Corporate Finance

Chapter One
Ross  Westerfield  Jaffe 1
Sixth Edition

The Goals & Functions of

Financial Management

Anwar Zahid
Lecturer
Independent University, Bangladesh (IUB)
What is finance ?
 Finance can be defined as the art and science of
managing fund.

-Key role of finance are;

Obtain funds & Effectively control the use of those funds.

 A branch of economics concerned with resource allocation as well as

resource management, acquisition and investment.

* There are two area of finance; corporate finance and Investments.

 Field of Finance

 Filed of Finance is closely related to Economics and

Accounting.
 Economics: Economics variable such as GDP, inflation,

interest rate, tax must fit into the financial manager decision
model and be applied correctly.

 Accounting: Income statement, Balance sheets etc.

Functions of Financial manager

Occasional
Daily Profitability

• Stock Issue
• Credit Mgt. • Trade-
• Bond Issue
• Inventory mgt. Goal:
• Preferred off; Risk
• Receipt & Maximize
Disbursement of fund share - profit
Shareholder
• Capital wealth
budgeting
• Dividend
decision
 Share Vs Bond

 Definition
 Return from share and bond is called !
 Certainty of getting return !
 Source of purchase: Stock exchange / Gov or public or private firms
 Times of maturity:
 Types of ownership: debt / equity
 In terms of bankruptcy who will get the preference
first?
 Voting right
Corporate Governance
 The system of rules, practices and processes by
which a company is directed and controlled.
 Corporate governance essentially involves balancing the
interests of the many stakeholders in a company - these include
its shareholders, management, customers, suppliers, financiers,
government and the community.

 Agency problem: Conflict of interest between a company's

management and the company's stockholders.
Example: car sell, broker
Financial Market
Allocation of Capital
 Primary Market
 Secondary Market

We can also divide Financial market through -

 Money market :
 Capital market:

Internet & Change of Financial Markets

Financial market Explanation

 Less than 1 year

Money  Debt securities only
 T-bill, CDs, C-paper
market

Corporation Financial
Market
 More than 1 year
Capital  Debt plus equity
market securities
 Shares, Bonds
Quick Recap

 What is Finance?
 Types of Stocks
 Bond
 Difference between stock and bond
 Dividend
 Relationship to Economics
 Relationship to Accounting
 Goal of Firm
 Stakeholders
 Corporate Governance
See Next page
 Types of Investors
 The Agency Problem
 Financial Institution
 Financial Markets
 The Money Market
 The Capital Market
 Dealer vs Broker
 Business Taxes
 Ordinary Income
 Average vs Marginal Tax Rates
 Interest vs Dividend Income
 Capital Gains
End