1、Fundamentals of ManagementEnglish Course forEnglish Course forFundamentals of ManagementChapter 12Financial ManagementFundamentals of ManagementEnglish Course forBrainstorming Financial management plays many roles in a company besides the“financial function”.In your opinion,how does financial manage
2、ment affect a corporations overall operation?Fundamentals of ManagementEnglish Course forEnglish Course forFundamentals of ManagementText A The Role of Financial ManagementFundamentals of ManagementEnglish Course forThe Role of Financial Manager Until around the first half of the 1900s financial man
3、agers primarily raised funds and managed their firms cash positions.In the 1950s,the increasing acceptance of present value concepts encouraged financial managers to expand their responsibilities and to become concerned with the selection of capital investment projects.Today,external factors have an
4、 increasing impact on the financial manager.Fundamentals of ManagementEnglish Course forWhat is Financial Management?Investment Decision Financing Decision Asset Management Decision Fundamentals of ManagementEnglish Course forInvestment Decision The most important of the firms three major decisions
5、Determination of the total amount of assets needed to be held by the firm.Assets that can no longer be economically justified may need to be reduced,eliminated,or replaced.Fundamentals of ManagementEnglish Course forFinancing Decision The financial manager is concerned with the liabilities and owner
6、s equity.Dividend policy must be viewed as an integral part of the firms financing decision.The value of the dividends paid to stockholders must be balanced against the opportunity cost of retained earnings lost as a means of equity financing.The mechanics of getting a short-term loan,entering into
7、a long-term lease arrangement,or negotiating a sale of bonds or stock must be understood.Fundamentals of ManagementEnglish Course forAsset Management Decision Once assets have been acquired and appropriate financing provided,these assets must still be managed efficiently.The financial manager is cha
8、rged with varying degrees of operating responsibility over existing assets.These responsibilities require that the financial manager be more concerned with the management of current assets than with that of fixed assets.A large share of the responsibility for the management of fixed assets would res
9、ide with the operating managers who employ these assets.Fundamentals of ManagementEnglish Course forThe Goal of the Firm We assume that the goal is to maximize the wealth of the firms present owners.The success of a business decision should be judged by the effect that it ultimately has on share pri
10、ce.Fundamentals of ManagementEnglish Course for Frequently,profit maximization is offered as the proper objective of the firm.Maximizing earnings per share is often advocated as an improved version of profit maximization.However,It does not specify the timing or duration of expected returns.Risk is
11、not considered.Does not allow for the effect of dividend policy on the market price of the stock.Maximizing earnings per share may not be the same as maximizing market price per share.The market price of a firms stock represents the focal judgment of all market participants as to the value of the pa
12、rticular firm.The Goal of the FirmValue Creation Fundamentals of ManagementEnglish Course for Management is under continuous review.Hareholders who are dissatisfied with management performance may sell their shares and invest in another company.This action,if taken by other dissatisfied shareholders
13、,will put downward pressure on market price per share.Management must focus on creating value for share-holders.This requires management to judge alternative investment,financing,and asset management strategies in terms of their effect on shareholder value(share price).Management should pursue produ
14、ct-market strategies.Building market share Increasing customer satisfactionThe Goal of the FirmValue Creation Fundamentals of ManagementEnglish Course for The causes of agency problems:The separation of ownership and control in the modern corporation The objectives of management may differ from thos
15、e of the firms shareholdersThe Goal of the FirmAgency Problems Fundamentals of ManagementEnglish Course for Jensen and Meckling were the first to develop a comprehensive theory of the firm under agency arrangements。They showed that the principals,in our case the shareholders,can assure themselves th
16、at the agents(management)will make optimal decisions only if appropriate incentives are given and only if the agents are monitored.Incentives include stock options,bonuses,and perquisites and these must be directly related to how close management decisions come to the interests of the shareholders.M
17、onitoring is done by bonding the agent,systematically reviewing management perquisites,auditing financial statements,and limiting management decisions.The Goal of the FirmAgency Problems Fundamentals of ManagementEnglish Course for Some people suggest that the primary monitoring of managers comes no
18、t from the owners but from the managerial labor market.Efficient capital markets provide signals about the value of a companys securities and about the performance of its managers.Managers with good performance records should have an easier time finding other employment than managers with poor perfo
19、rmance records.The Goal of the FirmAgency Problems Fundamentals of ManagementEnglish Course for Maximizing shareholder wealth does not mean that management should ignore social responsibility Protecting the consumer Paying fair wages to employees Maintaining fair hiring practices Safe working condit
20、ions Supporting education Becoming involved in such environmental issues as clean air and waterThe Goal of the FirmSocial Responsibility Fundamentals of ManagementEnglish Course for Management should consider the interests of stakeholders other than shareholders,include Creditors Employees Customers
21、 Suppliers Communities in which a company operates When society establishes the rules governing the trade-off between social goals and economic efficiency,the task for the corporation is clearer.We can then view the company as producing both private and social goods,and the maximization of sharehold
22、er wealth remains a viable corporate objective.The Goal of the FirmSocial Responsibility Fundamentals of ManagementEnglish Course for James C.Van Horne is Professor of Finance,Emeritus,having come to Stanford in 1965.He is the past president of the American Finance Association and of the Western Fin
23、ance Association,and has been an active member of the Financial Economists Roundtable.He also has served as Associate Editor of several leading finance journals.NotesFundamentals of ManagementEnglish Course for John Martin Wachowicz,is Professor of Finance,Emeritus,at The University of Tennessee,Kno
24、xville.He has received sixteen teaching,research and service awards,including three MBA Outstanding Faculty Awards,the L.R.Hesler Award for Excellence in Teaching and Service,and two Alumni Outstanding Teacher Awards.NotesFundamentals of ManagementEnglish Course for Capital structure theory:A system
25、atic approach to financing business activities through a combination of equities and liabilities in financial management.Closely related to the firms cost of capital.There will be a mix of different securities in the capital structure at which WACC will be the least.The decision regarding the capita
26、l structure is based on the objective of achieving the maximization of shareholders wealth.Related TheoriesFundamentals of ManagementEnglish Course for The Efficient Market Hypothesis(EMH):An investment theory whereby share prices reflect all information and consistent alpha generation is impossible
27、.According to EMH,stocks always trade at their fair value on stock exchanges,making it impossible for investors to either purchase undervalued stocks or sell stocks for inflated prices.Related TheoriesFundamentals of ManagementEnglish Course for Agency theory:Examines the duties and conflicts that o
28、ccur between parties who have an agency relationship.Agency relationships occur when one party,the principal,employs another party,called the agent,to perform a task on their behalf.Related TheoriesFundamentals of ManagementEnglish Course for Asymmetric information theory:Developed in the 1970s and
29、1980s as a plausible explanation for common phenomena that mainstream general equilibrium economics couldnt explain An imbalance of information between buyers and sellers can lead to inefficient outcomes in certain markets.The Capital Asset Pricing Model(CAPM):Describes the relationship between syst
30、ematic risk and expected return for assets,particularly stocks.CAPM is widely used throughout finance for pricing risky securities and generating expected returns for assets given the risk of those assets and cost of capital.Related TheoriesFundamentals of ManagementEnglish Course for Option pricing
31、 theory:Uses variables(stock price,exercise price,volatility,interest rate,time to expiration)to theoretically value an option Provides an estimation of an options fair value which traders incorporate into their strategies to maximize profits.Related TheoriesFundamentals of ManagementEnglish Course
32、forEnglish Course forFundamentals of ManagementText B Financial Management of Johnson and Johnson(JNJ)Fundamentals of ManagementEnglish Course for1.Whats the primary reason an organization spends a good deal of its available funds on inventory and capital expenditures?2.One thing you can ever have t
33、oo much of is cash.Financial managers must take certain there is enough cash available to meet daily financial needs and still have funds to invests in future.What does it mean when we say cash has a time value?3.Why does a finance manager need to understand accounting information if the firm has tr
34、ained accountant on its staff?4.Why do firms generally prefer to borrow funds to obtain long-term financing rather than issue shares of stock?Review and DiscussFundamentals of ManagementEnglish Course forEnglish Course forFundamentals of ManagementText C The Role of Financial Management in the Healt
35、hcare IndustryFundamentals of ManagementEnglish Course for 1.Whats the role of financial management in the healthcare industry?2.Most businesses have predictable day-to-day needs,like the need to buy supplies,pay for fuel and utilities,and pay employees.Financial management is the function that helps ensure firms have the funds they need when they need them.What would happen to the company providing the work in this photo if it couldnt buy fuel for its trucks?Review and Discuss
