BM 15-17: FM II

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Uday Damodaran XLRI Jamshedpur

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Session 1:

Introduction: Financial Economics

The Finance of Business,

The Business of Finance

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Zero Tolerance

Cheating, Plagiarism

‘F’ Grade in the component, however minor the

transgression

Absence without prior (5pm of earlier day) notice

-5 marks from the in-class quiz component

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FM II….

Relevance ….

Why FMII?

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Or more generally…

Why Finance?

Or even, why MBA?

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Why?

‘The Ascent of Money’ by Niall Ferguson …. though in a

different context!

“Bread, cash, dough, loot, lucre, moolah, readies, the

where-withal: call it what you like, money matters” The

very first sentence!

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But….

Is it just money that matters, that entices?

Or is there more to life? More to a MBA?

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A Whole Lot of Student-Friends Too!

studio_net@yahoogroups.com

Join, if you wish to

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Travel!

www.facebook.com/garlandingindia

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Franchise? Help?

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Or More Than Money in a MBA?

Now let us look at it from more of a MBA perspective?

Which would be a ‘dream’ placement company?

Forbes list of America’s Best Employers 2015

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Forbes List of Best Employers: Revenues, Employees

# 1Google $66 billion (2014) 59,976 (2015)

# 7 BMW 80 billion euro (2014) 116324 (2014)

# 10 Harley Davidson $5.25 billion (2013), 5900 (2014)

#15 Facebook $12.466 billion (2014), 11996 (2015)

# 55 Apple $233 billion (2015) 115000 (2015)

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Which would be the ‘best’? Using

what metric?

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Forbes List of Best Employers: Revenues, Employees

# 1Google $66 billion (2014) 59,976 (2015)

# 7 BMW 80 billion euro (2014) 116324 (2014)

# 10 Harley Davidson $5.25 billion (2013), 5900 (2014)

#15 Facebook $12.466 billion (2014), 11996 (2015)

# 55 Apple $233 billion (2015) 115000 (2015)

And then of the course the really big ones!

Walmart $485 billion, with 2,200,000 employees!

Just a bit higher than Sweden’s (#24 in GDP rankings)

GDP of $484 billion; 9,838,480 population

Bangladesh 2013 GDP $150 billion, population 156.6

million

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MBA, Finance-MBA….

You are in essence running a super-efficient mini country!

Max-ing productivity!

And, imagine……if you were the creator, the entrepreneur!

And thus, your first group assignment

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Money versus Happiness

Final Clinching Proof?

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Group Project

Starting your own enterprise

One big challenge?

And whom do you turn to?

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FMI, FMII

FM I: Asset side decisions

Who takes these decisions? Who is responsible?

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FMI, FMII

FM II: Liability side decisions

Who takes these decisions? Who is responsible?

But things have changed! With so much of start-up

activity, financing decisions have become an integral part

of over-all management

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What would be the ‘financial system’?

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Dot-Com Case?

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The Financial System

Transfers funds from economic entities that are surplus in

funds to economic entities that are deficient in funds

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And who are the economic entities?

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Economic entities in the system

On the Supply side

Households

On the Demand side

Government

Firms

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Efficiency of the system

An efficient financial system transfers funds from the supply

side to the demand side with:

Minimal Cost

Minimal Time

Minimal Risk

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Channels for flow of funds

SUPPLY SIDE DEMAND SIDE

FINANCIAL

INTERMEDIARY:

Banks/ FIs/ Mutual

Funds

CAPITAL MARKETS (PRIMARY)

CAPITAL MARKETS (PRIMARY)

The

firm

Funds Funds

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And a system for flow of information

SUPPLY SIDE DEMAND SIDE

Financial Intermediaries

CAPITAL MARKETS (PRIMARY)

CAPITAL MARKETS (PRIMARY)

The

firm

Funds Funds

Information Intermediaries

Info Info

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A ‘true’ financial system…

A perfect financial system will play ‘God’ – it will not only be

efficient it will be ‘effective’; it will transfer funds from the

supply side to the most efficient units on the demand side and

will do so at:

Minimal Cost

Minimal Time

Minimal Risk

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System Risks

SUPPLY SIDE DEMAND SIDE Intermediaries

CAPITAL MARKETS (PRIMARY)

CAPITAL MARKETS (PRIMARY)

The

firm

Funds Funds

Info Info

1. Do they add value?

2. Do they fail?

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The Dot Com Boom and Bust

Who are the various intermediaries? And what are their roles?

Venture Capitalists

Investment Banks

Sell Side Analysts

Buy Side Analysts

Portfolio Managers

Auditors

Did they fail in

discharging their

responsibilities?

Why?

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Read, not compulsory….

Capital Market Myopia

Class Reps, send in list of those who want copies to

Ruchika (ruchika@xlri.ac.in) by 430pm tomorrow, 8th

January, 2016

Or a Google Doc/ Sheet

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Read, not compulsory….

Capital Market Myopia

Class Reps, send in list of those who want copies to

Ruchika (ruchika@xlri.ac.in) by 430pm tomorrow, 8th

January, 2016

If whole class requests it we will make it compulsory

reading!

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Reading, compulsory….

For in-class short quiz, read

Bladelogic (A)

Collect from Priti, at my office

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For in-class quiz, next session…

Bladelogic

Is there a structure, a method, a strategy in the way

Bladelogic went about financing itself?

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Group Assignment

After reading the case would you want to re-work the

financing plan for your business plan? Why?

If you do choose (not a ‘must’) to re-work your financing plan

send it to Ruchika by midnight of Monday, January 11, 2016

File name: Name your submission file name as

Submission1a_SectionX_GroupYY where X= A,B or C and YY

= Your Group Number

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