[go: up one dir, main page]
Scribd
Upload
284 views5 pages

Six Principles of Finance Management

This document is a presentation on the six principles of finance management given by a group of students at Abdul Wali Khan University Mardan. It begins with defining finance and its three categories. It then discusses the financial environment and three areas within the financial system: institutions and markets, investments, and financial management. The bulk of the document outlines the six principles of finance management - the time value of money, risk-return tradeoff, diversification of investments, information efficient markets, differences between management and owner objectives, and the importance of reputation.

Uploaded by

Aqib javed
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as RTF, PDF, TXT or read online on Scribd
284 views5 pages

Six Principles of Finance Management

This document is a presentation on the six principles of finance management given by a group of students at Abdul Wali Khan University Mardan. It begins with defining finance and its three categories. It then discusses the financial environment and three areas within the financial system: institutions and markets, investments, and financial management. The bulk of the document outlines the six principles of finance management - the time value of money, risk-return tradeoff, diversification of investments, information efficient markets, differences between management and owner objectives, and the importance of reputation.

Uploaded by

Aqib javed
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as RTF, PDF, TXT or read online on Scribd
You are on page 1/ 5

ABDUL WALI KHAN UNIVERSITY MARDAN

Presentation on

Six Principles of Finance Management

Present to Dr. IBRAHIM

Group Members
Saddam khan M16-20
Zia Ul Islam M16-29
Muhammad Muqsit khan M16-51
Sohail Ahmad M16-33

1|Page
ABDUL WALI KHAN UNIVERSITY MARDAN

What is Finance?
FINANCE:

Study of how individuals, institutions, governments, and businesses gain, spend, and
manage money and other financial assets it can simple be define as “MONEY
MANAGEMENT” finance can b split into three categories

 The public finance

 Corporate finance

 Personal finance

FINANCIAL ENVIRONMENT: Surrounding the financial system, institutions, markets, and


individuals that make the economy operate efficiently

Three Areas of Finance within the Financial System

 Institutions and Markets


 Investments
 Financial Management

Finance Area Definitions

 FIINANCIAL INSTITUIONS: otherwise known as Bank institutes, are corporation


that provide services as intermediaries of financial markets

2|Page
ABDUL WALI KHAN UNIVERSITY MARDAN

 Help the financial system operate efficiently and transfer funds from savers to
investors

 FINANCIAL MARKETS: Physical locations or electronic forums that facilitate the


flow of funds

 Example the bond market, the real estate market the stock market

Finance Area Definitions

 INVESTMENTS INSTITUTIONS:
Involves sale or marketing of securities, analysis of securities, and management of
investment risk

Examples pension funds, insurance companies commercial banks

 FINANCIAL MANAGEMENT Involves financial planning, asset


management, and fund raising decisions to improve firm value

Six Principles of Finance


 Money has a time value

 Higher returns are expected for taking on more risk

 Diversification in investments

 Financial markets are efficient in pricing securities

 Manager and stockholder objectives may differ

3|Page
ABDUL WALI KHAN UNIVERSITY MARDAN

 Reputation matters

1. Time Value of Money

 Money in hand today is worth more than the promise of receiving the same
amount of money in the future

 Time value of money exists because a sum of money today could be invested
and “grow” over time

2. Risk-Return Tradeoff

 Risk is the uncertainty about the outcome or payoff of an investment in the


future

 Rational investors would choose a riskier investment only if they feel the
expected return is high enough to justify the greater risk

3. Diversification of Investments

 All investment risk is not the same

 Some risk can be removed or diversified by investing in several different assets


or securities.

4.Information efficient

 A financial market is “information efficient” if at any point in time the prices of


securities reflect all information available to the public

4|Page
ABDUL WALI KHAN UNIVERSITY MARDAN

 When new information becomes available, prices quickly change to reflect that
information

 Information efficient markets provide liquidity and fair prices

5. Management Vs. Owner Objectives

 Management objectives may differ from owner objectives (called principal-


agent problem)

 Owners or equity investors want to maximize the returns on their investments

 Managers may seek to emphasize the size of firm sales, assets, or other perks

 Solution: tie manager compensation to performance measures beneficial to


owners

6. Reputation Matters!

 Ethical Behavior:

 How an individual or organization treats others legally, fairly, and honestly

 High reputation value reflects high quality ethical behavior, so employing high
ethical standards is the “right” thing to do

5|Page

You might also like