1. Financial Management
1.1. Maintenance and creation of economic value or wealth
1.2. Broadly concerned with the acquisition and use of funds by a business firm
1.3. Deals with financial decisions
1.4. Close relationship to economics and accounting
2. AGENCY PROBLEM
2.1. Agency Relationship
2.1.1. Principal hires an agent to represent his/her interest
2.1.2. Stockholders (principals) hire managers (agents) to run the company
2.2. Agency Problem
2.2.1. Conflict of interest between principal and agent
3. FINANCIAL MARKET
3.1. Primary Market
3.1.1. Issuance of a security for the first time
3.2. Secondary Markets
3.2.1. Buying and selling of previously issued securities
3.2.2. Securities may be traded in either a dealer or auction market
4. ROLES OF FINANCIAL MANAGER
4.1. Selecting projects that create value
4.2. Making smart financing decisions
5. FINANCIAL MANAGEMENT DECISIONS
5.1. Capital Budgetting
5.2. Capital Structure
5.3. Working Capital Management
6. FUNCTION OF FINANCIAL MANAGER
6.1. Financing Decisions
6.2. Forecasting and Planning
6.3. Dividend Policy
6.4. Dealing with Financial Market
6.5. Investment Decisions
7. Corporate Finance
7.1. It involves the management of company's resources to its full potential
8. RELATIONSHIP BETWEEN FINANCE & ACCOUNTING
8.1. Accounting
8.1.1. Concerned with score keeping
8.1.2. The accountant prepares the accounting reports based on the accrual method
8.1.3. Accounting deals primarily with the past
8.2. Finance
8.2.1. Finance is aimed at value maximizing
8.2.2. The focus of the financial manager is on cash flows
8.2.3. Finance is concerned mainly with the future
9. GOALS OF FINANCIAL MANAGEMENT
9.1. Maximization of Share Price
9.2. Maximization of Sales
9.3. Maximization of Profits
9.4. Minimization of Risk
10. CONTROL OF THE CORPOR ATION
10.1. The election of BOD
10.1.1. Control of the firm ultimately rest with stockholder
10.2. Replacement through takeover
10.2.1. Firms that poorly managed are more attractive to be replaced
11. FORMS OF BUSINESS ORGANISATION
11.1. Sole Proprietorships
11.1.1. Oldest form of business
11.1.2. Owns by 1 individual
11.1.3. Personally responsible for all the debts
11.1.4. Easy to form
11.1.5. Termination occurs on owner’s death or by owner’s choice
11.2. Partnership
11.2.1. Have more than 1 owner
11.2.2. Profit and loss sharing by mutual agreement
11.2.3. Can raise more capital
11.3. Corporations
11.3.1. Legally functions separate and apart from its owners
11.3.1.1. Corporation can sue, be sued, purchase, sell, and own property
11.3.2. Shareholder’s liability is restricted to the amount of investment in company
11.4. Life of corporation does not depend on the status of its owners. Ownership can be easily transferred
12. SOURCES OF FINANCE
12.1. Borrowing
12.1.1. Long-Term Debt
12.1.2. Short-Term Debt
12.2. Capital
12.2.1. Common Equity
12.2.1.1. Retained Earning
12.2.1.2. Issues New Shares
12.2.2. Preferred Stock