Chapter 1 Overview of Financial ManagementBA 340 - FinanceChapter One – Financial Management OverviewCycle of MoneyFinance AreasFinancial ManagerFinancial Management DecisionsGoal of FinanceThe Financial Manager in the Organization (Players)Forms of BusinessAgency ModelCorporate ControlQuestionsChapter 1 Chapter 1 Overview of Financial ManagementOverview of Financial ManagementIntroductionIntroductionClass Structure - SyllabusClass Structure - SyllabusText – Preliminary Draft of Fin. Mgmt.Text – Preliminary Draft of Fin. Mgmt.Exams – Open Book and Open NotesExams – Open Book and Open NotesExpectationsExpectationsAttendanceAttendancePreparation for ClassPreparation for ClassBA 340 - FinanceBA 340 - FinanceKeys to successKeys to successReading Ahead of LecturesReading Ahead of LecturesTrying Assigned ProblemsTrying Assigned ProblemsAsking QuestionsAsking QuestionsStaying on TaskStaying on TaskGetting Help EarlyGetting Help EarlyPhilosophy - this course is basic intuition Philosophy - this course is basic intuition but with a new language…but with a new language…Chapter One – Financial Chapter One – Financial Management OverviewManagement OverviewPrimary Function – Cycle of MoneyPrimary Function – Cycle of MoneyFinance AreasFinance AreasFinancial Manager Financial Manager Financial Management DecisionsFinancial Management DecisionsGoal of FinanceGoal of FinancePlayersPlayersForms of BusinessForms of BusinessAgency ModelAgency ModelCycle of MoneyCycle of MoneyMoving Money Moving Money From lenders to borrowers From lenders to borrowers Returning Money from borrowers to lendersReturning Money from borrowers to lendersInstitutionsInstitutionsBanks – Financial IntermediariesBanks – Financial IntermediariesTakes on risk of nonpayment for a feeTakes on risk of nonpayment for a feeAdvantage of Using InstitutionAdvantage of Using InstitutionFor lender – ready partner with known ratesFor lender – ready partner with known ratesFor lender – reduction or elimination of default riskFor lender – reduction or elimination of default riskFor borrower – ready partner with known ratesFor borrower – ready partner with known ratesFor both – reduction of search timeFor both – reduction of search timeFinance AreasFinance AreasCorporate FinanceCorporate FinanceActivities that support business operationsActivities that support business operationsLong and short term activitiesLong and short term activitiesInvestmentsInvestmentsBuying and Selling SecuritiesBuying and Selling SecuritiesTrading Rules and RegulationsTrading Rules and RegulationsFinancial Institutions – Banks, Insurance, Etc.Financial Institutions – Banks, Insurance, Etc.International FinanceInternational FinanceCompanies with operations in multiple countriesCompanies with operations in multiple countriesForeign governments and currency issuesForeign governments and currency issuesFinancial ManagerFinancial ManagerWho is the Financial Manager?Who is the Financial Manager?Financial Management Financial Management DecisionsDecisionsCapital BudgetingCapital Budgetingallocation of funds to projectsallocation of funds to projectsCapital StructureCapital Structureportfolio of borrowingportfolio of borrowingWorking Capital ManagementWorking Capital Managementhandling cashhandling cashaccounts payable/accounts receivableaccounts payable/accounts receivableinventoriesinventoriesGoal of FinanceGoal of Finance Profit MaximizationProfit MaximizationNet income?Net income?Cash flow?Cash flow?Maximize Current Stock PriceMaximize Current Stock PriceTrade-offsTrade-offsSafe and Happy Work PlaceSafe and Happy Work PlaceCustomers HappyCustomers HappyGood Relationship with Surrounding CommunityGood Relationship with Surrounding CommunityBroad Definition of Stock Price ImpactBroad Definition of Stock Price ImpactSocial WelfareSocial WelfareJob SecurityJob SecurityEthical and Legal ActionsEthical and Legal ActionsThe Financial Manager in the The Financial Manager in the Organization (Players)Organization (Players)CEOMarketing ManagerFinanceManagerManufacturing ManagerInformationManagerTreasurer ControllerInvestor RelationsHuman Resource Manager.Forms of BusinessForms of BusinessSole ProprietorshipsSole ProprietorshipsSimple and Most CommonSimple and Most CommonPersonal Assets Co-mingled w/ CompanyPersonal Assets Co-mingled w/ CompanyPartnershipPartnershipAdded capital and peopleAdded capital and peopleOwnership Transfer difficultOwnership Transfer difficultCorporationCorporationLegal Separate EntityLegal Separate EntityLimited Liability of Owners (Stockholders)Limited Liability of Owners (Stockholders)Agency Model Agency Model Agency TheoryAgency TheoryPrincipal and AgentPrincipal and AgentAgent works for and in the interest of the PrincipalAgent works for and in the interest of the PrincipalAgent has personal interests as wellAgent has personal interests as wellCompany and personal interests are not always alignedCompany and personal interests are not always alignedPrincipal (Owner) influences AgentPrincipal (Owner) influences AgentReward good behaviorReward good behaviorPunish bad behavior Punish bad behavior Problems with Observing Behavior (Effort)Problems with Observing Behavior (Effort)Adding costs to ensure appropriate behavior (effort)Adding costs to ensure appropriate behavior (effort)Agency costsAgency costsCorporate ControlCorporate ControlWho owns the company?Who owns the company?Equity holders -- ShareholdersEquity holders -- ShareholdersWho runs the company?Who runs the company?Managers elected by the ownersManagers elected by the ownersGovernment RegulationsGovernment RegulationsRules and requirements to run the businessRules and requirements to run the businessOther StakeholdersOther StakeholdersEmployees, Suppliers, Customers, CommunityEmployees, Suppliers, Customers, CommunityQuestionsQuestionsQuestion #2 – Example of Cycle of MoneyQuestion #2 – Example of Cycle of MoneyQuestion #7 – Community and Stock PriceQuestion #7 – Community and Stock PriceQuestion # 9 – Parent – Child ConflictQuestion # 9 – Parent – Child ConflictQuestion #10 – Jackson Hole EmployeesQuestion #10 – Jackson Hole