Professional Documents
Culture Documents
•Introduction To Finance
Key Concepts and Skills
1-2
Definition
• Financial management:
Acquisition, financing and management of
assets with some overall goal in mind (Van
Horne and Wachowiz)
Objectives
of FM
Shareholders’ Maximization
wealth of firm’s
maximization profitability
1-4
Goal Of Financial Management
1-5
Finance
1-6
Financial Manager
1-7
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?
1-8
3 A’s of Financial Management
Decision
1-9
Forms of Business Organization
General Company
Limited limited by
shares
Limited
Liability
Company
1-10
Sole Proprietorship
• Advantages • Disadvantages
• Easiest to start • Lack of continuity
• Least regulated • Equity capital limited to
• Single owner keeps all owner’s personal
the profits wealth
• Taxed once as personal • Unlimited liability
income • Difficult to sell
ownership interest
1-11
Partnership
• Advantages • Disadvantages
• Two or more owners • Unlimited liability
• More capital available • General partnership
• Relatively easy to start • Limited partnership
1-12
Corporation
• Advantages • Disadvantages
• Limited liability • Separation of
• Unlimited life ownership and
• Separation of management
ownership and • Double taxation
management (income taxed at the
• Transfer of ownership corporate rate and then
is easy dividends taxed at the
personal rate)
• Easier to raise capital
1-13
Differences between Sdn Bhd Corporation
and Partnership/Sole Proprietorship
1-15
The Agency Problem
• Agency relationship
• Principal hires an agent to represent his/her
interest
• Stockholders (principals) hire managers
(agents) to run the company
• Agency problem
• Conflict of interest between principal and agent
• Management goals and agency costs
1-16
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
• The threat of a takeover may result in better
management
• Other stakeholders
1-17
Work the Web Example
1-18
Financial Markets
1-19
Quick Quiz