Financial Management part 1

finance

the science and art of managing money

financial services and managerial finances

2 career opportunities in finance

financial services

the area of finance concerned with the design and delivery of advice and financial products to individuals, businesses, and governments

managerial finance

concerns the duties of the financial manager in a business

financial manager

administer the financial affairs of all types of businesses—private and public, large and small, profit-seeking and not-for-profit.

global financial crisis, subsequent responses by regulators, increased competition, and technological change

factors that increased the importance qnd complexity of the financial manager's duties

financial manager

actively develop and implement corporate strategies aimed at helping the firm grow and improving its competition position

chartered financial analyst

offered by the CFA Institute, the CFA program is a graduate level course of study focused primarily on the investments side of finance.

certified treasury professional

the ___ program requires students to pass a single exam that is focused on the knowledge and skills needed of those working in a corporate treasury department.

certified financial planner

to obtain ___ status, students must pass a 10 hour long exam covering topics related to personal financial planning
- program focuses primarily on skills relevant for advising individuals in developing their personal financial plans

Sole Proprietorship, partnership, corporation

three most common legal forms of business

Sole Proprietorship

A business owned by one person

73

percentage of sole proprietorship businesses

unlimited liability

The condition of a sole proprietorship (or general partnership), giving creditors the right to make claims against the owner's personal assets to recover debts owed by the business.

partnership

a business owned by two or more people and operated for profit

7

percentage of partnership account

partnership

common in finance, insurance, and real

public accounting and law partnership

often have large numbers of partnership

article of partnership

the written contract used to formally establish a business partnership

unlimited liability

a general or regular partnership has this kind of liability

Corporation

an entity created by law

Corporation

has the legal powers of an individual in that it can sue andbe sued make and be party to contracts, and acquire property in its own name

20

percentage of corporations in the US

corporation

the largest businesses are always this type of business organization

90

percentage of total business revenues that corporations accounts

stockholders

the owners of a corporation, whose ownership, or equity, takes the form of either common stock of preferred stock

limited liability

a legal provision that limits stockholders' liability for a corporation's debt to the amount they initially invested in the firm by purchasing stock

common stock

the purest and most basic form of corporate ownership

preferred stock

A special type of stock whose owners, though not generally having a say in running the company, have a claim to profits before other stockholders do.

dividends

periodic distributions of cash to the stockholders of a firm

Dividends

stockholders expect to earn a return by receiving _____

residual claimants

stockholders are sometimes referred to as ______

stockholders

they vote periodically to elect members of the board of directors

stockholders

decides other issues such as amending the corporate charter

board of directors

responsible for approving strategic goals and plans, setting general policy, guiding corporate affairs, and approving major expenditure

board od directors

decides when to hire top managers and establishes compensation, such as key corporate executives, and "outside" or "independent" directors

corporate organization

the general organization of a corporation and the finance function

chief executive officer

responsible for managing the day-to-day operations and carrying out the policies established by the board of directors

chief executive officer

reports periodically to the firm's directors

limited partnership, S corporation, limited liability company, limited liability partnership

other organizational forms that provide owners with limited liability

financial analyst, capital expenditure manager, project finance manager, cash manager, credit analyst/manager, pension fund manager, foreign exchange manager

career opportunities in managerial finance

financial analyst

Prepares the firm's financial plans and budgets. Other duties include financial forecasting, performing financial comparisons, and working closely with accounting.

capital expenditure manager

evaluates and recommends proposed long term investments

may be involved in the financial aspect of implementing approved investment

project finance manager

Arranges financing for approved long-term investments. Coordinates consultants, investment bankers, and legal counsel.

cash manager

Maintains and controls the firm's daily cash balances. Frequently manages the firm's cash collection and disbursement activities and short-term investments and coordinates short-term borrowing and banking relationships.

credit manager

administers the firm's credit policy by evaluating credit applications, extending credit, and monitoring and collecting accounts receivable

Pension Fund Manager

oversees or manages the assets and liabilities of the employee's pension fund

foreign exchange manager

manages specific foreign operations and the firm's exposure to fluctuations in exchange rates

maximize the wealth of the firm's owners

finance teaches that this is the manager's primary goal

firm's share price

simplest and best measure of stock holders wealth

firm's profit

dividends that stockholders receive come from this

return and risk

key variables that managers must consider when making business decisions

earnings per share

the amount earned during the period on behalf of each outstanding share of common stocks

earnings per share

calculated by dividing the period's total earnings available for the firm's common stockholders by the number of shares of common stock outstanding

earnings per share

corporations commonly measure profits in terms of this

timing is important, profits and cash flows are not identical, and risk matters a great deal

3 reasons why profit maximization is not the same as wealth maximization

profit

it is simply an estimate of how a firm is doing, an estimate that is influenced by many different accounting choices that firms make when assembling their financial reports

cash flows

a more straightforward measure of the money flowing into and out of the company

the receipt of funds sooner rather than later is preferred

why is timing important in increasing the share price

direct relationship

relationship of risk and return

indirect relationship

relationship of risk and stock price

direct relationship

relationship of returns/cash flows and stock price

risk

the chance that actual outcome may differ from those expected

profit maximization

this fails to account risk

return and risk

key determinant of share price, whuch represents the wealth of the owners in the firm

risk averse

requiring compensation to bear risk

stakeholders

groups such as employees, customers, suppliers, creditors, owners, and others who have a direct economic link to the firm

social responsibility

stakeholders view is considered as a part of the firm's _____

Business Ethics

standard of conduct or moral judgment that apply to persons engaged in commerce

Robert A. Cooke

a noted ethicist

effective ethics program

it can enhance corporate value by producing a number of positive benefits

ethical behavior

viewed as necessary for achieving the firm's goal of owner wealth maximization

Chief Financial Officer

VP for finance is also called

chief financial manager

treasurer is also called the

treasurer

typically manages the firm's cash, investing surplus funds when available and securing outside financing when needed

treasurer

oversees a firm's pension plans and manages critical risks related to movements in foreign currency values, interest rates, and commodity prices

chief accountant

controller is also called ____

controller

typically handles the accounting activities, such as corporate accounting, tax management, financial accounting, and cost accounting

external

the treasurer's focus tends to be more _____

internal

the controller's focus is more ______

foreign exchange manager

The manager responsible for managing and monitoring the firm's exposure to loss from currency fluctuations.

marginal cost-benefit analysis

economic principle that states that financial decisions should be made and actions taken only when the added benefits exceed the added costs

marginal cost-benefit analysis

The primary economic principle used in managerial finance

financial analyst

often help compile accounting information

accountant

his primary function is to develop data for measuring the performance of the firm, asses its financial position, comply with and file reports required by securities regulators, and file and pay taxes

accrual basis

in preparation of financial statements, recognizes revenue at the time of sale and recognizes expenses when they are incurred

accrual basis

the accountant uses this type of basis

financial manager

places emphasis on cash flows

cash basis

recognizes revenues and expenses only with respect to actual inflows and outflows of cash

cash basis

the basis that individuals mostly use

emphasis on cash flows and decision making

two basic difference between finance and accounting

accountants

devote most of their attention to the collection and presentation of financial data

financial manager

evaluates the accounting statements, develop additional data, and make decisions on the basis of their assessment of the associated returns and risks.

making investments and financing decisions

financial manager's primary activities

financing decisions

determine how firms raise cash to pay for their investments

investing decisions

determine what type of assets the firm holds

financial activities

primary activities of the financial manager

current assets and fixed assets

items in the balance sheet that are related in making investment decisions

current liabilities and long-term funds

items in the balance sheet that are related in making financing decisions

financial institution, financial market and private placement

external sources where firms can obtain funds