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Lecture 1

Lecture 1. Career Opportunities in Finance Financial Manager’s responsibilities Actions to maximize shareholder wealth Forms of Business Organization Agency relationships. Required Text. Essentials of Managerial Finance Scott Besley and Eugene Brigham 12 th edition.

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Lecture 1

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  1. Lecture 1 Career Opportunities in Finance Financial Manager’s responsibilities Actions to maximize shareholder wealth Forms of Business Organization Agency relationships

  2. Required Text • Essentials of Managerial Finance • Scott Besley and Eugene Brigham • 12th edition

  3. Career Opportunities in Finance

  4. 1. Financial Markets and Institutions • Places • Banks, Insurance companies, rating agencies, regulatory bodies, e.g. State Bank of Pakistan • What knowledge is needed? • Effect of changes in interest rates, regulations, financial instruments (auto loans, mortgages etc.) • General knowledge of business administration

  5. 2. Investments • Places: • Brokerage firms, banks, mutual funds, insurance companies • What knowledge is needed? • Pricing of assets (stocks, bonds etc.) • General knowledge of business administration

  6. 3. Managerial Finance/ Financial management • Places: • Manufacturing and service firms • What knowledge is needed? • Determining the value of projects, assessing financing needs • E.g. Should a firm go for plant expansion? How will it finance the expansion? • General knowledge of business administration

  7. Career Opportunities… • No matter which area you choose you will need to have a knowledge of all three areas • For non-finance majors: • Financial implications in virtually all business decisions • Need to manage personal investments

  8. Role of Finance in a Typical Business Organization

  9. Financial Manager’s responsibilities • Forecasting and planning • Investment and financing decisions • Which assets to acquire? • Should we borrow (raise debt) or sell stock? • Coordination and Control • Interaction with other businesses • Dealing with financial markets

  10. Financial Goals of the Corporation • The primary financial goal is shareholder wealth maximization which translates into maximizing stock price.

  11. Actions to maximize shareholder wealth • Maximizing Earnings per share rather than total profits • Before : After: Net Income = $1200 mn $1500 mn Total Shares = 300 mn Sold 300 mn more shares Earning Per Share = ? EPS = $2.50

  12. Actions to maximize shareholder wealth… • Considering the timing of the earnings • A rupee in hand now is worth more than a rupee coming in the future • Some projects may have high returns but might be very risky • Should the firm take on the project?

  13. Actions to maximize shareholder wealth… • How should projects be financed? • Use more debt? • Use of debt increases riskiness of projected future earnings • Dividend Policy decision • Should the firm pay out earnings as dividends or plow them back into the firm?

  14. Other goals of a corporation • Be socially responsible • Acting in the interests of all the stakeholders (employees, customers, community) • Keep stockholder returns at a “reasonable” level

  15. Video Clip • A day in the life of a CFO • Key takeaways: • Core job: maintaining financial strength of the firm; maximizing shareholder value • Communicating financial information to investor community • Changing role: role has broadened to include strategic responsibilities, e.g., leading a cultural change, planning for the future

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