© 2005 Pearson Education Canada Inc. BZUPAGES.COM 1-1 Overview of Corporate Finance Hashim Ali Shah 0333-4616495 www.pakmanagement.com.

Slides:



Advertisements
Similar presentations
FINANCIAL MANAGEMENT I AND II
Advertisements

Chapter One Overview of Corporate Finance
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 0 Chapter 1 Introduction to Financial Management.
Learning Objectives Define finance and its major areas and opportunities. Review the basic forms of business organization. Describe the managerial finance.
Copyright © 2003 Pearson Education, Inc. Slide 1-0 The Role and Environment of Managerial Finance.
Introduction to Corporate Finance
© 2003 The McGraw-Hill Companies, Inc. All rights reserved. Introduction To Corporate Finance Chapter One.
Key Concepts and Skills
Chapter 1: Outline Corporate Finance and the Financial Manager
Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 9-1 Chapter (1) An Overview Of Financial Management.
Introduction to Financial Management
McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.
Business Organization and Financial markets Some basic concepts Financial management: Lecture 2.
Copyright © 2010 Pearson Prentice Hall. All rights reserved. Chapter 1 Financial Management.
McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. 1 Introduction To Corporate Finance.
© 2005 McGraw-Hill Ryerson Limited © 2003 The McGraw-Hill Companies, Inc. All rights reserved.
Introduction to financial management
Key Concepts and Skills
Copyright © 2006 Pearson Addison-Wesley. All rights reserved. 9-1 Chapter (1) An Overview Of Financial Management.
© 2005 McGraw-Hill Ryerson Limited © 2003 The McGraw-Hill Companies, Inc. All rights reserved.
Role and Environment of Managerial Finance (CH1)
CHAPTER ONE Introduction To Corporate Finance. Key Concepts and Skills Know the basic types of financial management decisions and the role of the financial.
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 1.0 Introduction to Financial Management Chapter 1.
Chapter 1 Financial Management.
© 2005 McGraw-Hill Ryerson Limited © 2003 The McGraw-Hill Companies, Inc. All rights reserved.
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc. All rights reserved.
CHAPTER 1 Introduction to Corporate Finance 1. Why Study Finance? Marketing Budgets, marketing research, marketing financial products. Accounting Dual.
Chapter 1 Financial Management. © 2013 Pearson Education, Inc. All rights reserved Describe the cycle of money, the participants in the cycle, and.
Chapter McGraw-Hill Ryerson © 2013 McGraw-Hill Ryerson Limited Introduction To Corporate Finance 1 Prepared by Anne Inglis.
Introduction to Financial Management
Chapter 1 Introduction to Corporate Finance Copyright © 2012 by McGraw-Hill Education. All rights reserved.
Chapter 1 Introduction to Financial Management. Key Concepts and Skills Know the basic types of financial management decisions and the role of the financial.
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 0 Chapter 1 Introduction to Financial Management.
McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved. 1 Introduction To Corporate Finance.
Introduction to Corporate Finance. Corporate Finance and the Financial Manager.
Why study Managerial Finance?
© 2003 McGraw-Hill Ryerson Limited 1 1 Chapter Prepared By: P Chua Slides Based on: Terry Fegarty Seneca College Book References: 1.Block, Short and Hirt.
Accounting for Decision Makers Dr. Richardus Eko Indrajit.
Slide 1-1 Chapter 1 Introduction. Slide 1-2 Areas of Opportunity in Finance Financial Services: –Banking –Personal financial planning –Investments –Real.
Principles of Managerial Finance 9th Edition Chapter 1 Overview of Managerial Finance.
FUNDAMENTALS OF CORPORATE FINANCE MGF301 Fall 1998 Vigdis Boasson SUNY at Buffalo
Principles of Finance T ODAY’S S ESSION ‘Introduction to Finance’  Chapter One : An overview of managerial Finance.
McGraw-Hill © 2004 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin 1.0 Introduction to Financial Management Chapter 1.
1 - 1 CHAPTER 1 Overview of Financial Management and the Financial Environment Financial management Forms of business organization Objective of the firm:
Overview of Financial Management. OVERVIEW OF FINANCIAL MANAGEMENT The Corporation Life Cycle Value Creation & Maximization Financial Institutions & Process.
1 Chapter One Principles of Finance By Farhana Rob Shampa.
Chapter 1 © 2009 Cengage Learning/South-Western FIN 3303 Business Finance.
Definition and Basic concepts. Definition of Finance Finance is the art and science of managing money which is concerned with the process, institutions,
CDA COLLEGE BUS235: PRINCIPLES OF FINANCIAL ANALYSIS Lecture 1 Lecture 1 Lecturer: Kleanthis Zisimos.
Corporate Finance ​ ​ Mr. Long Sovang, MFI. 1.1 Introduction to Corporate Finance.
Chapter 1 Introduction to Corporate Finance Corporate Finance and the Financial Manager Forms of Business Organization The Goal of Financial Management.
McGraw-Hill/Irwin ©2001 The McGraw-Hill Companies All Rights Reserved Essentials of Corporate Finance RossWesterfieldJordan Third Edition.
Essentials of Managerial Finance by S. Besley & E. Brigham Slide 1 of 23 Chapter 1 An Overview of Managerial Finance.
Chapter 1 - An Introduction to Financial Management Chapter 1 - An Introduction to Financial Management  2005, Pearson Prentice Hall.
Lecture 1.  Accounting is “the language of business.”  More precisely, accounting is a system of maintaining records of a company’s operations and communicating.
Welcome! FIN 335 –Principles of Financial Management Clay M. Moffett, Ph.D. Cameron 220 O
Chapter One Overview of Managerial Finance Principles of Managerial Finance.
Financial Management Economics and Management School Lanzhou University of Technology Yan Fu-hai CPA, FPNA,Professor.
+ Introduction to corporate finance CH 1. + What is corporate finance? What is the role of the financial manager in the corporation? What is the goal.
Financial Management Decisions n Investment: What assets to own? n Financing: How to pay for those assets? n Dividend: What to do with Net Income?
 Finance is concerned with resource allocation as well as resource management, acquisition and investment. Simply, finance deals with matters related.
INTRODUCTION TO CORPORATE FINANCE CHAPTER 1 Copyright © 2016 McGraw-Hill Global Education LLC. All rights reserved.
Engineering Economics and Management ( ) B.E. 3 rd Semester Computer Engineering Department Prepared by:- PATHAK SONAL Y. ( ) SHREYA.
INTRODUCTION TO FINANCIAL MANAGEMENT Chapter 1. WHAT IS FINANCE? Finance can be defined as science and art of managing money. KEYWORDS FINANCIAL MANAGEMENT.
Chapter Outline Finance Corporate Finance and the Financial Manager
An Overview of Financial Management
Role and Environment of Managerial Finance-part 2
Role and Environment of Managerial Finance
Role and Environment of Managerial Finance
An Overview of Financial Management
Presentation transcript:

© 2005 Pearson Education Canada Inc. BZUPAGES.COM 1-1 Overview of Corporate Finance Hashim Ali Shah

© 2005 Pearson Education Canada Inc. BZUPAGES.COM 1-2 Learning Goals LG 1 – Define finance and describe its three major areas and career opportunities. LG 2 – Review basic forms of business organization, their strengths and weaknesses. LG 3 – Describe managerial finance function and differentiate from economics and accounting.

© 2005 Pearson Education Canada Inc. BZUPAGES.COM 1-3 Learning Goals (continued) LG 4 – Identify key activities of financial manager within the firm. LG 5 – Explain why wealth maximization is firm’s goal.

© 2005 Pearson Education Canada Inc. BZUPAGES.COM 1-4 What is Finance? At the macro level, finance is the study of financial institutions and financial markets and how they operate within the financial system. At the micro level, finance is the study of financial planning, asset management, and fund raising for businesses and financial institutions. Financial management can be described in brief using the following balance sheet.

© 2005 Pearson Education Canada Inc. BZUPAGES.COM 1-5 What is Finance? Working Capital Working Capital Investment Decisions Financing Decisions Macro Finance

© 2005 Pearson Education Canada Inc. BZUPAGES.COM 1-6 Areas of Specialization in Finance Financial Markets –Markets of users and savers of funds. Financial Services –Design and delivery of financial advice and products to individuals, businesses, government. Managerial Finance –Financial management of business firms.

Importantn Terms 1.Financial Institutions 2.Financial Markets 3.Primary Market 4.Secondary Market 5.Money Market 6.Marketable Securities 7.Capital Market 8.Bonds © 2005 Pearson Education Canada Inc. BZUPAGES.COM 1-7

Financial Institutions An intermediary that channels the savings of individuals, busninesses, and governments into the loan or investment. Financial Markets: Forums inwhich suppliers of funds can transact business directly. Primary Market: Market in which securities are initially issued. Secondary Market: Market in which preowned securities are traded. © 2005 Pearson Education Canada Inc. BZUPAGES.COM 1-8

Money Market: A financial relationship created between suppliers and demanders of short term funds. Marketable Securities: Short term debts instruments, (such as bills, commercial papers and certificates) Capital Market: A market that enables suppliers and demanders of long term funds to make transactions. Bonds: Long term debt instrument used by business and government to raise large sums of money. © 2005 Pearson Education Canada Inc. BZUPAGES.COM 1-9

© 2005 Pearson Education Canada Inc. BZUPAGES.COM 1-10 Areas of Employment in Finance Financial Analyst Capital budgeting analyst/manager Project finance manager Cash manager Credit analyst/manager Pension fund manager

© 2005 Pearson Education Canada Inc. BZUPAGES.COM 1-11 Basic Forms of Business Organization Sole Proprietorship –Owned by one person, operated for personal profit. Partnerships –Owned by two or more people, operated for joint profit. Corporations –“Legal entity”, owned by individuals, operated for joint profit.

© 2005 Pearson Education Canada Inc. BZUPAGES.COM 1-12 Sole Proprietorship STRENGTHS: Low organizational cost Income taxed once as personal income Independence Secrecy Ease of dissolution WEAKNESSES: Unlimited liability Limited funding Proprietor must be all Difficult to develop staff career opportunities Lack of continuity on death of proprietor

© 2005 Pearson Education Canada Inc. BZUPAGES.COM 1-13 Partnerships STRENGTHS: Improved funding sources Increased managerial talent Income split by partnership contract, taxed as personal income WEAKNESSES: Unlimited liability to all partners Partnership dissolved upon death of partner Difficult to liquidate or transfer ownership

© 2005 Pearson Education Canada Inc. BZUPAGES.COM 1-14 Corporations STRENGTHS: Owners’ liability limited Large capitalization possible, greater funding Ownership readily transferable Indefinite life Professional management WEAKNESSES: Higher tax rates Expensive organization Greater government regulation When publicly traded, lacks secrecy

© 2005 Pearson Education Canada Inc. BZUPAGES.COM 1-15 Corporate Organization Chart

© 2005 Pearson Education Canada Inc. BZUPAGES.COM 1-16 Organization of Finance Functions CFO – Chief Financial Officer Treasurer responsibilities: –Financial planning, fund raising, capital expenditure decisions, cash and credit management. Controller responsibilities: –Corporate accounting, cost accounting, and tax management.

© 2005 Pearson Education Canada Inc. BZUPAGES.COM 1-17 Relationship to Economics Fundamental Economic Principle: Marginal Analysis –Financial decisions should be made and actions taken only when the added benefits exceed the added costs.

© 2005 Pearson Education Canada Inc. BZUPAGES.COM 1-18 Relationship to Accounting Cash Flows –Accrual Basis: recognizes sales revenue and expenses incurred to make sale at time of sale. –Cash Basis: recognizes revenues and expenses as they occur.

© 2005 Pearson Education Canada Inc. BZUPAGES.COM 1-19 Accounting vs. Financial Views Accounting View (Accrual Basis) Income Statement Peakes Quay, Inc. For year ended 12/31 Financial View (Cash Basis) Cash Flow Statement Peakes Quay, Inc. For year ended 12/31 Sales revenue $100,000 Less: Costs 80,000 Net Profit $ 20,000 Cash inflow $ 0 Less: Cash outflow 80,000 Net cash flow ($80,000)

© 2005 Pearson Education Canada Inc. BZUPAGES.COM 1-20 Financial Manager – Key Activities Balance Sheet Current Assets _______________ Fixed Assets Current Liabilities _______________ Long-Term Funds (Debt & Equity) Financial Analysis & Planning Making Investment Decisions Making Financing Decisions

© 2005 Pearson Education Canada Inc. BZUPAGES.COM 1-21 Should Firms Maximize Profit? Corporations commonly define profit as “Earnings per Share” (EPS). –A measure of total earnings divided by total number of ownership shares. EPS ignores critical factors of –the timing of the returns. –cash flows available to common shareholders. –risk factors facing the firm.

© 2005 Pearson Education Canada Inc. BZUPAGES.COM 1-22 Or Should Firms Maximize Shareholder Wealth? Evaluating Shareholder Wealth addresses factors of timing, cash flows and risk ignored by the EPS. Therefore, Maximizing Shareholder Wealth is a more comprehensive goal for the firm, its managers and employees. This can be explored through “economic valued added” and a focus on stakeholders.

© 2005 Pearson Education Canada Inc. BZUPAGES.COM 1-23 What about Stakeholders? Stakeholders include groups that have direct economic links to the firm. Stakeholders include not only owners, but also employees, customers, suppliers, and creditors. Maintaining positive stakeholder relationships helps maximize long-term benefits to shareholders.

© 2005 Pearson Education Canada Inc. BZUPAGES.COM 1-24 Importance of Ethics The standards of conduct or moral judgment: Honesty, trustworthiness, fair dealing are foundations of sustainable business relations: –With customers, –With suppliers, –With creditors, –With employees, –With owners. Ethical behaviour is necessary to achieve the goal of maximizing shareholder wealth.

© 2005 Pearson Education Canada Inc. BZUPAGES.COM 1-25 Financial Goals of a Company Maximize sales. Maximize cash flow. Maximize market share. Maximize profit. Minimize costs. Maximize return on sales, investment, equity. Ensure earnings stability. Achieve target goals for sales, profits, market share or return.