1. Lecture 1 Introduction to Financial Management

2. Financial Management (F.M.)
What is FM? FM is the management of financial resources – how best to find and use investments and financing opportunities in an ever-changing and increasingly complex environment.
Why should CS majors study FM?
Core Life Skill – need to understand finance to manage your business & personal life.
“Money Makes the World Go Round” – even healthy companies and good CEO’s “die” because of poor FM
MIS and IT are just a part of the overall corporate strategy which runs on financing, the major resource.
Financial Engineering is an upcoming field that requires people with CS, math/science, and finance background
Copyright: M.S. Humayun

3. FM 1-2 Major Areas & Concepts of FM Analysis of Financial Statements
Investment Decisions & Capital Budgeting
Interest, Time Value, Cash Flows, NPV
Risk & Return
Uncertainty, Risk, Portfolio Theory, Capital Asset Pricing Model (CAPM).
Corporate Financing & Capital Structure
Cost of Capital, Leverage, Dividend Policy
Valuation
Share, Bond, Option, Corporate
Working Capital & Inventory Management
International Finance & Foreign Exchange
Copyright: M.S. Humayun

4. Organizational Structure (FM 1-3) (Who does the FM work?)
Copyright: M.S. Humayun

5. FM 1-5
Copyright: M.S. Humayun

6. Business Legal Entities (FM 1-4)
Proprietorship (80% of total number of businesses worldwide)
Single owner is the company. The legal entity is the person who is the owner.
Disadvantages: Unlimited liability. In case of bankruptcy, owner can lose the business and his personal belongings. Difficult to get financing.
Limited life. Proprietorships die with the owner.
Advantage: Easy to set up, Individual (personal) income tax only
Partnership
Similar to Proprietorship except many owners
Can be Registered or Unregistered
Corporation (control 80% of global sales of products and services)
Separate legal entity registered by the government.
Can be Private Limited (Pvt. Ltd.) or Public Limited (which may be listed on Stock Exchange)
Possibly thousands of owners / shareholders. Separation of shareholders and managers.
Limited liability and unlimited life (perpetual, going-concern)
Disadvantages: Double-taxation (Corporate Tax & Dividend Tax). Difficult to set up and costly to maintain.
Hybrids (Mixed)
S-Type Corporation: Corporation without double taxation
LLP: Limited Liability Partnership without double taxation
PC: Professional Corporation ie. doctors, limited liability
Copyright: M.S. Humayun

7. FM 1-6
Copyright: M.S. Humayun

8. Financial Markets (FM 1-7)
Capital Markets
Stock Exchange (listed shares, unit trusts, TFC)
Money Markets
Bonds
Government of Pakistan: FIB, T-Bill
Private Sector: Corporate Bonds, Debentures
Call Money, Inter-bank short-term and overnight lending
Loans, Leases, Insurance policies, Certificate of Deposits (CD’s)
Badlah (money lending against shares), Road-side money lenders
Real Assets Markets
Cotton Exchange, Gold Market, Kapra Market
Property (land, house, apartment, warehouse)
Computer hardware, Used Cars, Wheat, Sugar, Vegetables,etc.
Copyright: M.S. Humayun

9. FM Course Details (FM 1-8)
Text:
Financial Management – Theory and Practice (8th Edition or latest edition) by Brigham and Gapenski. (Lecture-wise outline of chapters is available with VU)
Grading:
Semester activities (GDB, Quizzes and assignments)
Mid-terms and Final terms
Skills Required:
Financial Accounting (financial statements, cash-flows, value…)
Mathematics (algebra, equations, graphical analysis, statistics) – “Finance is a game of numbers!”
Excel Spreadsheet
Business common sense. Read newspapers & visit markets.
Copyright: M.S. Humayun