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Basics of Financial Management: Introductory Class
Basics of Financial Management: Introductory Class
Basics of Financial
Management
INTRODUCTORY
CLASS
2
Introduction
Me
– Personal
– Education
– Professional
Now You
– Background (Name, Home location)
– Life goals
– What do you want from this subject
3
My Background- Work
Associate Professor, KAU – (2013-current)
Senior Lecturer, Swinburne University of Technology,
Australia (2010-2012, currently on leave)
Post Doctoral Research Fellow: RMIT University,
Australia (2008-2010)
Lecturer: Faculty of Business Administration, Universiti
Tun Abdul Razak, (2004-2007)
Research Assistant: National University of Malaysia and
International Islamic University of Malaysia.
Graduate Research Assistant: National University of
Malaysia, Malaysia, (1997-2003)
4
Introduction
5
Subject Overview - Objectives
To familiarize the student with the concept of finance and
the role financial managers.
Recognize the ten different principles of financial
management.
To understand the concept of corporate world, time value of
money, financial statements and cash flow, tradeoff between
risk and return, difference between simple interest and
compound interest, financial ratios and their limitations.
How to calculate both present value and future value, the
value of bonds, and the major financial ratios.
6
Subject Overview-Learning Methods
Lectures (interactive).
Tutorials (class exercise).
7
Subject Overview - Assessment
Individual assignments
– Class Participation Activities (10%)
– 2 Quizzes (15%)
– Mid-term exam (15%)
– Final exam (40%)
Group assignments
– Homework (20%)
Total = 100%
8
Subject Overview – Course Materials
Recommended textbook
Ross/ Westerfield/ Jordan (2010),
Fundamentals of Corporate Finance, 9th
Edition, McGraw-Hill/ Irwin, NY, USA (any
edition can be used).
Other References; (Journals, Reports,
Websites, E. Library…etc.)
Lecture slides
9
The
The Firm
Firm and
and the
the
Financial
Financial Manager
Manager
30 1-30
What are the Goals of the
Firm? (General Goals)
Survival
Avoid financial distress and bankruptcy
Beat the competition
Maximize sales or market share
Minimize costs
Maximize profits
Maintain steady earnings growth.
Dr. Mazharul Islam
31
Shortcomings of these
General Goals
Problems
These goals are either associated with
increasing profitability or reducing risk.
Could increase current profits while harming firm (e.g., defer
maintenance, issue common stock to buy Treasury-bills,
etc.).
Does not specify timing or duration of expected returns.
Calls for a zero payout dividend policy.
They are not consistent with the long-term interests of
shareholders.
So it is necessary to find a goal that can encompass
32
both profitability and risk. Dr. Mazharul Islam
The Real Goal of
the Firm
Maximization of
Shareholder Wealth!
Shareholders’ wealth can be
measured as the current
value per share of existing
shares.
Dr. Mazharul Islam
33
Strengths of Shareholder
Wealth Maximization
Takes account of: current and future
profits and EPS;
EPS the timing,
duration, and risk of profits;
profits dividend
policy;
policy and all other relevant factors.
Thus, share price serves as a
barometer for business performance.
Modern Organization
Shareholders Management
Board of Directors
President
(Chief Executive Officer)