1-1 CHAPTER 1 An Overview of Financial Management.
-
Upload
william-horton -
Category
Documents
-
view
217 -
download
1
Transcript of 1-1 CHAPTER 1 An Overview of Financial Management.
![Page 1: 1-1 CHAPTER 1 An Overview of Financial Management.](https://reader036.fdocuments.in/reader036/viewer/2022062407/56649e005503460f94ae94d5/html5/thumbnails/1.jpg)
1-1
CHAPTER 1An Overview of Financial Management
![Page 2: 1-1 CHAPTER 1 An Overview of Financial Management.](https://reader036.fdocuments.in/reader036/viewer/2022062407/56649e005503460f94ae94d5/html5/thumbnails/2.jpg)
1-2
1-1 What Is Finance? Hard to define– the term has many facets
![Page 3: 1-1 CHAPTER 1 An Overview of Financial Management.](https://reader036.fdocuments.in/reader036/viewer/2022062407/56649e005503460f94ae94d5/html5/thumbnails/3.jpg)
1-3
1-1a Finance versus Economics and Accounting Finance then grew out of and lies
between economics and Accounting Economists developed the notion that
an asset’s value is based on the future cash flows the asset will provide,
Accountants provided information regarding the likely size of those cash flows.
![Page 4: 1-1 CHAPTER 1 An Overview of Financial Management.](https://reader036.fdocuments.in/reader036/viewer/2022062407/56649e005503460f94ae94d5/html5/thumbnails/4.jpg)
1-4
1-1b Finance within an Organization
![Page 5: 1-1 CHAPTER 1 An Overview of Financial Management.](https://reader036.fdocuments.in/reader036/viewer/2022062407/56649e005503460f94ae94d5/html5/thumbnails/5.jpg)
1-5
1-1c Corporate Finance, Capital Markets, and Investments
Finance as taught in universities is generally divided into three areas:(1) financial management(Corporate Finance), (2) capital markets,(3) investments.
![Page 6: 1-1 CHAPTER 1 An Overview of Financial Management.](https://reader036.fdocuments.in/reader036/viewer/2022062407/56649e005503460f94ae94d5/html5/thumbnails/6.jpg)
1-6
1-1c Corporate Finance, Capital Markets, and Investments
Corporate finance focuses on decisions relating to how much and what types of assets to acquire, how to raise the capital needed to buy assets, and how to run the firm so as to maximize its value.
![Page 7: 1-1 CHAPTER 1 An Overview of Financial Management.](https://reader036.fdocuments.in/reader036/viewer/2022062407/56649e005503460f94ae94d5/html5/thumbnails/7.jpg)
1-7
1-1c Corporate Finance, Capital Markets, and Investments
Capital markets relate to the markets where interest rates, along with stock and bond prices, are determined.
![Page 8: 1-1 CHAPTER 1 An Overview of Financial Management.](https://reader036.fdocuments.in/reader036/viewer/2022062407/56649e005503460f94ae94d5/html5/thumbnails/8.jpg)
1-8
1-1c Corporate Finance, Capital Markets, and Investments
Investments relate to decisions concerning stocks and bonds and include a number of activities:(1) Security analysis (2) Portfolio theory (3) Market analysis
![Page 9: 1-1 CHAPTER 1 An Overview of Financial Management.](https://reader036.fdocuments.in/reader036/viewer/2022062407/56649e005503460f94ae94d5/html5/thumbnails/9.jpg)
1-9
1-2 Jobs In Finance Commercial Banking Corporate Finance Financial Planning Hedge Funds Insurance Investment Banking Money Management Private Equity Real Estate
![Page 10: 1-1 CHAPTER 1 An Overview of Financial Management.](https://reader036.fdocuments.in/reader036/viewer/2022062407/56649e005503460f94ae94d5/html5/thumbnails/10.jpg)
1-10
1-3 Forms of Business Organization Sole proprietorship Partnership Corporation Limited liability companies(LLCs)
and limited liability partnerships(LLPs)
![Page 11: 1-1 CHAPTER 1 An Overview of Financial Management.](https://reader036.fdocuments.in/reader036/viewer/2022062407/56649e005503460f94ae94d5/html5/thumbnails/11.jpg)
1-11
1-3 Forms of Business Organization Proprietorship
An unincorporated businessowned by one individual
![Page 12: 1-1 CHAPTER 1 An Overview of Financial Management.](https://reader036.fdocuments.in/reader036/viewer/2022062407/56649e005503460f94ae94d5/html5/thumbnails/12.jpg)
1-12
1-3 Forms of Business Organization Partnership
An unincorporated business owned by two or more persons.
![Page 13: 1-1 CHAPTER 1 An Overview of Financial Management.](https://reader036.fdocuments.in/reader036/viewer/2022062407/56649e005503460f94ae94d5/html5/thumbnails/13.jpg)
1-13
1-3 Forms of Business Organization Sole proprietorships &
Partnerships Advantages
Ease of formation Subject to few regulations No corporate income taxes
Disadvantages Difficult to raise capital Unlimited liability Limited life
![Page 14: 1-1 CHAPTER 1 An Overview of Financial Management.](https://reader036.fdocuments.in/reader036/viewer/2022062407/56649e005503460f94ae94d5/html5/thumbnails/14.jpg)
1-14
1-3 Forms of Business Organization Corporation
A legal entity created by a state, separate and distinct from its owners and managers, having unlimited life, easy transferability of ownership, and limited liability.
![Page 15: 1-1 CHAPTER 1 An Overview of Financial Management.](https://reader036.fdocuments.in/reader036/viewer/2022062407/56649e005503460f94ae94d5/html5/thumbnails/15.jpg)
1-15
1-3 Forms of Business Organization Corporation Advantages
Unlimited life Easy transfer of ownership Limited liability Ease of raising capital
Disadvantages Double taxation Cost of set-up and report filing
![Page 16: 1-1 CHAPTER 1 An Overview of Financial Management.](https://reader036.fdocuments.in/reader036/viewer/2022062407/56649e005503460f94ae94d5/html5/thumbnails/16.jpg)
1-16
1-3 Forms of Business Organization S Corporation
A special designation that allows small businesses that meet qualifications to be taxed as if they were a proprietorship or a partnership rather than a corporation.
![Page 17: 1-1 CHAPTER 1 An Overview of Financial Management.](https://reader036.fdocuments.in/reader036/viewer/2022062407/56649e005503460f94ae94d5/html5/thumbnails/17.jpg)
1-17
1-3 Forms of Business Organization Limited Liability Company
(LLC)A relatively new type of organization that is a hybrid between a partnership and a corporation.
![Page 18: 1-1 CHAPTER 1 An Overview of Financial Management.](https://reader036.fdocuments.in/reader036/viewer/2022062407/56649e005503460f94ae94d5/html5/thumbnails/18.jpg)
1-18
1-3 Forms of Business Organization Limited Liability Partnership
(LLP)Similar to an LLC but used for professional firms in the fields of accounting, law, and architecture. It has limited liability like corporations but is taxed like partnerships.
![Page 19: 1-1 CHAPTER 1 An Overview of Financial Management.](https://reader036.fdocuments.in/reader036/viewer/2022062407/56649e005503460f94ae94d5/html5/thumbnails/19.jpg)
1-19
1-4 Stock Prices And Shareholder Value The primary financial goal is
shareholder wealth maximization, which translates to maximizing stock price.
![Page 20: 1-1 CHAPTER 1 An Overview of Financial Management.](https://reader036.fdocuments.in/reader036/viewer/2022062407/56649e005503460f94ae94d5/html5/thumbnails/20.jpg)
1-20
1-5 Intrinsic Values, Stock Prices, And Executive Compensation
![Page 21: 1-1 CHAPTER 1 An Overview of Financial Management.](https://reader036.fdocuments.in/reader036/viewer/2022062407/56649e005503460f94ae94d5/html5/thumbnails/21.jpg)
1-21
1-5 Intrinsic Values, Stock Prices, And Executive Compensation
Intrinsic ValueAn estimate of a stock’s “true” value based on accurate risk and return data. The intrinsic value can be estimated but not measured precisely.
![Page 22: 1-1 CHAPTER 1 An Overview of Financial Management.](https://reader036.fdocuments.in/reader036/viewer/2022062407/56649e005503460f94ae94d5/html5/thumbnails/22.jpg)
1-22
1-5 Intrinsic Values, Stock Prices, And Executive Compensation
![Page 23: 1-1 CHAPTER 1 An Overview of Financial Management.](https://reader036.fdocuments.in/reader036/viewer/2022062407/56649e005503460f94ae94d5/html5/thumbnails/23.jpg)
1-23
1-6 Important Business Trends First, the points discussed in the
preceding section have led to profound changes in business practices.
Sarbanes-Oxley Act A law passed by Congress that requires the CEO and CFO to certify that their firm’s financial statements are accurate.
![Page 24: 1-1 CHAPTER 1 An Overview of Financial Management.](https://reader036.fdocuments.in/reader036/viewer/2022062407/56649e005503460f94ae94d5/html5/thumbnails/24.jpg)
1-24
1-6 Important Business Trends A second trend is the increased
globalization of business.Developments in communications technology have made it possible for Wal-Mart, for example, to obtain real-time data on the sales of hundreds of thousands of items in stores from China to Chicago and to manage all of its stores from Bentonville, Arkansas.
![Page 25: 1-1 CHAPTER 1 An Overview of Financial Management.](https://reader036.fdocuments.in/reader036/viewer/2022062407/56649e005503460f94ae94d5/html5/thumbnails/25.jpg)
1-25
1-6 Important Business Trends A third trend that’s having a
profound effect on financial management is ever-improving information technology (IT).
![Page 26: 1-1 CHAPTER 1 An Overview of Financial Management.](https://reader036.fdocuments.in/reader036/viewer/2022062407/56649e005503460f94ae94d5/html5/thumbnails/26.jpg)
1-26
1-6 Important Business Trends A fourth trend relates to corporate
governance, or the way the top managers operate and interface with stockholders.
![Page 27: 1-1 CHAPTER 1 An Overview of Financial Management.](https://reader036.fdocuments.in/reader036/viewer/2022062407/56649e005503460f94ae94d5/html5/thumbnails/27.jpg)
1-27
1-7 Business Ethics Business Ethics
A company’s attitude and conduct toward its employees, customers, community, and stockholders.
![Page 28: 1-1 CHAPTER 1 An Overview of Financial Management.](https://reader036.fdocuments.in/reader036/viewer/2022062407/56649e005503460f94ae94d5/html5/thumbnails/28.jpg)
1-28
1-7a What Companies Are Doing When conflicts arise involving
profits and ethics: Do firms have any responsibilities
to society at large? Is stock price maximization good
or bad for society? Should firms behave ethically?
![Page 29: 1-1 CHAPTER 1 An Overview of Financial Management.](https://reader036.fdocuments.in/reader036/viewer/2022062407/56649e005503460f94ae94d5/html5/thumbnails/29.jpg)
1-29
1-7b Consequence of Unethical Behavior Over the past few years, ethical lapses
have led to a number of bankruptcies. These frauds also severely damaged
other companies and even whole industries.
These and other improper actions caused many investors to lose faith in
American business and to turn away from the stock market
![Page 30: 1-1 CHAPTER 1 An Overview of Financial Management.](https://reader036.fdocuments.in/reader036/viewer/2022062407/56649e005503460f94ae94d5/html5/thumbnails/30.jpg)
1-30
1-7c How Should Employees Deal with Unethical Behavior? If questionable things are going on, who
should take action and what should that action be?
Should the lower-level employees obey their boss’s orders; refuse to obey those orders; or report the situation to a higher authority, such as the company’s board of directors, the company’s auditors, or a federal prosecutor?
![Page 31: 1-1 CHAPTER 1 An Overview of Financial Management.](https://reader036.fdocuments.in/reader036/viewer/2022062407/56649e005503460f94ae94d5/html5/thumbnails/31.jpg)
1-31
1-8 Conflicts Between Managers, Stockholders, And Bondholders
Managers versus Stockholders Stockholders versus Bondholders
![Page 32: 1-1 CHAPTER 1 An Overview of Financial Management.](https://reader036.fdocuments.in/reader036/viewer/2022062407/56649e005503460f94ae94d5/html5/thumbnails/32.jpg)
1-32
1-8a Managers versus Stockholder Managers are naturally inclined to
act in their own best interests. But the following factors affect
managerial behavior: Managerial compensation plans Direct intervention by shareholders The threat of firing The threat of takeover
![Page 33: 1-1 CHAPTER 1 An Overview of Financial Management.](https://reader036.fdocuments.in/reader036/viewer/2022062407/56649e005503460f94ae94d5/html5/thumbnails/33.jpg)
1-33
1-8b Stockholders versus Bondholders Bondholders generally receive
fixed payment regardless of how well the company does, while stockholders do better when the company does better. This situation leads to conflicts between these two groups.