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Premium member Presentation Transcript Topic1 : 0 Topic1 Introduction to Financial Management Key Concepts and Skills : 1 Key Concepts and Skills Know the basic types of financial management decisions and the role of the financial manager Know the financial implications of the different forms of business organization Know the goal of financial management Understand the conflicts of interest that can arise between owners and managers Chapter Outline : 2 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 Basic Areas Of Finance : 3 Basic Areas Of Finance Corporate finance Investments Financial institutions International finance Investments : 4 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 Financial Institutions : 5 Financial Institutions Companies that specialize in financial matters Banks – commercial and investment, credit unions, savings and loans Insurance companies Brokerage firms Job opportunities International Finance : 6 International Finance This is an area of specialization within each 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 Why Study Finance? : 7 Why Study Finance? Marketing Budgets, marketing research, marketing financial products Accounting Dual accounting and finance function, preparation of financial statements Management Strategic thinking, job performance, profitability Personal finance Budgeting, retirement planning, college planning, day-to-day cash flow issues Business Finance : 8 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? Financial Manager : 9 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 Simplified Organizational Chart : Simplified Organizational Chart 10 Financial Management Decisions : 11 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 firm? Forms of Business Organization : 12 Forms of Business Organization Three major forms Sole proprietorship Partnership General Limited Corporation Limited liability company Sole Proprietorship : 13 Sole Proprietorship Advantages Easiest to start Least regulated Single owner keeps all the profits Taxed once as personal income Disadvantages Limited to life of owner Equity capital limited to owner’s personal wealth Unlimited liability Difficult to sell ownership interest Partnership : 14 Partnership Advantages Two or more owners More capital available Relatively easy to start Income taxed once as personal income Disadvantages Unlimited liability General partnership Limited partnership Partnership dissolves when one partner dies or wishes to sell Difficult to transfer ownership Corporation(Limited Companies) : 15 Corporation(Limited Companies) Advantages Limited liability Unlimited life Separation of ownership and management Transfer of ownership is easy Easier to raise capital Disadvantages Separation of ownership and management (agency problem) Double taxation (income taxed at the corporate rate and then dividends taxed at personal rate) International Corporations : International Corporations In Thailand we have: Private Limited Company - regulated by the Civil and Commercial Code Public Limited Company - regulated by the Public Company Act 16 Goal Of Financial Management : 17 Goal Of Financial Management What should be the goal of a corporation? Maximize profit? Minimize costs? Maximize market share? Maximize the current value of the company’s stock? A more general financial management goal: Maximize the market value of the existing owner’s equity. Goal Of Financial Management : 18 Goal Of Financial Management Does this mean we should do anything and everything to maximize owner wealth? No A company must follow regulations against corporate accounting fraud and financial malpractice. In Thailand the companies are regulated by: The Securities and Exchange Commission (SEC): capital market supervisory agency with the status of an independent state agency The Stock Exchange of Thailand (SET): provide trading services of listed securities Institute of Certified Accountants and Auditors of Thailand (ICAAT) The Agency Problem : 19 The Agency Problem Agency relationship Principal hires an agent to represent their interest Stockholders (principals) hire managers (agents) to run the company Agency problem Conflict of interest between principal and agent Management goals and agency costs Direct costs: compensation and perquisites; cost of monitoring Indirect costs: cost of sub optimal decisions Managing Managers : 20 Managing Managers Managerial compensation Incentives can be used to align management and stockholder interests The incentives need to be structured carefully to make sure that they achieve their goal Corporate control Control of the firm rest with stockholders Elect board of directors, who hires and fires management Proxy fight – a group solicits proxies in order to replace the existing board The threat of a takeover may result in better management Other stakeholders: employees, suppliers, customers, government... Financial markets and the corporation : 21 Financial markets and the corporation Financial Markets : 22 Financial Markets Cash flows to the firm Primary vs. secondary markets Dealer vs. auction markets Listed vs. over-the-counter securities Financial Markets : 1-23 Financial Markets Primary Market The market in which securities (stock and bonds) are sold by the company. Secondary Markets The market where securities that have already been issued are traded between investors. Financial Markets : 1-24 Financial Markets Trading of debt and equity securities : 1-25 Trading of debt and equity securities Dealers buy and sell for themselves, at their own risk Dealer markets in stocks and bonds are called over-the-counter (OTC) markets. Auction markets are different from dealer markets in two ways: Trading in a given auction exchange takes place at a single site on the floor of the exchange (like SET). Transaction prices of shares are communicated almost immediately to the public. Stocks that trade on an organized exchange (or market) are said to be listed on that exchange You do not have the permission to view this presentation. In order to view it, please contact the author of the presentation.