Topic

Introduction to FM
Introduction to Financial
Management course

By Dr. Nguyen Thu Hien

Modified from slides by Ross, Westerfield, Jordan,

“Fundamentals of Corporate Finance”, 7th ed., McGraw-Hill Irwin
 What is Finance?
The Five Basic Areas of Finance

• Corporate Finance financial decision made by corporate

buying stocks
risk-return • Investments Nhà quản lí quĩ (Fund Manager)
choosing different investment opportunities
investment portfolio

định chế tài chính bank (risk: liquidity), financial intermediaries

• Financial Institutions -> how to deal with risk?
liquidity: tính linh hoạt của một tài sản khi chuyển đổi tài sản đó thành tiền mặt.

• International Finance

• Behavioral Finance investor psychology (tâm lý)

how market reacts to the news, especially in stock market
 balance sheet

What is the focus of 3 decisions for CFO

Corporate finance?
current asset < current liability
= sources of capital
-> not good (k có cash pay bill ASSETS LIABILITIES nguồn vốn
-> phải sell long term asset (PPE)
How to maintain the liquidity of company’s activities
Account 3rd decision
Current Cash, Current
assets Inventory,
payables,
Notes liabilities
Working
Account
receivables.
payable;
Short-term
capital mgt.
Marketable
borrowings
dòng tiền ngắn hạn
securities đc quản lý ra sao?
nếu dòng tiền vào khác dòng tiền ra
Repulation;
Goodwills Company Long-term Long-term => nhu cầu vốn luân chuyển ròng
image loans; debts
issue Bonds
(borrow money from the market)

Doanh nghiệp huy động

Capital nguồn tiền từ đâu?

Budgeting Capital
= long-term investment structuring
(1st) decisions
= financing
Fixed assets PPE: property issue
Stocks;
Equity (2nd) decision
Land; vốn cổ phần
Plants;
Retained => COST???
earnings
Equiptment;
What is the focus of
Corporate finance?
Basic Issues:
What long-term investments should a firm take on?

The process of planning and managing a

firm’s long-term investments is called:
What is the focus of
Corporate finance?
Basic Issues:
Where will you get the long-term financing to pay for
your investment?

The mixture of debt and equity maintained

by a firm is called:
 What is the focus of
Corporate finance?
Basic Issues:
How will you manage your everyday financial activities
AR AP
such as collecting from customers and paying suppliers?

The process of managing a firms short-term

assets and liabilities is called:
Who focuses on financial issues within a
business/firm?

investors buy shares and become owners but

do not involve company activities

salaries to manage company activities

sell stock to owners

cashflow statement

financial functions deal with acc activites

các loại hình DN

Legal Forms of Business

Organization
Doanh nghiệp tư nhân= company owned by 1 owner

Sole Proprietorship
company owned by several owners

Partnership hợp tác

General Partnership

Limited Partnership

Corporation tập đoàn

is a form of joint stock company with

unlimited owners/shareholders

joint stock company: investors = owners

Công ty tư nhân

(1) Sole Proprietorship:business owned by

a single individual
ít chi phí thành lập
tổ chức đơn giản
ít chịu sự kiểm soát của pháp luật

Advantages k phải nộp thuế thu nhập của DN

Easily Established

Minimal Organizational Costs
hưởng toàn bộ lợi nhuân

Keep all Generated Profits

Disadvantages

Unlimited LiabilityCó trách nhiệm tài chính vô hạn
gánh chịu toàn bộ lỗ

Losses absorbed by owner

Limited Capital khả năng huy động vốn hạn chế

Limited Life đời sống cty là hữu hạn
 cty hợp danh

(2) Partnership: An association of

two or more individuals
cty hợp danh thông thường
tất cả thành viên đóng góp tiền,

General Partnership chia sẽ profit-loss

each partner is fully responsible for liabilities

cty hợp danh hữu hạn

Limited Partnership

one or more partners have limited liability

limited partners do not participate in the
thành viên trách nhiệm hữu hạn
management k đc tham gia điều hành cty

limited partners are merely investors

one general partner must exist

(2a) General Partnership:

Advantages

Minimal Organizational Requirements

Negligible Government Regulations
không đáng kể, có thể bỏ qua

Disadvantages
chịu trách nhiệm tài chính vô hạn

All Partners have Unlimited Liability

Losses absorbed by owners

Difficulty of transferring ownership

Limited Life-Terminates at Death or
Decision of One Partner
chấm dứt hoạt động khi 1 thành viên chế hoặc rút khỏi cty.
việc chuyển nhượng phần vốn góp rất khó khăn
 cty cổ phần public corp. or public JSC

(3) Corporation: Business form existing

separate and apart from its owners
cty có tư cách pháp nhân riêng biệt: có thể kiện, bị kiện, mua bán bất động sản…
quyền sở hữu đc chia thành những phần nhỏ và đc nắm giữ rộng rãi bởi nhà đầu tư cá nhân/tổ chức

Advantages
trách nhiệm tài chính của cổ đông là hữu hạn

Liability Limited to Invested capital

Ease in Raising Capital
đời sống cty là vô hạn

Continues after death of owner(s)
quyền sở hữu có thể đc chuyển nhượng dễ dàng
và k ảnh hưởng đến đời sống hoạt động của cty

Disadvantages cổ đông bị đánh thuế 2 lần

Tax Treatment of earnings (Double Taxation)

Time and Cost of Incorporation
sự tách bạch giữa quyền sở hữu và quyền quản lý

Separation of ownership and management agency problems
What is the classical goal of
the firm?
CFO
On a financial perspective, the final goal of a company should be maximizing shareholder's wealth,
without harming other stakeholders' (các bên liên quan) value.

To Maximize Shareholder Wealth:

use stock price to measure share value

Price of common stock

Value of the firm

agreement between seller-buyer

Why Maximize stock price the goal?
reflect not only the current
but also future
Future performance

Riskiness
if the company is too risky -> not buy/buy cheaper stock
if the stock is risky enough -> buy stock
Why not profit maximization?
CFO giảm chi phí R&D để tăng revenue
CFO -> ảnh hưởng xấu cho cty
(hậu quản khi dùng profit khuyến khích CFO)

Maximize Profits =revenue-cost

Not Specific Enough in Practice

Timing

Risk knhưng
thể hiện đc risk khi dùng profit
stock price thể hiện đc profit

Not reflecting growth opportunities

Accounting data
 1 đô la nhận được hôm nay thì có giá trị hơn 1 đô la ở năm sau -> inflation (lạm phát)

Example:Timing of Profits
Film Producer can produce one of two movies:
1. Quick Movie for Video Release
2. Epic Film for Theaters

Profits: $10 , same for each movie

Movie 1 Movie 2
Year 1 $ 10 $ 0
Year 2 $ 0 $ 10

Which movie should be produced?

Why (based on cash vs. profit)?
Example: Riskiness of Profits

Film Producer can produce one of two movies:

1. Quick Movie for Video Release
2. Epic Film for Theaters

Profits: $10 , same for each movie

Review Movie 1 Movie 2
 $ 10 ($ 10)
 $ 10 $ 10
 $ 10 $ 30

Which movie should be produced?

Why (based on cash vs. profit)?
agency relationship: khi 1 bên thuê ng khác đại diện cho lợi ích của mình
-> agency problem: sự mâu thuẫn lợi ích giữa bên uỷ nhiệm-bên được uỷ nhiệm

Agency Problem:
nhà quản trị có hành động vì lợi ích của cổ đông???
Will managers work in the shareholders’ best interests?

Managerial compensation Bồi thường quản lý

chế độ lương thưởng

Incentives can be used to align

management and stockholder interests

The incentives need to be structured
carefully to make sure that managers
achieve their goal (eg.: stock bonus)

Corporate control market

The threat of a takeover may result in
better management
Mối đe dọa về việc tiếp quản có thể dẫn đến việc quản lý tốt hơn
Secondary market of stock is a market place where transactions between shareholders take place.

bank, stock exchanges…

Role of financial markets in investors in the financial market trading

shares/securities among each other

Corporate finance?
investors to collect money -> not directly
affect company cashflow but making the
stock liquidity -> success of security
issue in the primary market in the future

provide capital for company

to invest assets (transaction between
company-investors/shareholders)
Primary vs. Secondary
IPO

tổng giá trị của cty mà cổ đông đc hưởng

trên các thị trg tài chính
companies raise fund from

to the financial market to have funds

the remaining
cổ túc, hoàn trả nợ vay

interest to the bank

dividends to investors

tax

to reinvest (profits) in a business

Role of financial markets in
Corporate finance? provide long-term fund for the company

provide short term fund to the company Money vs. Capital

The Basics of Topic

What are the three types of financial
management decisions and what questions
are they designed to answer?

What are the three major forms of business
organization?

What is the goal of financial management?

What are agency problems and why do they
exist within a corporation?

What is the difference between a primary
market and a secondary market? Between a
money market and a capital market?