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Finance
Concepts & Current Topics
Course Detail
Basic financial language
Conceptual skills
Emphasis is on applying concepts to current financial topics
Reading & team intensive
Complete readings before class
Resources
FFM – Fundamentals of financial management
FMR – Fundamentals of finance reader
CFE – Course of financial English
Handouts/Website postings for current topics
Course overview by week
1 Introduction
2 Fundamental concepts
3 Financial assets
4 Capital budgeting
5 Capital structure
6 Working capital
7 Midterm exam
8 Derivatives
9 multinationals
10 hybrids
11 central banks
The Fed & PBOC
World Bank & IMF
Exchange rates
2008 financial crisis
Final exam
Assessments
Team presentations Debates (maximum 10 bonus points) Case presentations Team formation due January 17
Quizzes (2)
Examinations (midterm & final) Open book & notes
Contact Information
Office: 20/F Building B, S&T Plaza, TUSP, No. 1
Telephone: 15810169471
Email: [email protected]
Website: www.schoolrack.com/BillCurtis
An Overview of Financial Management
Chapter 1
Financial management areas
Money & capital markets
Investments
Financial management
Money & capital markets
Money A commodity or asset, such as gold, an
officially issued currency, coin or paper note, that can be legally exchanged for something equivalent, such as goods or services.
Capital Financial assets or the financial value of
assets, such as cash, available for use Capital markets Financial markets that facilitate the flow of
long-term funds
Current trends in finance
Globalization Is McDonald’s an American company? Over 60% of its net income is generated outside
the U.S. Information technology
Space Time Information access Electronic commerce
Forms of business organization
Sole proprietorships Partnerships Corporations
Sole proprietorship
Unincorporated business owned by an individual Advantages
Easy and inexpensive to start Few government regulations Avoids corporate income taxes
Disadvantages Difficult to obtain capital Unlimited liability
Legal debts or obligations that arise during the course of business operations.
Life of the business limited to the life of the owner
Partnership
An unincorporated business owned by 2 or more persons
Advantages are similar to sole proprietorships, plus: Specialized expertise Synergy among partners (1+1=3?)
Disadvantages Unlimited liability Limited life of the organization Difficulty in transferring ownership Mutual obligations Difficulty to raise large amount of capital
Corporation
A legal entity (person) separate from its owners and managers
Advantages Unlimited life Easy transferability of ownership Limited liability Can raise large amount of capital (stocks & bonds)
Disadvantages Setting up a corporation Double taxation (corporate and earnings paid out
as dividends) Subject to take-over
Staff and management goals
Financial staff responsibility: obtain and use funds to maximize the value of
the firm Management responsibility:
Maximize stockholder’s wealth = maximize stock value
Other responsibilities? Ben & Jerry’s?
Business ethics—company’s attitude and conduct toward its employees, customers, suppliers, community, employees, stockholders
Agency relationships
Principals hire agents to perform services (delegation)
Financial management’s agency relationships: Stockholders and managers Managers and debt holders (creditors)
Agency problem A potential conflict of interests between the
agent and stockholders or creditors
Agency relationships
Motivating managers to act in the stockholders best interests Performance shares Executive stock options Direct intervention by stockholders (institutional
investors) Threat of firing Threat of hostile take-over
Managerial actions to maximize shareholder wealth
What determines the price of a company’s stock? Factors include: A financial asset is related to its ability to
generate cash flows Timing of cash flows—sooner is better Investors are risk averse—they’ll pay more for
stock that generates consistent cash flows Investment decisions How to finance the firm
Debt & equity mix Dividend policy decision—what to give out,
what to retain