Chapter 1 introduction to financial management. After studying this chapter you will be able to: Know the basic types of financial management decisions and the role of the financial manager, know the goal of financial management, know the financial implications of the different forms of business organisation, understand the conflicts of interest that can arise between owners and managers.
Trang 1Introduction to financial
management
Chapter 1
Trang 2Key concepts and skills
• Have a good understanding of the:
– basic types of financial management
decisions and the role of the financial
manager
– goal of financial management
– financial implications of the different forms
Trang 3Chapter outline
• Finance: A quick look
• Business finance and the financial
manager
• Forms of business organisation
• The goal of financial management
• The agency problem and control of the corporation
Trang 4The four basic areas of
Trang 5• Working with financial assets such as
shares and bonds
• Value of financial assets, risk versus
return and asset allocation
• Job opportunities
– Stockbroker
– Financial advisor
– Portfolio manager
Trang 7International finance
• This is an area of specialisation within one
of the areas discussed so far.
• Involves international aspects of corporate finance or investments or financial
institutions.
• It may allow you to work in other countries
or at least travel on a regular basis.
• Need to be familiar with exchange rates
and political risk.
• Need to understand the customs of other countries and you would benefit from
fluency in a foreign language.
Trang 8Why study finance?
– Budgeting, retirement planning, university
planning, day-to-day cash flow management
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Trang 9Business finance
• Some important questions that are
answered using finance:
– What long-term investments should the
firm take on?
– Where will we get the long-term financing
to pay for the investment?
– How will we manage the everyday
financial activities of the firm?
Trang 10Financial manager
• Financial managers try to answer some
or all of these questions.
• The top financial manager within a firm
is usually the chief financial officer
(CFO).
– Treasurer: oversees cash management,
credit management, capital expenditure
and financial planning
– Accountant: oversees taxes, cost
accounting, financial accounting and data processing
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Trang 11A simplified organisational
chart Figure 1.1
Trang 12Financial management
decisions
• Capital budgeting
–What long-term investments or projects
should the business take on?
• Capital structure
–How should we pay for our assets?
–Should we use debt or equity?
• Working capital management
–How do we manage the day-to-day
finances of the firm?
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Trang 14Sole proprietorship
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Trang 15Partnership
Trang 16Copyright © 2011 McGraw-Hill Australia Pty Ltd
Trang 17International corporate
forms
• Joint stock companies
• Public limited companies
• Limited liability companies
• All share:
– public ownership
– limited liability
Trang 18– Maximise market share?
– Maximise the current value per share of the company’s existing stock?
– Maximise the market value of the
existing owners’ equity?
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Trang 19The agency problem
• Agency relationship
–Principal hires an agent to represent their
interests.
–Shareholders (principals) hire managers
(agents) to run the company.
• Agency problem
–Conflict of interest between principal and
agent
Trang 20Do managers act in shareholders’ interests?
• Managerial compensation
–Incentives can be used to align
management and shareholder interests.
–The incentives need to be structured
carefully to make sure that they achieve
Trang 21Example: Work the Web
• The Internet provides a wealth of
information about individual companies.
• <http://au.finance.yahoo.com/> is an
excellent website.
Trang 22Cash flows between the firm and
the financial markets
Figure 1.2
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Trang 23Financial markets
• Cash flows to the firm
• Primary vs secondary markets
–Dealer vs auction markets
–Listed vs private companies
• Australian Securities Exchange (ASX)
Trang 24Quick quiz
• What are the four basic areas of
finance?
• What are the three types of financial
management decisions and what
questions are they designed to answer?
• What are the three major forms of
Trang 25Chapter 1
END