nsu mba finance

7/18/2019 NSU mba Finance

1/13

1-1

CHAPTER 1

An Overview of FinancialManagement

Functions of ManagerialFinance

Issues of the NewMillennium

Forms of Businesses

Goals of the Corporation


2/13

1-2

Functions of Managerial

Finance 1. Procurement of funs! "here are alternative sources of fun

li#e a compan$ can ta#e loan or it can issue common stoc# toraise the fun re%uire. "a#ing loan can also &e of i'erentforms li#e &an# loan( &on or e&entures. Preference shares

can also &e another source. In case of e&t( &on ane&entures the compan$ must pa$ a )*e rate of interestwhich is a compulsor$ o&ligation. In case of preference sharesthe preference iviens are )*e an compulsor$ pa$mentsfor pro)ta&le )rms. In case of orinar$ stoc# the )rm ise*pecte to pa$ the return e*pecte &$ the share holers.

"hese #ins of pa$ments of interest or iviens refer to thecost of capital. Cost minimi+ation is the goal of )nancing.Finance managers nee to select the &est possi&le sources offuns among the i'erent alternatives calle Capital structure,ecision.Orinar$ stoc# holers are the owners of the )rm-li#e the$ have voting rights &ut e&tors are not the owners./o( common stoc# is calle Internal source0 an &on(

e&enture an loan are calle e*ternal sources. Purpose isalso important in the choice of funs.


3/13

1-3

. 2tili+ation of funs!Capital Bugeting ecision. 3ong terminvestment ecision is mae on the &asis of ris# an return. "hegoal is pro)t ma*imi+ation. "his is the most important anchallenging function of )nance. "o preict future pro)t is i4cult

as Pro)t5"otal 6evenue7"otal Cost. "65P.8. "C5FC9":C.;. /hort term asset management!


4/13

1-4

Career Opportunities in

Finance Financial Mar#et an Institution &riges the

gap &etween net &orrowers an net savers.Mone$ an capital mar#ets inclue &an#(

insurance ? leasing( investment companies(evelopment institutions( an stoc# e*change. Investments!Investors are ris# averse. Best

possi&le ris#7return com&ination can &e foun&$ )nancial anal$sis( securit$ anal$sis an

portfolio -optimal mi* of securities selection. Managerial Finance!Financial aspects of all#ins of pro)t7see#ing )rms ma$ it &emanufacturing or traing )rms.


5/13

1-5

Importance of Finance in

Non7)nance Areas Managements

Personnel ecision! setting salaries /trategic planning! cost7&ene)t anal$sis of strategies

Mar#eting! Four Ps! Prouct( price( place an promotion! Cost7&ene)tanal$sis of them nees )nancial ecision

Accounting Both accounting an )nance are interrelate an

complementar$ to each other. Accounting recors anclassi)es )nancial ata an )nance ma#es an anal$sis. In

cases( )nance wor#s on the relia&ilit$ of such ata.


6/13

1-6

s71@s


7/13

1-7

Alternative Forms of

Business Organi+ation /ole proprietorship

Partnership

Corporation


8/13

1-8

/ole proprietorships ?

Partnerships Avantages


9/13

1-9

Corporation Avantages

2nlimite life


10/13

1-10

Financial Goals of the

Corporation"he conventional goal of a )rm is pro)t7

ma*imi+ation. However( since pro)t is

reporte &$ the management so it can&e manipulate. Moreover( accountingpro)t is not estimate on cash &asis./o( the moern goal of )rm is

shareholers wealth ma*imi+ation(which refers to ma*imi+ing stoc# pricesat the mar#et.


11/13

1-11

A graphical approach to

wealth ma*imi+ation

D1

S1

D2

S2

W1=P1

W2=P2

Quantity of stock

MarketPriceofShare

s

Q1


12/13

1-12

,eterminants of wealth

CFmeans cash ow from the )rm to the shareholer. "hisepens on pro)t(


13/13

1-13

Goal of a )rm!

Pro)t Ma*imi+ation :s.=ealth Ma*imi+ation :agueness in e)nition! "here are man$

e)nitions of Pro)t an so it is vaguel$ e)ne.=ealth is the present value of all futureiviens which is reail$ o&serve in currentshare price at the mar#et.

Pro)t is an annual concept an so it is a shortterm concept &ut wealth is a long term concept.

Pro)t can &e manipulate &$ the management-li#e winow ressing &ut wealth is &e$on the

irect manipulation of management. 6is# consieration. "he theor$ of ris# sa$s that

ris# an return is proportional. Pro)t can not &eincrease without increasing ris#.

nsu mba finance

Documents