager <ul><li>which assets the firm should acquire </li></ul><ul><li>how those assets should be financed </li></ul><ul><li>how the firm should manage its existing resources </li></ul>
    19. 19. Hypothetical Organization Chart <ul><li>Chairman of the Board and Chief Executive Officer (CEO ) </li></ul><ul><li>President and Chief Operating Officer (COO) </li></ul><ul><li>Vice President and Chief Financial Officer (CFO) </li></ul><ul><li>Treasurer </li></ul><ul><li>Controller </li></ul><ul><li>Cash Manager </li></ul><ul><li>Capital Expenditures </li></ul><ul><li>Credit Manager </li></ul><ul><li>Financial Planning </li></ul><ul><li>Tax Manager </li></ul><ul><li>Financial Accounting </li></ul><ul><li>Cost Accounting </li></ul><ul><li>Data Processing </li></ul><ul><li>Board of Directors </li></ul>
    20. 20. Who is The Financial Manager? Chief Financial Officer Treasurer Controller
    21. 21. Goals of The Corporation <ul><li>Shareholders desire wealth maximization </li></ul><ul><li>Do managers maximize shareholder wealth? </li></ul><ul><li>Mangers have many constituencies “stakeholders” </li></ul><ul><li>“ Agency Problems” represent the conflict of interest between management and owners </li></ul>
    22. 22. Goals of The Corporation <ul><li>Agency Problem Solutions </li></ul><ul><li>1 - Compensation plans </li></ul><ul><li>2 - Board of Directors </li></ul><ul><li>3 - Takeovers </li></ul><ul><li>4 - Specialist Monitoring </li></ul><ul><li>5 - Auditors </li></ul>
    23. 23. Financial Markets Primary Markets Secondary Markets OTC Markets Money
    24. 24. Financial markets <ul><li>Primary market – the initial sale of securities (also known as initial public offering ). </li></ul><ul><li>Subsequent sale of securities in financial markets, between investors, are in secondary market . </li></ul>
    25. 25. Financial Markets <ul><li>Financing Decision </li></ul><ul><ul><li>Source of Funds “Capital” </li></ul></ul><ul><ul><li>Capital Structure </li></ul></ul><ul><ul><li>Money Markets </li></ul></ul>
    26. 26. Other financial markets <ul><li>Debt securities (contractual obligations to pay) are traded in the fixed-income market or bond market </li></ul><ul><li>The market for long-term debt and equity securities is called the capital market . </li></ul><ul><li>The market for short-term, high quality, liquid debt securities is money market . </li></ul>
    27. 27. Financial Markets Company Issue Debt Cash Investors
    28. 28. Financial Markets Company Intermediary Investor Funds Funds Banks Insurance Cos. Brokerage Firms Obligations Depositors Policyholders Investors Obligations
    29. 29. Financial Markets Banks Depositors $2.5 mil Cash Loan Deposits Company Intermediary Investor
    30. 30. Financial Markets Insurance Company Policyholders $250 mil Cash Loan Sell policies Issue Stock Company Intermediary Investor
    31. 31. thank you