8/8/2019 Review of the Subject - The Firm and the Financial Manager

1/29

Business FinanceBusiness Finance

8/8/2019 Review of the Subject - The Firm and the Financial Manager

2/29

8/8/2019 Review of the Subject - The Firm and the Financial Manager

3/29

The Firm and the Financial ManagerThe Firm and the Financial Manager

Accounting and FinanceAccounting and Finance

The Time Value of MoneyThe Time Value of Money

Valuing BondsValuing Bonds

8/8/2019 Review of the Subject - The Firm and the Financial Manager

4/29

Net Present Value and Other InvestmentNet Present Value and Other Investment

CriteriaCriteriaProject AnalysisProject Analysis

Introduction to Risk, Return, and theIntroduction to Risk, Return, and theOpportunity Cost of the CapitalOpportunity Cost of the Capital

Risk, Return, and Capital BudgetingRisk, Return, and Capital Budgeting

8/8/2019 Review of the Subject - The Firm and the Financial Manager

5/29

The Cost of CapitalThe Cost of Capital

Corporate Financing and the lessons ofCorporate Financing and the lessons of

Market EfficiencyMarket Efficiency

An Overview of Corporate FinancingAn Overview of Corporate Financing

How Corporate Issue SecuritiesHow Corporate Issue Securities

8/8/2019 Review of the Subject - The Firm and the Financial Manager

6/29

The Capital Structure DecisionThe Capital Structure Decision

Dividend PolicyDividend Policy

Financial Statement AnalysisFinancial Statement Analysis

Financial PlanningFinancial Planning

Working Capital Management andWorking Capital Management andShort Term PlanningShort Term Planning

8/8/2019 Review of the Subject - The Firm and the Financial Manager

7/29

Cash and Inventory ManagementCash and Inventory Management

Credit Management and CollectionCredit Management and Collection

Mergers, Acquisitions, andMergers, Acquisitions, andCorporate ControlCorporate Control

8/8/2019 Review of the Subject - The Firm and the Financial Manager

8/29

International FinancialInternational FinancialManagementManagement

OptionsOptions

Risk ManagementRisk Management

8/8/2019 Review of the Subject - The Firm and the Financial Manager

9/29

The Firm and theThe Firm and theFinancial ManagerFinancial Manager

8/8/2019 Review of the Subject - The Firm and the Financial Manager

10/29

Organizing a BusinessOrganizing a Business

Sole ProprietorshipsSole ProprietorshipsPartnershipsPartnerships

CorporationsCorporations

8/8/2019 Review of the Subject - The Firm and the Financial Manager

11/29

Forms of Business OrganizationForms of Business Organization

Sole ProprietorshipsSole Proprietorships

PartnershipsPartnerships

CorporationsCorporations

CoCo--operativesoperatives

8/8/2019 Review of the Subject - The Firm and the Financial Manager

12/29

ADVANTAGESADVANTAGES AND AND DISADVANTAGESDISADVANTAGES OFOF

EACHEACH FORMFORM OFOF BUSINESSBUSINESS ORGANIZATIONORGANIZATION

AdvantagesAdvantages

Relatively low startRelatively low start--upupcostscosts

Greatest free

dom from

Greatest free

dom fromregulationregulation

Owner in direct controlOwner in direct controlofdecision makingofdecision making

Minimal working capitalMinimal working capitalrequiredrequired

Tax advantages to ownerTax advantages to owner

All profits to ownerAll profits to owner

DisadvantagesDisadvantages

Unlimited liabilityUnlimited liability

Lack of continuity inLack of continuity in

business organization inbusiness organization inabsence of ownerabsence of owner

Difficulty raising capitalDifficulty raising capital

8/8/2019 Review of the Subject - The Firm and the Financial Manager

13/29

PARTNERSHIPPARTNERSHIP

AdvantagesAdvantages Ease of formationEase of formation

Relatively low startRelatively low start--upupcostscosts

Additional sources ofAdditional sources ofinvestment capitalinvestment capital

Possible taxPossible tax

advantagesadvantages LimitedregulationLimitedregulation

BroadermanagementBroadermanagement

basebase

DisadvantagesDisadvantages Unlimited liabilityUnlimited liability

Lack of continuityLack of continuity

Divi

de

dauthority

Divi

de

dauthority

Difficulty raisingDifficulty raisingadditional capitaladditional capital

Hard to find suitableHard to find suitablepartnerspartners

Possible developmentPossible developmentof conflictof conflict betweenbetween

partnerspartners

8/8/2019 Review of the Subject - The Firm and the Financial Manager

14/29

CORPORATIONCORPORATION

AdvantagesAdvantages Limited liabilityLimited liability

SpecializedmanagementSpecializedmanagement

Ownership isOwnership is

transferabletransferable Continuous existenceContinuous existence

Separate legal entitySeparate legal entity

Possible tax advantagePossible tax advantage

DisadvantagesDisadvantages Closely regulatedClosely regulated

Most expensive form toMost expensive form toorganizeorganize

CharterrestrictionsCharterrestrictions

Extensive recordExtensive recordkeeping necessarykeeping necessary

Double taxation ofDouble taxation ofdividendsdividends

Possible development ofPossible development ofconflict betweenconflict betweenshareholders andshareholders and

executivesexecutives

8/8/2019 Review of the Subject - The Firm and the Financial Manager

15/29

COCO--OPERATIVESOPERATIVESAdvantagesAdvantages

Owned and controlled byOwned and controlled bymembersmembers

Democratic control (ie.,Democratic control (ie.,one member, one vote)one member, one vote)

Limited liabilityLimited liability

Profit distributionProfit distribution(surplus earnings) to(surplus earnings) tomembers in proportionmembers in proportionto use of service; surplusto use of service; surplusmay be allocated inmay be allocated inshares or cashshares or cash

DisadvantagesDisadvantages

Possible development ofPossible development ofconflict betweenconflict betweenmembersmembers

Longerdecision makingLongerdecision making

processprocess

Requires members toRequires members toparticipate for successparticipate for success

Extensive recordExtensive recordkeeping necessarykeeping necessary

Less incentive to investLess incentive to investadditional capitaladditional capital

8/8/2019 Review of the Subject - The Firm and the Financial Manager

16/29

Finance?Finance?

8/8/2019 Review of the Subject - The Firm and the Financial Manager

17/29

Why Does BusinessWhy Does BusinessNeed Finance?Need Finance?

8/8/2019 Review of the Subject - The Firm and the Financial Manager

18/29

Types of FinanceTypes of Finance

Debt Finance

Debt Finance

Equity FinanceEquity Finance

8/8/2019 Review of the Subject - The Firm and the Financial Manager

19/29

TheThe rolerole ofof thethe FinancialFinancial ManagerManager

Measurement of FirmsMeasurement of FirmsPerformancePerformance

Day to day Performance of theDay to day Performance of theFirmFirm

Recommendations forRecommendations forFinancingsFinancings

Future StrategiesFuture Strategies

8/8/2019 Review of the Subject - The Firm and the Financial Manager

20/29

Basic Financial Goal of the FirmBasic Financial Goal of the Firm

To maximize the profitsTo maximize the profits

8/8/2019 Review of the Subject - The Firm and the Financial Manager

21/29

Legal and

ethical challengesLegal and

ethical challenges InternalInternal andand ExternalExternal

decisions

decisions onon

day

day toto

day

day basisbasisforfor thethe affirmationaffirmation ofof thethe firmfirm

E

mployeesE

mployees MattersMatters EnvironmentalEnvironmental

8/8/2019 Review of the Subject - The Firm and the Financial Manager

22/29

SafetySafety StandardsStandards

CivilCivilR

ig

htsR

ig

hts

FollowingFollowingprevailingprevailing RulesRules

&& RegulationsRegulations

8/8/2019 Review of the Subject - The Firm and the Financial Manager

23/29

The Financial SystemThe Financial System

BringBring twotwo entitiesentities toto overcomeovercome

thethe deficitdeficit economiceconomic unitsunits forfor

thethe mutualmutual benefitbenefit ofof thethe firmfirm..

8/8/2019 Review of the Subject - The Firm and the Financial Manager

24/29

Financial InstitutionsFinancial Institutions

andMarketsandMarkets

Investment BankingInvestment Banking

Commercial BankingCommercial BankingSystemSystem

8/8/2019 Review of the Subject - The Firm and the Financial Manager

25/29

Primary MarketsPrimary Markets

Secondary MarketsSecondary Markets

8/8/2019 Review of the Subject - The Firm and the Financial Manager

26/29

TheThe MoneyMoney MarketMarket

TheThe CapitalCapital MarketMarket

8/8/2019 Review of the Subject - The Firm and the Financial Manager

27/29

Securities of the Money MarketsSecurities of the Money Markets

LiquidLiquid assets,assets, whichwhich maturemature quicklyquickly andand

cancan bebe soldsold forfor cashcash::

TreasuryTreasury BillsBills

BankBankGuaranteesGuarantees

CommercialCommercial PapersPapers (DP(DP Note)Note)

ForeignForeign CurrencyCurrency

8/8/2019 Review of the Subject - The Firm and the Financial Manager

28/29

Securities in the Capital MarketsSecurities in the Capital Markets

StocksStocks

BondsBonds

8/8/2019 Review of the Subject - The Firm and the Financial Manager

29/29

THANK YOUTHANK YOUTHANK YOUTHANK YOU