finman introduction

8/13/2019 Finman Introduction

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Welcome to Financial

Management Class


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FINANCIAL MANAGEMENT

Chowdhury Saleh Ahmed. Ph. D

[email protected]

Week No. 1

3 hourIntroductory Issues

Importance and Scope of Financial Management

Goal of the Firm.

Organization of the Financial Management function.Week No. 2

3 hourThe Time Value of Money

Present and Future Values

Simple and Compound Interest rates

Present and Future Value Interest Factors/ CurvesWeek No. 3

3 hourValuation of Financial Instruments

Types of Loans and advances,

Annuities and perpetuities

Amortizing a Loan


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Week No. 43 hour Valuation of Long term Securities

Distinction in Valuation Concepts

Rates of Returns for yield,

Real versus nominal return

Week No. 53 hour Risk and ReturnMeasuring Risk

Concept of Probability Distribution

Portfolio Risk

Week No. 6 MID TERM EXAMINATION--------------------------------------------------------


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Week No. 73 hour

Risk And ReturnsCapitalAsset Pricing Model

Risk and Term Structure

Risk Premium

Week No. 8

3 hourTools of Financial Analysis and Planning

Balance Sheet Ratios

Income statement Ratios

Du Pont Approach

Week No. 9

3 hour

Tools of Financial Analysis and Planning

Sustainable Growth Model

Implication of Sustainable Growth Model

Comparison with Du Pont


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Week No.10

3 hourWorking Capital Management

Working Capital Issues and Risk

Financing Current Assets and Liabilities

Optimal Working Capital

Week No.11

3 hourInventory Management

Types of Inventory Costs

Optimal Level of Inventory

Economic Ordering Quantity DeterminationWeek No. 12

3 hourCapital Budgeting Techniques

Principles of Valuation

Financial Measures of Project Evaluation

Limitations of Capital Budgeting Techniques

Week No. 13

3 hourCapital Budgeting Techniques

Sensitivity Analysis

Economic Analysis

Implications of techniques

FINAL EXAM ---------------------------------


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Course Evaluation Method

Criteria % marks

Class attendance 10

Home Assignment/ class tests 15

Mid term examination 30

Final examination 45


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Course Name: Financial Management

Hours per week: 3 2nd Semester: 2013

Total Weeks: 14 Lecture 3 hours

Total Hours: 45 hours Credits: 3

Dr. Chowdhury Saleh Ahmed


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Course Objectives:

The course aims to introduce major elements of

Financial Management to the students so as to allow

them specialize in these areas.

The focus of the course will be upon identifying

major challenges faced by management in financial

decision-making.

Students will also be exposed to Bangladeshs

financial management situations.


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Introduction

Definition, Importance and Scope of

Financial Management

Coverage of Lecture


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What is Finance?

Finance is the art and scienceof

managing money.

Finance is concerned with the process,

markets and institutionsinvolved in the

transfer of money among and betweenindividuals, businesses and governments.


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What is Financial Management?

Financial Management is synonymous withthe duties of the Financial Manager in thecorporate office.


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What are the duties of Financial

Managers?

Financing decision makingsuch as loanarrangement, equity arrangement, financialforecasting, cash management, budgeting, etc.

Investment decision makingsuch as starting anew project, expansion of existing project, etc.and

Asset management decision makingsuch as

asset and liability management, portfoliomanagement etc.


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Therefore financial management means?

Studying decision-making in financing,

financial investment and asset management

functions of a corporate body for the benefit ofthe share holder and the economy at large.

Relevance of financial decision-making tobalance sheet?


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Importance of Financial Management

Financial Management has assumed a greater importanc

now-a days due to following reasons:

Size and complexity of corporate bodies have increased mani

External factors like

intense corporate competition,

technological change,

volatility of interest and inflation rates,

fluctuating exchange rates,

tax law changes

have great financial impacts.

Financial managers need quicker flexibility to respond to

need.


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Importance of Financial ManagementA financial manager must be able to:

adapt to change,

raise funds, invest in assets and

achieve balance between assets and liabilitieswisely

for benefit of the shareholders and theeconomy as a whole.


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Schematic diagram of Financial managementDepartment within Corporate Governance

Share holders

Debt holders

Customers

Communities

Regulators

Media etc.

Chief Executive

Board

CEO

External Stakeholders

Internal

StakeholdersOperations Manager Financial Manager Marketing Manager

Other Employees


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Types of Stakeholders Financial Decisions InvolvedShareholders

Customer

Dividend

Price / Discount/ Gifts/

Lotteries


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Reason for Renewed Interest in

Financial Management During the earlier part of the last decade,

there has been governancebreakdown

involving largest corporate bodies of theworld (like Enron, World com, Tyco,Global crossing etc.).

In USA, renewed interest in effective

corporate governance and efficient financialmanagement were manifested throughSerbanes-Oxley Act, 2002


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Cont.The Act calls for:

A high standard in corporate governance, and

Establishment of the Public Company Accounting Oversight

Board (PCAOB) for purpose of overseeing.

. The PCAOB has been given the power to ensure financial

management of the corporate bodies through measures like timelyauditing, quality control, ethics, appointment of independent

auditors, disclosure standards etc. for public companies.


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Cont..

In Bangladesh and other developing countries,

Securities and Exchange Commission has issued Code

of Corporate governance in 2006.

Code of Governance describes financial and other

requirements (such as auditing, corporate governance,

corporate social responsibilities (CSR) to be satisfied by

the corporate bodies.


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Relationship of Financial Management with

Economics and Accounting

Finance is closely related to Economics.

Since every business firm operates within the

economic principles, the financial manger must

understand the economic scenario and the

consequences of changes in economic principle.

Financial manager must be able to use

economic theories as guidelines for efficient

business operation. Supply and demand

analysis, profit maximizing strategies and price

theory are some of the examples.


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R l i hi i h A i


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Relationship with Accounting

Finance and accounting activities are closely

related and generally overlap. In small firms, accountants often carryout

finance functions.

While in large firms, the functions areseparate.

The difference between the two is that

finance involves decision-making whileaccounting conforms to some standards

(like BAS)


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The Goal of the firm and hence of the

Financial Manager:1. Value Creation2. Solving the agency problem

3. Discharging corporate social

responsibilities.

Value Creation:

Maximizing earning per share is often cited to bethe major objective of a corporate body.


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Shortcoming of the objective of

maximizing earnings per share

It does not consider risk. The two companies

shares may have same Earning per share, but

one firms share may be too risky to possess.(That is while maximizing EPS, risk may be increased.)


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Another limitation is that if the

only objective were to maximize

earning per share, the firm would

never pay a dividend.

It could always increase earningper share by retaining earning.

(Retained earning would raise EPS)


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It is important to note that Maximizing Earning

per share is not the same as maximizing share

price.

The later shows final judgment of all market

participants as to the value of the particular firm.

It takes into account present as well as future

earnings per share, the timing, duration and risk of

these earnings.


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Cont

The market price serves as the barometer for

business performance.

It indicates how well management is doing on

behalf of its shareholders.

S l i A P bl


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Solving Agency Problem

Management may be considered as the agents of the

owners. However, the management s actions may not

always match with the desires of those of the owners.

Here the optimal approach would be to reduce the

agency problem by :

*Incentives to Management by the owners

* Monitoring/ overseeing of the

Management performance

* Limiting Management decision making


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Corporate Social ResponsibilityFinance Managers, besides maximizing earning per

share must also ensure CORPORATE SOCIAL

RESPONSIBILITY such as:

protecting the consumer,

paying fair wages to employees,

maintaining fair hiring practices,

safe working conditions,supporting education and environmental programs

such as clean water and air etc.


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Corporate Social Responsibility

That is the financial manager must not only

ensure the interests of the shareholders but

also that of all the stakeholders, that is

society at large.


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Types of Decision Functions of a

Financial Manager

Decision functions can broken down to three types:

Investment decision

Financing decision

Asset management decision


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Investment Decision

This involves how much total fixed assets

needed to be held by the firm.

Balance sheet shows assets held in the left

side while firms liability and are shown on

the right.


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Financing Decision

Here the financial manager is concernedwith the makeup of right-hand side of the

balance sheet that is the liability side. Experience shows that firms have

divergence in holding equity vs.debt.variety

Financing decisions has implication fordividend and hence on retention of fund.


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Cont of Financing Decisions

The dividend paid out must be balanced withopportunity of retained earning lost fromgiving away divided.

Once the mix of financing has been decided byboard/management, the financial managermust determine how best to acquire thesefunds.

The mechanics of getting short term loan,entering into long term loan agreements,negotiating sale of bond must be understood by

the financial manager.


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The End

finman introduction

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