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FINC3131 Business Finance

2. Learning Objectives. Identify 3 main subject areas in financeWhy sound financial management is vital to survival in business Difference between Finance (corporate financial management) and AccountingRelationship between cash and value, Importance of cashGoal of financial management Describe

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FINC3131 Business Finance

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    1. 1 FINC3131 Business Finance Chapter 1: Introduction & overview

    2. 2 Learning Objectives Identify 3 main subject areas in finance Why sound financial management is vital to survival in business Difference between Finance (corporate financial management) and Accounting Relationship between cash and value, Importance of cash Goal of financial management Describe different forms of business organization Math Review

    3. 3 Areas in Finance Corporate financial management Investments Financial markets & institutions

    4. Why I need to learn Finance? Suppose I want to be a money manager. 4

    5. Why I need to learn Finance? Suppose I want to buy a house with a mortgage loan. How much shall I repay the bank every month? How much can I save from paying the interest? 5

    6. Why I need to learn Finance? Suppose I am a marketing manager sitting with finance guys and we are evaluating a potential project. Finance guys are talking about NPV, the cost of capital, operating cash flows, sunk cost, etc. And then they reject my proposal of producing i-Pad 7 based on their reasoning that the NPV of the project is negative. How can I defend my proposal if I do not understand those finance terms? 6

    7. 7 Excellent financial management cannot save a firm with a bad product, BUT… Poor financial management can cause a firm to fail, EVEN IF it efficiently produces, markets and delivers a product that is in great demand. Financial Management

    8. 8 Finance & Accounting Accounting historically based/ backward looking Finance forward looking Why does Finance (financial management) involve analysis of income statement and balance sheet? Answer: Financial statements provide information useful for estimating future cash flows and firm value.

    9. 9 Cash and Value (price) Relationship between cash (cash flows) and value: The value of an investment is determined by the future cash flows that the investment generates for the investor Why focus on cash? Simple, the only thing that investors eventually want is CASH.

    10. 10 Goal of Corporate Financial Management/Managers Maximize the wealth of stockholders/owners Why? Stockholders invest in the firm because they want to make money. maximizing shareholders’ wealth is equivalent to maximizing stock price per share or market value.

    11. 11 Forms of Business Organizations

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