Financial Management

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Introduction to Financial
Management
Chapter 1

McGraw Hill/Irwin
McGraw-Hill

© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Key Concepts and Skills
 Know

the basic types of financial management
decisions and the role of the financial manager
 Know the goal of financial management
 Know the financial implications of the different forms
of business organization
 Understand the conflicts of interest that can arise
between owners and managers

McGraw Hill/Irwin
McGraw-Hill

© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Chapter 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 Corporation

1.2
McGraw Hill/Irwin
McGraw-Hill

© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Basic Areas Of Finance





Corporate finance
Investments
Financial institutions
International finance

1.3
McGraw Hill/Irwin
McGraw-Hill

© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Investments





Work with financial assets such as stocks and bonds
Value of financial assets, risk versus return and asset
allocation
Job opportunities




Stockbroker or financial advisor
Portfolio manager
Security analyst

1.4
McGraw Hill/Irwin
McGraw-Hill

© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Financial Institutions
 Companies

that specialize in financial matters

Banks – commercial and investment, credit unions, savings
and loans
 Insurance companies
 Brokerage firms


 Job

opportunities

1.5
McGraw Hill/Irwin
McGraw-Hill

© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

International Finance
 This

is an area of specialization among all of the areas
discussed so far
 It may 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 and
speaking a foreign language fluently is also helpful

1.6
McGraw Hill/Irwin
McGraw-Hill

© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Why Study Finance?


Marketing




Accounting




Dual accounting and finance function, preparation of financial statements

Management




Budgets, marketing research, marketing financial products

Strategic thinking, job performance and profitability

Personal finance


Budgeting, retirement planning, college planning, day-to-day cash flow issues

1.7
McGraw Hill/Irwin
McGraw-Hill

© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Business Finance
 Some

important questions that are answered using finance

What long-term investments should the firm take on?
 Where will we get the long-term financing to pay for the investment?
 How will we manage the everyday financial activities of the firm?


1.8
McGraw Hill/Irwin
McGraw-Hill

© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Financial Manager
 Financial

managers try to answer some 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 planning
 Controller – oversees taxes, cost accounting, financial accounting and data processing


1.9
McGraw Hill/Irwin
McGraw-Hill

© 2004 The McGraw-Hill Companies, Inc. All rights reserved.

Financial Management Decisions
 Capital


budgeting

What long-term investments or projects should the business
take on?

 Capital

structure

How should we pay for our assets?
 Should we use debt or equity?


 Working


capital management

How do we manage the day-to-day finances of the...
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