An Overview of Financial Management

An Overview of Financial Management Objectives What is finance Duties of a financial staff person Forms of business organization Maximizing the stock price Business ethics Financial managers

Finance Consists of three Interrelated Areas Money & capital markets Macroeconomics Investments Decisions of individuals and financial institutions as they choose securities for their investment portfolios Financial Management Business finance

Financial Staff’s Task To acquire and use funds so as to maximize the firm’s value

The Financial Staff… uses forecasting and planning to shape the firm’s future position makes major investment and financing decisions coordinates and controls when interacting with other departments so that the firm operates as efficiently as possible must deal with the financial markets

Common Stock Maximizing the price of the firm’s common stock is the most important goal of most corporations. Other objectives, such as personal satisfaction, employee welfare, and the good of the community, also have an influence. However, for publicly-owned companies, they are less important than stock price maximization.

Common Stock The same actions that maximize stock price also benefit society. To maximize stock price, a firm must provide a low-cost, high-quality product to consumers. This, in itself, is a benefit to society.

Business Ethics Can be thought of as a company’s attitude and conduct toward its employees, customers, community, and stockholders Most firms today have in place strong codes of ethical behavior; however, it is imperative that top management be openly committed to ethical behavior and that they communicate this commitment through their own personal actions as well as company policies.

Financial Managers can affect the firm’s stock price by influencing the following factors: Projected earnings per share Timing of the earning’s stream Riskiness of these projected earnings Use of debt Dividend policy Every significant corporate decision should be analyzed in terms of its effects on these factors and, through them, on the price of the firm’s stock.

Managerial Actions Although managerial actions affect the value of a firm’s stock, external factors also influence stock prices. Included among them are legal constraints, the general level of economic activity, the tax laws, and conditions in the stock market.