1. Foundations of Finance 310 Ohio University College of Business

2. How do we learn? There are primarily seven ways There are primarily seven ways

3. 5%

4. What do you think of when someone says “finance”?

6. Why is finance important personally? Food, clothing, shelter Food, clothing, shelter Taxes can take 40% of what we earn Taxes can take 40% of what we earn Marriage issues – $ often cause of divorce Marriage issues – $ often cause of divorce Knowledge of managing money (star athletes) Knowledge of managing money (star athletes) Retirement Retirement

7. Marriage and Money

9. Finance: The Art and Science of Managing Money

10. Financial Management  Financial Management or business finance is concerned with managing an entity’s money.  For example, a company must decide: − where to invest its money. − whether or not to replace an old asset. − when to issue new stocks and bonds. − whether or not to pay dividends.

11. Finance Utilizes Economics Economics Accounting Accounting

12. Financial analysis is like a…

14. What do you see?

17. Count every “F” below? FINISHED FILES ARE THE RE SULT OF YEARS OF SCIENTI FIC STUDY COMBINED WITH THE EXPERIENCE OF YEARS...

18. What number goes in the triangle?

19. Organizations that hire Finance Grads Banks Banks Insurance Companies Insurance Companies Any Large Business Any Large Business Investment Bankers Investment Bankers Stockbrokers Stockbrokers

20. OU Finance Grads Most job offers – banking Most job offers – banking Average salary - $45,200 Average salary - $45,200 53% were employed in finance field 53% were employed in finance field Source: 2007 commencement survey

21. CHAPTER 1 An Overview of Financial Management  Forms of Businesses  Goals of the Corporation  Firm Valuation  Social Responsibility and Finance

22. Sole proprietorships & Partnerships Advantages Advantages Ease of formation Ease of formation Subject to few regulations Subject to few regulations No corporate income taxes No corporate income taxes Disadvantages Disadvantages Difficult to raise capital Difficult to raise capital Unlimited liability Unlimited liability Limited life Limited life

23. Corporation Advantages Advantages Unlimited life Unlimited life Easy transfer of ownership Easy transfer of ownership Limited liability Limited liability Ease of raising capital Ease of raising capital Disadvantages Disadvantages Double taxation Double taxation Cost of set-up and report filing Cost of set-up and report filing

24. Financial Goals of the Corporation The primary financial goal is shareholder wealth maximization, which translates to maximizing stock price. The primary financial goal is shareholder wealth maximization, which translates to maximizing stock price. Do firms have any responsibilities to society at large? Do firms have any responsibilities to society at large? Is stock price maximization good or bad for society? Is stock price maximization good or bad for society?

25. Is stock price maximization the same as profit maximization? No, despite a generally high correlation amongst stock price, EPS, and cash flow. No, despite a generally high correlation amongst stock price, EPS, and cash flow. Current stock price relies upon current earnings, as well as future earnings and cash flow. Current stock price relies upon current earnings, as well as future earnings and cash flow.

26. The goal of the financial manager is to maximize the value of the firm.

27. What determines a firm’s value? A firm’s value is the sum of all the future expected free cash flows when converted into today’s dollars (present value) A firm’s value is the sum of all the future expected free cash flows when converted into today’s dollars (present value)

28. Billions AMAZON.COM $ 415 BEST BUY220 EXXON MOBIL181 GEN MOTORS23 MICROSOFT12 STARBUCKS7 WAL MART3 Market Capitalizations

29. Billions EXXON MOBIL $ 415 WALMART220 MICROSOFT181 AMAZON.com23 BEST BUY12 STARBUCKS7 GEN MOTORS3 Market Capitalizations

30. Factors that affect stock price

31. Projected size of cash flows to shareholders Timing of the cash flow stream Riskiness of the cash flows

32. What is Ethical Behavior? Behavior that conforms to accepted professional standards of conduct. Behavior that conforms to accepted professional standards of conduct.

33. Ethical Dilemmas Norfolk’s trains are polluting the air along their routes, but the pollution is within legal limits and preventative actions would be costly. Are the managers ethically bound to reduce pollution? Norfolk’s trains are polluting the air along their routes, but the pollution is within legal limits and preventative actions would be costly. Are the managers ethically bound to reduce pollution?

34. What facts are unknown? What facts are unknown? What individuals and groups have an important stake in the outcome? What individuals and groups have an important stake in the outcome? What are the options for acting? What are the options for acting? Which option is fair to all stakeholders? Which option is fair to all stakeholders?

35. There's No Such Thing As "Business" Ethics : There's Only One Rule for Making Decisions

42. Sarbanes-Oxley Act of 2002 Set up a Board with responsibility for: Set up a Board with responsibility for: Auditing standards within companies Auditing standards within companies Controlling the quality of audits Controlling the quality of audits Major focus is to make sure that publicly-traded corporations accurately present their financial statements. Major focus is to make sure that publicly-traded corporations accurately present their financial statements. Longer jail sentences Longer jail sentences Made CEOs responsible for the fin. stmts. Made CEOs responsible for the fin. stmts.

43. Stocks versus Bonds Stock = ownership or equity Stock = ownership or equity − Stockholders own the company Bond = debt or IOU Bond = debt or IOU − Bondholders are owed $ by company