Ch 1 Learning Goals What is finance? What do financial managers do? Relationships between finance & economics/accounting What is the goal of financial decisions? 0

What is finance? Finance studies the process of how organizations and individuals _________ ____________________________and ________________________________. 1

Finance Finance as a discipline can be broken down into: ◦Managerial (Corporate) Finance ◦Investments ◦Financial Institutions ◦Personal Finance ◦Government (Public) Finance 2

Finance 311 Finance 311 is primarily about managerial finance, and to a lesser extent, personal finance. 3

Managerial Finance The financial manager manages the financial affairs of any organization. Duties of financial managers: ◦Financial _____________________ ◦_____________________________ decisions 4

Duties of Financial Managers Financial analysis: evaluating financial ________________________________ 5

Duties of Financial Managers Financial planning: forecasting _______ _____________. 6

Duties of Financial Managers Financing decisions: where __________ will come from 7

Duties of Financial Managers Investment decisions: ◦how funds will be allocated ◦what ________________ will be acquired 8

Managerial Finance Function Relationship to Economics The primary economic principal used in making financial decisions is marginal analysis: implement decisions if marginal __________________ exceed marginal ___________________. 9

Managerial Finance Function Relationship to Accounting The firm’s finance (treasurer) and accounting (controller) functions are closely related and overlapping. 10

Managerial Finance Function Relationship to Accounting In smaller firms, the financial manager generally functions as both treasurer & controller. In bigger firms, the accounting function is under the Chief Financial Officer (CFO). 11

Managerial Finance Function Relationship to Accounting Much of the information relied on by financial managers is from accounting statements. However, accounting is based on the accrual method, while in finance the focus is on _____________________. 12

Goal of the Firm Goal of financial decisions: maximize shareholder wealth by maximizing the _______________________of the stock. 13

Goal of the Firm The market price of a firm’s stock reflects: ◦Expected _______________________ ◦____________________ of the cash flows 14

The Agency Issue Do managers always act in shareholders’ best interests? Of course not. (Why not?) 15

The Agency Issue The conflict of interest between managers and shareholders is an example of an agency conflict. What keeps managers in line? 16