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Transcript of Principles of Finance Part 1. An Overview of Finance Requests for permission to make copies of any...
Principles of FinancePart 1
An Overview of Finance
Requests for permission to make copies of any part of the work
should be mailed to: Thomson/South-Western
5191 Natorp Blvd.Mason, OH 45040
Chapter 1
Career Opportunities in Finance
Financial marketsInvestmentsManagerial finance
Career Opportunities in Financial Markets
Financial institutionsBanksInsurance companiesSavings and loansCredit unions
Career Opportunities in InvestmentsStock brokerage firms
Banks
Investment companies
Insurance companies
Career Opportunities in Managerial Finance
All types of businessesSkills are used in Management, Marketing, Accounting and Information Systems
History of Financial MarketsEarly 1900s - banks were full service financial organizations
Crisis of 1907Bank failures during 1920sGreat depression 1929 - 1933Legislative reformDeregulation since 1970s
History of Investments
Early 1900s investments dominated by small group of wealthy investors
Industrialization during WWIGrowth of investment firms by 1920sStock market crash 1929 – 1932; market value decreased > 80%
History of Investments
Regulations of securitiesProsperity after WWIIInflation and high interest in 1970s
Increase in individual and institutional investors
History of Managerial Finance
Emergence as a separate field of studyEarly 1900sEmphasis on mergers and capitalization
Wave of mergers during 1920sBankruptcies in 1930s
History of Managerial Finance
Liquidity stressed during 1940s & ‘50s
Analysis and maximizing value in late 1950s and the 1960s
Innovative risk management in 1970s
History of Managerial FinanceFocus on valuation continued in 1980s, analysis expanded to include:Inflation and effects on business decisions
Deregulation of financial institutionsIncrease in computer analysis and electronic information transfer
Increased importance of global marketsInnovative financial products
History of Managerial Finance
Trends in the 1990s have continued into twenty-first century Continued globalization of business
Further increase in use of technology
Regulatory attitude of government
Globalization of Business
Improvements in transportation and communications
Political clout of consumersCost of developing new products has increased
Multinational firms are able to shift production to wherever costs are lowest
Importance of Managerial FinanceFinancial managers no longer merely fund the business needs
Financial managers coordinate decisions
People in marketing, accounting, production, and personnel need to understand finance to do their job well
The Financial Manager’s Responsibilities
Obtain and use funds in a way that will maximize the value of the firm
Value = the present, or current, value of the cash flows an asset is expected to generate in the future
The Valuation Process
Chapter 1 Summary
1. Finance deals with decisions about money2. The study of finance consists of three
interrelated areas:Financial markets, investments, managerial finance
3. There are financial implications in nearly every business-related decision
4. Changes in recent decadesInflation, deregulation, technology, global financial markets
5. Financial managers maximize the value of their firms
End of Chapter 1
An Overview
of Finance