Introduction of Financial
Management
Chapter One
Objectives
After studying Chapter 1, you should be able to:
•Explain why the role of the financial manager today is so important. l
Describe “financial management” in terms of the three major decision areas
that confront the financial manager.
•Identify the goal of the firm and understand why shareholders’ wealth
maximization is preferred over other goals.
• Understand the potential problems arising when management of the
corporation and ownership are separated (i.e., agency problems).
•Demonstrate an understanding of corporate governance.
•Discuss the issues underlying social responsibility of the firm.
•Understand the basic responsibilities of financial managers and the
differences between a “treasurer” and a “controller.”
The Role of
Financial Management
• What is Financial Management?
The Financial Management is the study and practice
of dollar denominated decision making within a
business firm. Financial managers are the members
of the management team responsible for assessing
the financial implications of any decision made by
the firm.
• The Goal of the Firm
Profitability, its liquidity and its financial position
Organization of the Financial
Management Function
Concerns the Acquisition,
Financing, and Management of
assets with some overall goals in
mind.
Corporate Organization
Copyright © 2003 Pearson Education, Inc. Slide 1-5
Career Opportunities
Copyright © 2003 Pearson Education, Inc. Slide 1-6
Investment Decisions
Most important of the three
decisions.
• What is the best firm size?
• What specific assets should be
acquired?
• What assets (if any) should be reduced
or eliminated?
Contin………………….
Two critical issues to be considered
in these decisions are:
1. Evaluation of expected profitability of the new
investments.
2. Rate of return required on the project.
Financing Decisions
Determine how the assets (LHS of
balance sheet) will be financed (RHS
of balance sheet).
• What is the best type of financing?
• What is the best financing mix?
• What is the best dividend policy?
• How will the funds be physically acquired?
• How much cost incurred by the implicit and explicit
cost
Asset Management
Decisions
• How do we manage existing assets
efficiently?
• Financial Manager has varying degrees of
operating responsibility over assets.
• Greater emphasis on current asset
management than fixed asset
management.
Asset management has two general definitions, one
relating to advisory services and the other relating to
corporate finance.
In the first instance, an advisor or financial services
company provides asset management by coordinating
and overseeing a client's financial portfolio -- e.g.,
investments, budgets, accounts, insurance and taxes.
In corporate finance, asset management is the process of
ensuring that a company's tangible and intangible assets
are maintained, accounted for, and put to their highest
and best use.
Interface Between Finance And Other
Business Functions
• Finance And Accounting
• Finance And Marketing
• Finance And Productions (Operations)
• Finance And HR
