1、0Chapter 1Introduction to Financial Management1Chapter Outline Finance:A Quick Look Business Finance and The Financial Manager Forms of Business Organization The Goal of Financial Management The Agency Problem and Control of the Corporation Financial Markets and the Corporation2Key Concepts and Skil
2、ls Know the basic types of financial management decisions and the role of the financial manager Know the financial implications of the different forms of business organization Know the goal of financial management Understand the conflicts of interest that can arise between owners and managers3Basic
3、Areas Of Finance Corporate finance Investments Financial institutions International financeABCACBD4Investments Work with financial assets such as stocks and bonds Value of financial assets,risk versus return,and asset allocation Job opportunitiesStockbroker or financial advisorPortfolio managerSecur
4、ity analyst5Financial Institutions Companies that specialize in financial mattersBanks commercial and investment,credit unions,savings and loansInsurance companiesBrokerage firms Job opportunities6International Finance This is an area of specialization within each of the areas discussed so far It ma
5、y 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;speaking a foreign language fluently is also helpful7Why Study Finance?MarketingBudgets,marketing research,marketi
6、ng financial products AccountingDual accounting and finance function,preparation of financial statements ManagementStrategic thinking,job performance,profitability Personal financeBudgeting,retirement planning,college planning,day-to-day cash flow issues8Business Finance Some important questions tha
7、t are answered using financeWhat long-term investments should the firm take on?Where will we get the long-term financing to pay for the investments?How will we manage the everyday financial activities of the firm?9Financial Management Decisions Capital budgetingWhat long-term investments or projects
8、 should the business take on?Capital structureHow should we pay for our assets?Should we use debt or equity?Working capital managementHow do we manage the day-to-day finances of the firm?10Financial Management DecisionsCompany(2019 Revenue)Capital BudgetingFinancingBoeing($52.5b)$7b to design,build,
9、test and sell 787 Dreamliner aircraftNegotiate with suppliers to help to finance the Dreamliner project.A Japanese supplier,who will build the wing and fuselage,are raising and investing more than$1.5bBank of America($48.9b)Acquired Fleet Boston Financial for$49bIssued about 600 million new shares t
10、o finance the acquisitionBP($285b)Invested$600m to develop oil fields offshore in the Gulf of MexicoAnnounced plans to return surplus cash flow to shareholders through share repurchaseLVMH($17.1b)Acquired Glenmorangie PLC,a producer of scotch malt whiskiesIssued a 7-year bond in July 2019,raising th
11、e euro equivalent of$812 mPfizer($52.5b)$7.7b on research and testing of new medicinesFinance the research and testing with reinvested cash flow generated by sales of pharmaceutical productsToyota($164b)Building an$800m automobile plant in San Antonio,TexasTotal borrowings increased by$2.9b,mainly d
12、ue to issuance of short-term debt in USWal-Mart($285b)Plan for 2019 call for up to 530 new retail stores in US and 165 stores in other countriesIssued$1883m long-term debt,maturing in 2036 and paying interest at 5.25%per year11Balance Sheet Model of the FirmCurrent AssetsFixed Assets1 Tangible 2 Int
13、angibleTotal Value of Assets:Shareholders EquityCurrent LiabilitiesLong-Term DebtTotal Firm Value to Investors:12The Capital Budgeting DecisionWhat long-term investments should the firm choose?Current AssetsFixed Assets1 Tangible 2 IntangibleTotal Value of Assets:Shareholders EquityCurrent Liabiliti
14、esLong-Term DebtTotal Firm Value to Investors:13The Capital Structure DecisionCurrent AssetsFixed Assets1 Tangible 2 IntangibleTotal Value of Assets:How should the firm raise funds for the selected investments?Shareholders EquityCurrent LiabilitiesLong-Term DebtTotal Firm Value to Investors:14Short-
15、Term Asset ManagementHow should short-term assets be managed and financed?Current AssetsFixed Assets1 Tangible 2 IntangibleTotal Value of Assets:Shareholders EquityCurrent LiabilitiesLong-Term DebtTotal Firm Value to Investors:Net Working Capital15Financial Manager Financial managers try to answer s
16、ome,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 expenditures,and financial planningController oversees taxes,cost accounting,financial accounting,and data processing16Organiz
17、ing and Managing a CorporationUltimate control.Stockholders usually meet once a year.Selected by a vote of the stockholders.Overall responsibility for managing the company.17Hypothetical Organization ChartChairman of the Board and Chief Executive Officer(CEO)Board of DirectorsPresident and Chief Ope
18、rating Officer(COO)Vice President and Chief Financial Officer(CFO)TreasurerControllerCash ManagerCapital ExpendituresCredit ManagerFinancial PlanningTax ManagerFinancial AccountingCost Accounting Data Processing 18Forms of Business OrganizationSole ProprietorshipPartnershipCorporation19Forms of Busi
19、ness Organization Three major forms in the United StatesSole proprietorshipPartnershipGeneralLimitedCorporationLimited liability company20Sole ProprietorshipAdvantagesEasiest to startLeast regulatedSingle owner keeps all of the profitsTaxed once as personal incomeDisadvantagesLimited to life of owne
20、rEquity capital limited to owners personal wealthUnlimited liabilityDifficult to sell ownership interestSole Proprietorship21PartnershipAdvantagesTwo or more ownersMore capital availableRelatively easy to startIncome taxed once as personal incomeDisadvantagesUnlimited liabilityGeneral partnershipLim
21、ited partnershipPartnership dissolves when one partner dies or wishes to sellDifficult to transfer ownershipPartnership22CorporationAdvantagesLimited liabilityUnlimited lifeSeparation of ownership and managementTransfer of ownership is easyEasier to raise capitalDisadvantagesSeparation of ownership
22、and management(agency problem)Double taxation(income taxed at the corporate rate and then dividends taxed at personal rate,while dividends paid are not tax deductible)Corporation23A Comparison CorporationPartnershipLiquidityShares can be easily exchangedSubject to substantial restrictionsVoting Righ
23、tsUsually each share gets one voteGeneral Partner is in charge;limited partners may have some voting rightsTaxationDoublePartners pay taxes on distributionsReinvestment and dividend payoutBroad latitudeAll net cash flow is distributed to partnersLiabilityLimited liabilityGeneral partners may have un
24、limited liability;limited partners enjoy limited liabilityContinuity Perpetual lifeLimited life24Goal of Financial Management What should be the goal of a corporation?Maximize profit?Minimize costs?Maximize market share?Maximize the current value of the companys stock?25Goal of Financial Management
25、Goal:Maximize the current value per share of existing stock More general goal:Maximize the market value of the existing owners equity26Goal of Financial Management Does this mean we should do anything and everything to maximize owner wealth?Sarbanes-Oxley Act27The Agency Problem Agency relationshipP
26、rincipal hires an agent to represent its interestsStockholders(principals)hire managers(agents)to run the company Agency problemConflict of interest between principal and agent Management goals and agency costsI hire you to run my companyOK!28Managerial Goals Managerial goals may be different from s
27、hareholder goalsExpensive perquisitesSurvivalIndependence Increased growth and size are not necessarily equivalent to increased shareholder wealth29Managing Managers Managerial compensationIncentives can be used to align management and stockholder interestsThe incentives need to be structured carefu
28、lly to make sure that they achieve their goal Corporate controlThe threat of a takeover may result in better management Other stakeholders30Options are given to key employees to motivate them to:lfocus on company performance,ltake a long-run perspective,andlremain with the company.Stock Options31Exa
29、mple:Work the Web The Internet provides a wealth of information about individual companies One excellent site is finance.yahoo Click on the Web surfer to go to the site,choose a company and see what information you can find!32Financial Markets Cash flows to the firmUltimately,the firm must be a cash
30、 generating activity.The cash flows from the firm must exceed the cash flows from the financial markets.Primary vs.secondary markets33Figure 1.234Financial Markets Primary MarketIssuance of a security for the first time Secondary MarketsBuying and selling of previously issued securitiesSecurities ma
31、y be traded in either a dealer or auction marketDealer vs.auction marketsListed vs.over-the-counter securitiesNYSENASDAQ35Financial MarketsFirmsInvestorsSecondary MarketmoneysecuritiesSueBobStocks and BondsMoneyPrimary Market36Quick Quiz What are the four basic areas of finance?What are the three ty
32、pes of financial management decisions,and what questions are they designed to answer?What are the three major forms of business organization?What is the goal of financial management?What are agency problems,and why do they exist within a corporation?What is the difference between a primary market and a secondary market?
