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THE GOALS AND FUNCTIONS OF FINANCIAL MANAGEMENT (Chapter 1). Field of Finance: An Overview Goal of the Firm Agency Problem Business Ethics Forms of Business Organization Globalization Computerization. Field of Finance: An Overview. Financial Management (Insiders).

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the goals and functions of financial management chapter 1
THE GOALS AND FUNCTIONS OFFINANCIAL MANAGEMENT (Chapter 1)
  • Field of Finance: An Overview
  • Goal of the Firm
  • Agency Problem
  • Business Ethics
  • Forms of Business Organization
  • Globalization
  • Computerization
financial management insiders
Financial Management (Insiders)
  • Investment Decisions - Assets
    • Using Funds
  • Financing Decisions - Debt and Equity
    • Acquiring Funds
  • MGMT 133, MGMT 134, MGMT 174
  • MGMT 133 is oriented towards all business majors (not just finance majors)
investments outsiders
Security Analysis

Portfolio Management

MGMT 135

MGMT 136

Investments (Outsiders)
financial markets
Financial Markets
  • Money and Capital Markets
  • Primary and Secondary Markets
  • Financial Institutions: Banks, Insurance Companies, Credit Unions, Mutual Funds, Etc..
  • Federal Reserve: Interest Rates, Regulation
  • MGMT 137, ECON 135
goal of the firm
Goal of the Firm
  • Wealth Maximization
    • Maximize the wealth of the firm’s existing common stockholders
  • Wealth Defined
    • Market Value of the firm’s common stock
    • (Price per share)(number of shares)
goal of the firm continued
Goal of the Firm (Continued)
  • Factors Affecting Price Per Share
    • Earnings per share (EPS)
    • Price/Earnings Ratio
      • Timing of EPS
      • Risk
  • Problem With Earnings Maximization
    • Ignores many of the important variables that impact on the stockholders’ well being (i.e.., wealth)
agency problem
Agency Problem
  • Stockholders Versus Managers
    • Managers, in light of their self interest, may at times make decisions that are not oriented towards maximizing stockholder wealth. This does not, however, invalidate the goal itself.
    • Incentives for management to act in the stockholders’ best interest
      • Threat of being fired - PERS is quite active
      • Hostile takeover if stock price is too low
      • Performance based salaries
business ethics
Business Ethics
  • Ethics Defined
    • Standards of conduct and moral judgment
  • Unethical conduct may be obvious at times.
    • Insider Trading
  • Ethical dilemmas, however, can also exist.
    • Profits and ethics sometimes conflict
    • Often there is no clear-cut right or wrong answer
forms of business organization
Forms of Business Organization
  • Sole Proprietorship
    • About 75% of all firms
  • Partnership
  • Corporation
    • About 90% of all sales dollars
sole proprietorship
Sole Proprietorship
  • A single owner
  • Unlimited liability
  • Taxed at personal income tax rates
  • Easiest and least expensive to establish
  • Market value of firm difficult to estimate
  • Difficult to raise equity capital
partnership
Partnership
  • Two or more owners
  • Unlimited liability
  • Taxed at personal income tax rates
  • Not too costly to establish
  • Market value of firm difficult to estimate
  • Difficult to raise equity capital
    • Easier to raise capital compared to a sole proprietorship, however.
corporation publicly traded
Corporation (Publicly Traded)
  • Unlimited life
  • Legal entity
  • Easy to transfer ownership
  • Limited liability of stockholders
  • Double taxation
    • Corporate earnings taxed
    • Stockholders’ dividends taxed
  • Most attractive form for raising capital
  • Market Value easy to determine
hybrid forms of organization
Hybrid Forms of Organization
  • Limited partnership
    • Liability limited to investment
  • Subchapter S Corporation
    • Shareholders enjoy limited liability, but income is taxed at personal income rates.
globalization
Globalization
  • Financial managers must have a multinational perspective regarding many decisions
  • Various international aspects of financial management will be introduced throughout the semester
technology
Technology
  • Strong computer skills are essential
  • Internet and World Wide Web
  • Electronic Commerce