Introduction

to Financial
Management

1
Basic Areas Of Finance
 Investments
 Financial institutions
 International finance
 Corporate finance (Financial
Management)

2
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

3
Financial
Institutions
 Companies that specialize in financial
matters
 Banks – commercial and investment,
credit unions, savings and loans
 Insurance companies
 Brokerage firms
 Job opportunities
4
International Finance
 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; speaking a foreign language fluently is
also helpful

5
Financial
Management
 Also called corporate finance, focuses on
decisions related to how much and what
type of assets to acquire.
 Also deals on how to raise the capital
needed to buy assets, and how to run the
firm so as to maximize its value.

6
 Marketing
Budgets, marketing research, marketing financial
products

Why Study Accounting

Finance? 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

7
 Board of Directors

Chief Executive Officer (CEO)

Finance within an
Organization Chief Operating Officer (COO) Chief Financial Officer (CFO)

Marketing, Production, Accounting, Treasury, Credit,

Human Resources and Other Legal, Capital Budgeting,
Operating Departments and Investors Relations
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?

9
Forms of Business Organization

1 2 3
Sole proprietorship Partnership Corporation
A Sole Proprietorship is a business A partnership is a for-profit business A corporation is a legal entity created by
structure owned by an individual who organization comprised of two or individuals, stockholders, or
generally has full control and more persons. shareholders, with the purpose of
authority over the business. operating for profit.

10
 Advantages
 Easiest to start
 Least regulated
 Single owner keeps all of the
profits
Sole Proprietorship  Taxed once as personal income

A Sole Proprietorship is a business structure Disadvantages

 Limited to life of owner
owned by an individual who generally has full
control and authority over the business.  Equity capital limited to owner’s
personal wealth
 Unlimited liability
 Difficult to sell ownership
interest
11

Partnership
A partnership is a for-profit business
organization comprised of two or more
persons.
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
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 Advantages
 Limited liability
 Unlimited life
 Separation of ownership and
management
Corporation  Transfer of ownership is easy
 Easier to raise capital

A corporation is a legal entity created by

individuals, stockholders, or shareholders,
with the purpose of operating for profit.
Disadvantages
 Separation of ownership and
management (agency problem)
 Double taxation (income taxed
at the corporate rate and then
dividends taxed at personal rate,
while dividends paid are not tax
deductible)
13
 Sarbanes-Oxley Act
A law passed by Congress
Goal Of Financial Management that requires the CEO and
CFO to certify that the
firm’s financial
statements are true and
accurate.

Business Ethics
 Does this mean we A company’s attitude and
 What should be the goal of should do anything and conduct toward its
a corporation? everything to maximize employees, customers,
owner wealth? community, and
 Maximize profit? stockholders.
 Minimize costs?
 Maximize market share?
 Maximize the the current
value of the company’s
stock?

14
Important
Business Trends
1. Factual Financial Reporting
2. Increased globalization of business.
3. Information Technology
4. Corporate Governance

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