1 - Intro to Fin Management
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Transcript of 1 - Intro to Fin Management
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INTRODUCTION TO
FINANCIALMANAGEMENT
Definition of Financial ManagementRoles of Financial Managers
Managements Goals
Legal Forms of Business Organization
Review of Financial Statements
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FINANCIALMANAGEMENT - DEFINITION
combination ofAccountingand Economics
Accounting - financial statements (input)Economics soundness of investment
proposals
deals with investing and financingdecisions andactivities
FINANCIAL MANAGEMENT-
DEFINITIONANDNATURE
science of money management
the management of the finances of a business /
organization in order to achieve financial objectives
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There are three key elements to the process of
financial management:
1) Financial Planning
2) Financial Control
Are assets being used efficiently?
Are the businesses assets secure?
Do management act in the best interest of
shareholders and in accordance with business rules?
3) Financial Decision-making
FINANCIAL MANAGEMENT-
DEFINITIONANDNATURE
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Financial Managers of a firm plays an important role in the
attainment of companys goals, policies and financial success.
Their responsibilities include the following:
1. INVESTMENT DECISIONS
Makes efficient allocations of funds to specific assets
Makes long term capital budget and expenditure
decisions.
2. FINANCING AND CAPITAL STRUCTURE DECISIONS
Determine both the mix of short term and long term
financing and equity/debt financing.
Raises funds on the most favorable terms possible
RESPONSIBILITIES OF FINANCIAL MANAGERS
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3. FINANCIAL ANALYSIS, FORECASTING ANDPLANNING
Monitors the firms financial position
Determine the proper amount of funds to employ in the
firm
4. MANAGEMENT OF FINANCIAL RESOURCES
Manages working capital
Maintains optimal level of investments in each of thecurrent assets
RESPONSIBILITIES OF FINANCIAL MANAGERS
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1. To promote the financial welfare of the
investors through
a. adequate returns on investments through
dividends to stockholders
b. increasing the value of the proprietary
interest of the investors through accumulation
of assets and increases in the market value of
shares.
GOALSANDOBJECTIVESOFTHEFIRM
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. 6)
GOALSANDOBJECTIVESOFTHEFIRM
2. Fulfillment of its civic and social responsibilitiesto improve the quality of life of the people
through
a. better working conditions, hikes in wages
and salary scales, fringe benefits and bonuses.
b. direct participation in civic and community
affairs, providing scholarships, donations
through worthy causes, and financial assistanceduring natural calamities
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LEGALFORMSOFBUSINESS
1) Sole Proprietorship
A business owned by a single individual.
Owner maintains title to the firms assets.
Owner has unlimited liability.
2) Partnership
Similar to a sole proprietorship, exceptthat there are two or more owners.
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2a) General Partnership
All partners have unlimited liability.
2b) Limited Partnership
Consists of one or more general partners,
who have unlimited liability.
One or more limited partners (investors)whose liability is limited to the amount of
their investment in the business.
LEGALFORMSOFBUSINESS
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2c) Limited Liability Company (LLC)
Cross between a partnership and a
corporation.
Owners have limited liability, but the firm
runs and is taxed like a partnership.
LEGALFORMSOFBUSINESS
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3) Corporation
A business entity that legally functions
separate and apart from its owners.
Owners liability is limited to the
amount of their investment in the firm.
Owners hold common stock
certificates, and ownership can betransferred by selling the certificates.
LEGALFORMSOFBUSINESS
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THECORPORATIONAND
FINANCIALMARKETS
Corporation
THECORPORATIONANDFINANCIALMARKETS
THECORPORATIONANDFINANCIALMARKETS
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THECORPORATIONAND
FINANCIALMARKETS
Corporation Investors
THECORPORATIONANDFINANCIALMARKETS
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THECORPORATIONAND
FINANCIALMARKETS
Government
Corporation Investors
THECORPORATIONANDFINANCIALMARKETS
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THECORPORATIONAND
FINANCIALMARKETS
cash
Government
Corporation Investors
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THECORPORATIONAND
FINANCIALMARKETS
cash
Government
securities
Corporation Investors
THECORPORATIONANDFINANCIALMARKETS
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THECORPORATIONAND
FINANCIALMARKETS
Government
cash
securities
Corporation Investors
Secondary
markets
THECORPORATIONANDFINANCIALMARKETS
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THECORPORATIONAND
FINANCIALMARKETS
Government
cash
securities
Corporation Investors
Secondary
markets
THECORPORATIONANDFINANCIALMARKETS
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THECORPORATIONAND
FINANCIALMARKETS
Government
cash
securities
Corporation Investors
Secondary
markets
THECORPORATIONANDFINANCIALMARKETS
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THECORPORATIONAND
FINANCIALMARKETS
cashInvestors
Secondary
markets
Government
securities
Cash flow
Corporation
THECORPORATIONANDFINANCIALMARKETS
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THECORPORATIONAND
FINANCIALMARKETS
cashInvestors
Secondary
markets
Government
securities
Cash flow
tax
Corporation
THECORPORATIONANDFINANCIALMARKETS
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THECORPORATIONAND
FINANCIALMARKETS
cashInvestors
Secondary
markets
Government
securities
Cash flow
reinvest
tax
Corporation
THECORPORATIONANDFINANCIALMARKETS
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THECORPORATIONAND
FINANCIALMARKETS
cashInvestors
Secondary
markets
Government
securities
Cash flow
reinvest
tax
Corporation
dividends,
etc.
CORPORATIONS AND THE FINANCIAL MARKET
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Introductory Exercise
For each account listed below, specify in column 1 whether it is a balance
sheet (BS) or an income statement (IS) item. Specify in column 2whether (a) for BS account, it is current asset (CA), current liability (CL),
fixed asset (FA), intangible asset (IA), long term debt (LTD) or
stockholders equity (SE); and (b) for IS account, it is revenue (R), cost of
goods sold (COGS), or expense (E) account.
Financial Statement Account 1 Account 2
1. Marketable securities
2. Current portion of long-term loan
3. Interest expense
4. Income tax expense
5. Accrued taxes
6. Inventories
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Financial Statement Account 1 Account 2
7. Common stock
8. Plant and equipment
9. Sales
10. Interest income
11. Retained earnings
12. Prepaid rent
13. Accrued wages
14. Accounts payable
15. Accounts receivable
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2. An adjusted trial balance is given for Ilocos Company with the accounts
in random sequence:
Ilocos Company
Adjusted Trial BalanceDecember 31, 2010
Debit Credit
Cost of Goods Sold 146,300
Wages Expense 18,400
Wages Payable 1,200
Accounts Payable 32,500
Long-term Notes Payable 50,000
Land 6,000
Accounts Receivable 19,200Cash 31,800
Building and Equipment 145,000
Sales 220,000
Advertising Expense 1,600
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Debit Credit
Prepaid Rent 3,000
Capital Stock 40,000
Rent Expense 1,200
Depreciation ExpenseBuilding and
Equipment
3,000
Merchandise Inventory, December 31 24,300
Estimated Income Tax Payable 7,000
Accumulated DepreciationBuilding andEquipment
18,000
Heat and Light Expense 2,600
Taxes and Insurance Expense 3,400
Income Tax Expense 17,000
Dividends 10,000
Retained Earnings 65,100
Interest Expense 1,000
433,800 433,800
Required: Balance Sheet and Income Statement