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Managerial Finance
Introduction to Managerial Finance
The Role of Managerial Finance
D/Ahmed EL Otiefy
PhD Investment and Finance
What IS FINANCE?
Finance can be defined as the science and art of managing money. At the personal
level, finance is concerned with individuals’ decisions about how much of their
earnings they spend, how much they save, and how they invest their savings. In a
business context, finance involves the same types of decisions: how firms raise
money from investors, how firms invest money in an attempt to earn a profit, and
how they decide whether to reinvest profits in the business or distribute them back
to investors. The keys to good financial decisions are much the same for businesses
and individuals, which is why most students will benefit from an understanding of
finance regardless of the career path they plan to follow. Learning the techniques
of good financial analysis will not only help you make better financial decisions as
a consumer, but it will also help you understand the financial consequences of the
important business decisions you will face no matter what career path you follow
CAREER Opportunities IN FINANCE
Careers in finance typically fall into one of
two broad categories: (1) financial
services and (2) managerial finance.
Workers in both areas rely on a common
analytical but the types of problems to which
that is applied vary a great deal from one
career path to the other
• Financial services is the area of finance
concerned with the design and delivery of
advice and financial products to individuals,
businesses, and governments. It involves
a variety of interesting career opportunities
within the areas of banking, personal financial
planning, investments, real estate, and
insurance
Managerial finance is concerned with the duties of the financial manager working
in a business. Financial managers administer the financial affairs of all types of
businesses: private and public, large and small, profit seeking and not for profit.
They perform such varied tasks as developing a financial plan or budget, extending
credit to customers, evaluating proposed large expenditures, and raising money
to fund the firm’s operations. In recent years, a number of factors have increased
the importance and complexity of the financial manager’s duties. These factors
include the recent global financial crisis and subsequent responses by regulators,
increased competition, and technological change
LEGAL FORMS OF Business ORGANIZATION
Sole Proprietorships
Partnerships
Corporations
Why Study MANAGERIAL FINANCE?
• An understanding of the concepts, techniques, and
practices of managerial finance will fully acquaint you
with the financial manager’s activities and decisions.
Because the consequences of most business decisions
are measured in financial terms, the financial manager
plays a key operational role. People in all areas of
responsibility—accounting, information systems,
management, marketing, operations, and so forth—
need a general awareness of finance so that they will
understand how to quantify the consequences of their
actions.
Goal of the Firm
Maximize Shareholder Wealth
Maximize PROFIT& Wealth
It might seem intuitive that maximizing a firm’s share price is
equivalent to maximizing its profits. That thought is not always
correct, however. Corporations commonly measure profits in
terms of earnings per share (EPS), which represent the amount
earned during the period on behalf of each outstanding share of
common stock. EPS are calculated by dividing the period’s total
earnings available for the firm’s common stockholders by the
number of shares of common stock outstanding.
Maximize PROFIT&Wealth
Timing
Cash Flows
Risk
What About Stakeholders
Groups such as employees, customers,
suppliers, creditors, owners, and others who
have a direct economic link to the firm
.
Relationship TO ECONOMICS
The field of finance is closely related to economics. Financial managers must
understand the economic framework and be alert to the consequences of varying
levels of economic activity and changes in economic policy.
They must also be able to use economic theories as guidelines for efficient
business operation.
Examples include supply-and-demand analysis, profit-maximizing strategies, and
price theory
. The primary economic principle used in managerial finance is marginal
cost–benefit analysis, the principle that financial decisions should be made
and actions taken only when the added benefits exceed the added costs. Nearly
all financial decisions ultimately come down to an assessment of their marginal
benefits and marginal costs.
Relationship TO Accounting
accrual basis
In preparation of financial
statements, recognizes revenue
at the time of sale and
recognizes expenses when they
are incurred.
cash basis
Recognizes revenues and
expenses only with respect
to actual inflows and outflows
of cash.
PRIMARY ACTIVITIES OF The FINANCIAL MANAGER
In addition to ongoing involvement in financial analysis and
planning, the financial manager’s primary activities are
making investment and financing decisions .
Investment decisions determine what types of assets the
firm holds.
Financing decisions determine how the firm raises money
to pay for the assets in which it invests
. One way to visualize the difference between a firm’s
investment and financing decisions is to refer to the balance
sheet
Investment decisions generally refer to the items
that appear on the left-hand side of the balance
sheet, and financing decisions relate to the items on
the right-hand side.
Keep in mind, though, that financial managers make
these decisions based on their effect on the value
of the firm, not on the accounting principles used to
construct a balance sheet

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Managerial Finance introduxtion to the world of finance

  • 1. Managerial Finance Introduction to Managerial Finance The Role of Managerial Finance D/Ahmed EL Otiefy PhD Investment and Finance
  • 2.
  • 3. What IS FINANCE? Finance can be defined as the science and art of managing money. At the personal level, finance is concerned with individuals’ decisions about how much of their earnings they spend, how much they save, and how they invest their savings. In a business context, finance involves the same types of decisions: how firms raise money from investors, how firms invest money in an attempt to earn a profit, and how they decide whether to reinvest profits in the business or distribute them back to investors. The keys to good financial decisions are much the same for businesses and individuals, which is why most students will benefit from an understanding of finance regardless of the career path they plan to follow. Learning the techniques of good financial analysis will not only help you make better financial decisions as a consumer, but it will also help you understand the financial consequences of the important business decisions you will face no matter what career path you follow
  • 4. CAREER Opportunities IN FINANCE Careers in finance typically fall into one of two broad categories: (1) financial services and (2) managerial finance. Workers in both areas rely on a common analytical but the types of problems to which that is applied vary a great deal from one career path to the other
  • 5. • Financial services is the area of finance concerned with the design and delivery of advice and financial products to individuals, businesses, and governments. It involves a variety of interesting career opportunities within the areas of banking, personal financial planning, investments, real estate, and insurance
  • 6. Managerial finance is concerned with the duties of the financial manager working in a business. Financial managers administer the financial affairs of all types of businesses: private and public, large and small, profit seeking and not for profit. They perform such varied tasks as developing a financial plan or budget, extending credit to customers, evaluating proposed large expenditures, and raising money to fund the firm’s operations. In recent years, a number of factors have increased the importance and complexity of the financial manager’s duties. These factors include the recent global financial crisis and subsequent responses by regulators, increased competition, and technological change
  • 7. LEGAL FORMS OF Business ORGANIZATION Sole Proprietorships Partnerships Corporations
  • 8.
  • 9. Why Study MANAGERIAL FINANCE? • An understanding of the concepts, techniques, and practices of managerial finance will fully acquaint you with the financial manager’s activities and decisions. Because the consequences of most business decisions are measured in financial terms, the financial manager plays a key operational role. People in all areas of responsibility—accounting, information systems, management, marketing, operations, and so forth— need a general awareness of finance so that they will understand how to quantify the consequences of their actions.
  • 10. Goal of the Firm Maximize Shareholder Wealth
  • 11. Maximize PROFIT& Wealth It might seem intuitive that maximizing a firm’s share price is equivalent to maximizing its profits. That thought is not always correct, however. Corporations commonly measure profits in terms of earnings per share (EPS), which represent the amount earned during the period on behalf of each outstanding share of common stock. EPS are calculated by dividing the period’s total earnings available for the firm’s common stockholders by the number of shares of common stock outstanding.
  • 13.
  • 14. What About Stakeholders Groups such as employees, customers, suppliers, creditors, owners, and others who have a direct economic link to the firm .
  • 15. Relationship TO ECONOMICS The field of finance is closely related to economics. Financial managers must understand the economic framework and be alert to the consequences of varying levels of economic activity and changes in economic policy. They must also be able to use economic theories as guidelines for efficient business operation. Examples include supply-and-demand analysis, profit-maximizing strategies, and price theory . The primary economic principle used in managerial finance is marginal cost–benefit analysis, the principle that financial decisions should be made and actions taken only when the added benefits exceed the added costs. Nearly all financial decisions ultimately come down to an assessment of their marginal benefits and marginal costs.
  • 16.
  • 17. Relationship TO Accounting accrual basis In preparation of financial statements, recognizes revenue at the time of sale and recognizes expenses when they are incurred. cash basis Recognizes revenues and expenses only with respect to actual inflows and outflows of cash.
  • 18.
  • 19. PRIMARY ACTIVITIES OF The FINANCIAL MANAGER In addition to ongoing involvement in financial analysis and planning, the financial manager’s primary activities are making investment and financing decisions . Investment decisions determine what types of assets the firm holds. Financing decisions determine how the firm raises money to pay for the assets in which it invests . One way to visualize the difference between a firm’s investment and financing decisions is to refer to the balance sheet
  • 20. Investment decisions generally refer to the items that appear on the left-hand side of the balance sheet, and financing decisions relate to the items on the right-hand side. Keep in mind, though, that financial managers make these decisions based on their effect on the value of the firm, not on the accounting principles used to construct a balance sheet