FIN 3000: CH 1 The Role of Managerial Finance

What Activities do Business Finance Professionals Engage In?

• Manage the Cash of the Firm

• Measure the Current Performance and Project the Future Performance of the Firm

• Make Investment Decisions for the Firm

Internal Business Finance Professionals

• CFO or VP of Finance

• Corporate Treasurer

• Financial Analysts

External Business Finance Professionals

• Investment Bankers

• Venture Capitalists

• Commercial Bankers

Types of Financing

• Debt

• Equity

  • Common stock

  • Preferred Stock

Debt

• represents that someone has borrowed money

• examples: bonds, mortgage bonds, promissory notes, notes

• fixed returns

  • Borrower pays interest periodically, repays the loan (returns the principal), under a legal obligation to make these payments

Equity - Common Stock

• represents ownership of the firm

• examples: common stock, partnership interest

• variable returns

  • dividends

  • increase in value of ownership interest

  • the firm is under no legal obligation to do either of these

Equity - Preferred Stock

• hybrid between common stock and debt

• fixed returns

  • fixed annual dividends

    • firms may skip being in default

  • fixed face value

• perpetual

• holders have no voting rights