1. 1 ĐẠI HỌC HOA SEN Khoa Kinh tế Thương mại

2. 2 KHOA KINH TẾ THƯƠNG MẠI FINANCIAL MANAGEMENT ThS. Nguyễn Tường Minh Email: minh.nguyentuong@yahoo.com.vn

3. 3 References Foundation of Financial Management, Block & Hirt, McGraw Hill, 13 th edition,USA, 2009. Fundamentals of Corporate Finance, Brealey et al., McGraw Hill, 5 th edition, USA, 2007. Other relevant materials.

4. 4 Chapter 1: The Goals and Functions of Financial Management Main Contents: 1.Functions of Financial Management 2.Goals of Financial Management 3.Role of Financial Management

5. 5 I. Functions of Financial Management It is the responsibility of financial management… –to allocate funds to current and fixed assets –to obtain the best mix of financing alternatives –to develop an appropriate dividend policy within the context of the firm’s objectives 1.Functions of Financial Management

6. 6 I. Functions of Financial Management (cont’d) The daily activities of financial management include: –Credit management –Inventory control –Receipt and disbursement of funds Less routine functions encompass: –Sales of stocks and bonds –Establishment of capital budgeting and dividend plans 1.Functions of Financial Management (cont’d)

7. 7 I. Functions of Financial Management (cont’d)

8. 8 2.Forms of Organization –Sole Proprietorship –Partnership –Corporation

9. 9 II. Goals of Financial Management The most important goal for financial management is to “earn the highest possible profit for the firm” Each decision would be evaluated on the basis of its overall contribution to the firm’s earnings –A change in profit may also represent a change in risk Some serious drawbacks to profit maximization: –It fails to consider the timing of the benefits Earnings per Share Period 1Period 2Total Alternative A$1.50$2.00$3.5 Alternative B$2.00$1.50$3.5 –It suffers from the most impossible task of accurately measuring the key variable “profit”

10. 10 II. Goals of Financial Management (cont’d) –The ultimate measure of performance is not what the firm earns, but how the earnings are valued by the investor –If a decision maintains or increases the firm’s overall value, it is acceptable from a financial viewpoint; otherwise, it should be rejected 1.A valuation approach

11. 11 II. Goals of Financial Management (cont’d) –Shareholder wealth maximization is not a simple task, since… The financial manager cannot directly control the firm’s stock price 2.Maximizing Shareholder Wealth The financial manager can only act in a way that is consistent with the desires of the shareholders

12. 12 II. Goals of Financial Management (cont’d) –Management may be more interested in maintaining its own tenure and protecting “private spheres of influence” than in maximizing stockholder wealth Management is aware that the only way to maintain its position over the long run is to be sensitive to shareholder concerns 3.Management and Stockholder Wealth Management often has sufficient stock option incentives that motivate it to achieve market value maximization for its own benefit –Solutions for the conflict: Powerful institutional investors are making management more responsive to shareholders

13. 13 II. Goals of Financial Management (cont’d) –Ethics and social responsibility can take many different forms 4.Social Responsibility and Ethical Behavior –Ethical behavior for a person or company should be important b/c it creates an invaluable reputation –Social responsibility may at times be inconsistent with earning the highest possible profit or achieving maximum valuation in the market

14. 14 III. Role of Financial Markets –Participants in Financial Market – individuals, financial institutions, governments, and corporations –Financial Markets – are the meeting place for people, corporations, and institutions that either need money or have money to lend or invest

15. 15 III. Role of Financial Markets (cont’d) –Capital market is often broken down into intermediate markets (1 – 10 years), and long-term markets (greater than 10 years) –Structure of Financial Market: 1.Structure and Functions of the Financial Markets Money Markets – refer to those dealing with short-term securities Capital Markets – refer to those dealing with long-term securities –Capital markets include common stocks, preferred stocks, and corporate and government bonds

16. 16 III. Role of Financial Markets (cont’d) –After the securities are sold to the public, they are traded in the Secondary Market –When a corporation uses the financial markets to raise new funds, the sale of new securities is said to be made in the Primary Market 2.Allocation of Capital –How does the market allocate capital to the thousands of firms that are continually in need of money ? –How do you decide to allocate millions of dollar so that you will maximize your return and minimize your risk ?

17. 17 III. Role of Financial Markets (cont’d) 2.Allocation of Capital (cont’d) –The companies that perform well and are rewarded by the market with high-priced securities … –The money and capital markets allocate funds to the highest quality companies at the lowest cost and to the lowest quality companies at the highest cost …have an easier time raising new funds in the money and capital markets than their competitors

18. 18 III. Role of Financial Markets (cont’d) 3.Institutional Pressure on Public Companies to restructure –Restructuring: Can result in changes in capital structure Can result in the selling of low-profit-margin divisions with the proceeds of the sale reinvested in better investment opportunities Can result in the removal of the current management team or large reductions in the workforce Can result in M&A –Poor performance is fined by a forced restructuring

19. 19 III. Role of Financial Markets (cont’d) 4.Internationalization of the Financial Markets –The allocation of capital and the search for low-cost sources of financing is now an international game for the multinational companies –The growth of the global company has led to the growth of global fund raising as companies search for low-priced sources of funds

20. 20 III. Role of Financial Markets (cont’d) 5.The internet and Changes in the Capital Market –Advances in computer technology has created electronic communications networks

21. 21 CHAPTER CONCEPTS –The field of finance integrates concepts from economics, accounting, and a number of other areas –The relationship of risk to return is a central focus of finance –The primary goal of financial managers is to maximize the wealth of the shareholders –Financial managers attempt to achieve wealth maximization through daily activities such as credit and inventory management and through longer-term decisions related to raising funds –Financial managers must carefully consider domestic and international business conditions in carrying out their responsibilities –Daily price changes in the financial markets provide feedback about company’s performance and help investors allocate their capital between firms

22. 22 Thank you for your attention !