Upload
rizia-feh-eustaquio
View
230
Download
0
Embed Size (px)
Citation preview
8/11/2019 Finman Overview
1/5
Chapter I An Overview of Financial Management
l-l What is Finance?l-la Finance vs. Economics and AccountingFinance grew out of economics and accounting.
Economists - asset value is based on the future cash flows
the asset will provideAccountants - provided information regarding the likely
size of cash flows
1-1b Finance within an Organization
BOD - top governing body
CEO - chairperson of the board; highest-ranking individual
COO - firm's president; directs the firm's operations
(marketing, manufacturing, sales, human resources, and
other operatin g depB.(cnicf Ope.ral,ng ey'fiZcr)
CFO - senior VP; 3rd ranking officer; in charge of
accounting, financing, credit policy, decisions regarding asset
acquisitions and investor relations-communication with
stockholders and press. (C n ;c1 7, rcnci a r e fJl' 6c r).Sarbanes-Qxley Act - law passed by congress that
l CForequires the CEO to certify that their firm's financial statements
iare accurate
I - I c Corporate Finance, Capital Markets and Investments
1. t (Corporate Finance)
assets to acquire
- how to needed to buy assets- how to run the firm so as to maximize its value
2 tg - dcatg ut/ ttcttnAes nerkclT rfhan " ia t 1ag5?v' t'on5
are
y'financial institutions that supply capital to business
include a number of activities:
A) Security Analysis - frnding the proper values ofindividual securities
.-2) Portfulio Theory - best way to structure portfolio ofstock and bonds
4) Market Analysis - issue whether stock and bondmarkets at any given time are "too high", "too low" or "aboutright"
e - investor psychology is
examined in an effort to determine if stock prices have been bid
up to unreasonable heights in a speculative bubble or driven
down to unreasonable lows in a fit of irational pessimism.
1-2 Jobs in Finance
.Value-based management - management decisions are
evaluated in terms of their effects on the firm's value
.Defined contribution pension plans - each year the company
puts a specified amount of money into an account that belongs to
the employee the employee must decide how those funds are to
be invested
l-3 Forms of Business Organization
l) Proprietorship - an unincorporated business owned by oneindividual
few government regulation bject to lower income taxes thancorporation
Disadvantages: unlimited personal liabili mited life,dfficult to raise capital
2) Partnership - an unincorporated business owned by two or
more persons
tablished relatively easy and inexpensively
come allocated on a pro rata basis to the partners
ed on an individual basis
4rnl im it e d p ers o n al I i abil ity
4fficulty to raise large amounls of capital3) Corporation - a legal entity created by stat arale and
bject to double taxalion-eamings are taxed and then when
its after tax eamings are paid out as dividends, those earnings are
taxed again as personal income. (C Corporation)
proprietorship/partnership rather than a corporation.
4) Limited Liability Company (LLC) - relatively new tlpe of
8/11/2019 Finman Overview
2/5
5-4 The Stock Market
ean
- two leaders of stock markets
5-4a Physical Location Stock Exchanges
.Ph1'sical Location Exchanges - formal organizationshaving tangible physical locations that conduct auction
markets in desi*srated (lined) securities.
5-lb Orer-the-Counter and the \a:daq Stock llarkets.Over-the-Counter \larket - 3large collection ofbrokers and dealers. connecld elecronicallv bytelephones and computers that prorrds tbr trading in
unlised securities.
.Dealer illarket - includes all tacrlrues rhat are needed to
conduct secuntr transaclrons nol condus-ted on thephysical I ocation exchanges.
The dealer market svstem consr*s of:
llrelativell fet dealers rho hold tn\en:oncs o.irheseseatrities and tho are said to 'mai.e a dart:c:' tn these
secltnttes;
thousands of brokers t ho act os agerJs n bnnging thedealers together xiIfr inrastor-; and
onputers, terntitwls ond clec:arac ne:rorks thot
protide o conntuntcdtion ltnJ;.:v.-,rfcn Je;r'ers end
brokers-
- Bid price - price aI s hrch ther srl t- :r lhe 5aock
- Ask price - price at s hich they urll 31es- Bid-ask spread - difference berueen brd and ask prices,
IIACD- represents the dealer's markup or prol'ilNah'ota|tl
8/11/2019 Finman Overview
3/5
Clrzrpter 5 Financial llarkcts and lnstitutions
5-1 l'he Capital Allocation Process Capital Formation Process
l) Direct Transfers - business sells its socks or bondsdirectlv to savers.
2) Indirect Transfers through Investment Bankers -
sells these same securities to savers.
Underwriter - serves as a middleman andfaci litates the issuance of securities
Primary market transaction - new securities areinvolved and the corporation receives the proceeds ofthe sale
3) [ndirect Transfers through a Financiallntermediary - intermediary obtains from savers in
sec rLl it i es.
markets
Ph;,sical asset markets (tangible/real asset markets)
- products such as wheat, autos, real estate,computers and mach inery.
z.Financial asset markets - stocks. bonds, notes andmortgages, and derivative securities - values areCerived from changes in the prices ofassets.
Spot markets yersus future ntarkets.
Spot markets - assets are bought or sold for "on the
spot" delivery.
y'Future markets - participants agree loday to buy orsell an asset at some future date.
Money ntorkels uersro capital markets
oney nrarkets - short -term. highly liquid debtsecurities.
apital markets - intermediate or long term debtand corporate stocks.
Primary markets versus secondary markets
rimary markets - corporation raise new capital.
econdary markets - existing, already outstanding
securilies are traded among investors.
Private markets versus public markets
rivate markets - transactions are negotiatesdirectl y between parties.
ublic Markets - standardized contracts are tradedon organized exchanges.
5-3 Financial Institutions
Investment banks - an organization that underwrites
and disributes new investment securities and helps
businesses obtain fi nancing.
Commercial banks - traditional department store of
finance serving a variety ofsavers and borrowers.
.4. Financial services corporation - firm that offers awide range of financial services, including investment
banking, brokerage operations, insurance, andI banY.tng.- 1ar1e callom
unions - cooperativemembers are supposed to have a common bond.
Pension funds - retirement plans funded bycorporations or govemment agencies for their workers
and administered primarily by the trust departments of
commercial banks or by life insurance companies.
K. tite insurance companics - take savings in the formof annual premiums. invest these funds in stocks, bonds,
real estate and mortgages; and make payments to the
benefi ciaries of the insured parties.
s(, Matual funds - organizations that pool investor funds
to purchase hnancial instruments and thus reduce risks
funds often operated by mutual fund companies.
4 Hedge funds - similar to mutual funds, they acceptmoney from savers and use the funds to buy various
securities; largely unregulated in contrast with nruttralfunds which are registered and legulated by SEC.
Private equity companies - operate much like hedge
funds; but rather than buying some of the stock of a firm,
private equity players buy and then manage entire firms.
the safety ofthese institutions and protect investors.
8/11/2019 Finman Overview
4/5
organization that is a hybrid bet a partnershrp and a corporation
Limited Liability Partnership (LLP) - similar to an LLC but
used for professional firms; .gp1pg;ation but
1-4 Stock Prices and Shareholder Value
Primary Goal of the Mgmt. - shareholder wealth maximization
.Shareholder wealth maximization - the primary goal for
managers of publicly owned companies implies that decisions
should be made to maximize the long-run value of the firm's
common slockmottira;zt'ng ihe Prr'ca orr /-he 7'inni ammon s'toc't
1-5 Intrinsic Values, Stock Prices and Executive Compensation
Determinants of Intrinsic Value and Stock Prices
Managerial Actions, Economy, Taxes, and Political Conditions
- determine stock prices thus investors' returns*investors like high returns but dislike risk so the larger the
expected profits and the lower the perceived risk th
ue Expected Returns and True Risk
- investor *,ould expect if they had a . thatexisted about the company
rceived Returns snd Perceived Risk- what investors expect given th . they
actually have
trinsic Value
- an estimate of a stock's true value based on accurate risk
rlcet Price
- the stock value based on perceived but possiblyincorrect info. as seen by the marginal investor
' Marginal investor- views determine the actual stock price
rlcet Equilibrium
- Intrinsic Value : Stock Pricegml.'c qoa/ sfioutd te lo -pke acfr'ons ol.ct?hcd 4c tay,^r'rac .frm C e. trol ;lt cut ct / /re)el Vrr< 5
1-6 Important Business Trends
arbanes-Oxley D// - requires the CEO and CFO of a firm to
certify that the firm's financial statements are accurate.
en Increased globalization of business.
y?J Ev er- improvin g info rm ation t echno lo gy.
rporate governance - way the top managers operate and
interface with stockholders
1-7 Business Ethics
1-8a Managers versus Stockholders
Useful motivational tools to motivate managers to act in
their shareholder's best interest:
Compensation packages
- should be suffrcient to attract and retain able managers, should
not go beyond u'hat is needed; managers rewarded on the basis o
the stock's performance over the long run.
g of managers who don't perform u,ell
- stockholders can inten'ene directly with managers
Threat of hostile tqkeovers
.CorporateRaider - an individual who targets a
corporation for takeover because it is undervalued.Ilostile Takeover - the acquisition of a company over
the opposition of the management
I -8b Stockholders versus Bondholders
regardless of how well the company does while stockholders do
better when the company does better
2) The use ofadditional debt
8/11/2019 Finman Overview
5/5
aD oaoce 9fc*ralckx.cantC of^ h loac on a /ratgc-ir-o/ ,r6t ie f-n|*zr //an uat oatialatcar'ly*aifnrc. 77ic iraeasd n'rk atit/ qn r. uk nq.a
d.H ,b /n4e41a 1*l< - chclchold.r