Financial Management

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Financial Management
Lecture 1- Introduction and Context 1Dr. Tarik Driouchi - tarik.driouchi@kcl.ac.uk Senior Lecturer- Financial & Mgt. studies Office Hours [WBW4.15]: Thursdays 4-6pm

A few words on the AAFM MSc…
Themes: Accounting Theory, Financial Accounting, Valuation, Corporate Governance, Financial Management & Markets, Behavioural Finance Structure: Taught modules (term 1 & 2) + Dissertation (term 3) KCL Keats, KCL e-resources and Q&As

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Learning Objectives
• Main objectives
– To develop robust foundations in financial management theory and practice – To understand the role of financial managers in firms – To apply tools to analyse firm investment and capital budgeting decisions – To have an appreciation of financial markets and instruments – To reflect on the ethical dimensions of financial management

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SMM602 Module Characteristics
• Approach/format
– 11 Lectures (fundamentals + in class discussions) – 10 (group-based) seminars/tutorials (exercises, discussions, cases and short presentations).

• Assessment
– 75% exam – 25% project (Due before Christmas)

• Useful reading
– Brealey and Myers: Essentials, principles or foundations – Boatright: Ethics in Finance – Academic articles recommended per specific session 4

Module Outline
Lecture 1. Context of Financial Management Lecture 2. Bond and Stock Valuation Lecture 3. Investment Appraisal Lecture 4. On Risk and Returns Lecture 5. Cost of Capital Lecture 6. Capital Structure Lecture 7. Dividend Policy Lecture 8. Financial Hedging and Instruments Lecture 9. International Perspectives of Fin Mgt. Lecture 10. Ethics Lecture 11. Wrap-up and Transition to AFM 5

On Advanced Financial Management (SMM608) – Term 2

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SMM608 Module Outline
Lecture 1. Context of advanced financial management Lecture 2. Financial options valuation Lecture 3. Information content of options markets Lecture 4. Securities with embedded options Lecture 5. Real options and managerial flexibility Lecture 6. Real options valuation Lecture 7. Bankruptcy and credit risk Lecture 8. Mergers and acquisitions Lecture 9. Behavioural finance Lecture 10. Sustainability, wrap-up and revision 7

SMM602 Financial Management

Introduction and Refresher

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Basic Finance Areas
• Corporate finance • Investments and financial markets • Financial institutions and banking • International and global finance

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Business Finance or Financial Mgt.
• Important questions that are answered under FM lens
– What long-term investments should the firm undertake? – Where to get the long-term financing to pay for investments? – How to manage the everyday financial activities of the firm? – How to distribute proceeds to shareholders? 10

Financial Manager
• Financial managers and FM analysts deal with these sorts of questions • The top financial manager within a firm is usually the Chief Financial Officer (CFO) – Treasurer – cash management, credit management, capital expenditures, and financial planning – Controller – oversees taxes, cost accounting, financial accounting, and data processing 11

Financial Mgt. Decisions
• Investment (capital budgeting)
– What long-term investments or projects should the business undertake?

• Financing (capital structure)
– How should we pay for our assets? – Should we use debt or equity? And how?

• Dividend (“capital” redistribution)
– How much cash to return to owners? – How to return such cash?



Working capital management
– How do we manage the day-to-day finances of the firm?
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Financial Mgt. Goals
• What should be the goal of a company?
– Maximize profit? Minimize costs? Maximize market share? Maximize the current value of the company’s stock?

• Should do anything and everything to maximize owner wealth? – Agency and ethics? – Sarbanes-Oxley Act…

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Agency Issues
• Agency relationship
– Principal hires an agent to represent its interests – Stockholders (principals) hire managers...
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