Dear Jesus,

I invite You into this day.

Please show me the way.
Guide each step I take,
And every choice I make.
Fill me with Your grace,
Let Your presence fill this place.
Jesus come reign in my heart.
Let this day be a new start.
Amen.

Introduction and overview of

financial management

Interest in money
Money Finance: is an integral part of life
Why do you need money?

Interest in money

Interest in money

Interest in money

What is finance
Finance is concerned with:
Determining value.
Value = What something is
worth now.
Making the best decision

when that decision involves

money.

Questions
What is something
worth?
Which options to
choose
How do we use
corporate resources
efficiently to further
the goals of the firm?

Functions of finance

Acquiring
Investing
Managing
Resources

Three Types of Decisions

Investment Decisions
What assets should the firm invest in?
Financing Decision
How should the purchase of assets be financed?
Managerial Decisions
How large should the firm be?
How fast should it grow?
Should the firm grant credit to a customer?
How should the managers be compensated?

Areas of finance

Financial Management

Investments

Financial Markets and

Intermediaries

Areas of finance
1. Financial Management an area of finance
that applies financial principles within an
organization to create and maintain value
through decision-making and proper
resource management

Areas of Finance
2. Investments
An area of finance that studies financial
securities from the investors view point

Investments
The study of financial transactions from
the investors outside the firm.
How do we place a peso value on a share of
stock or a bond issued by the corporation?
How do we assess the risk of these financial
securities?
How do we manage a portfolio of financial
securities to achieve a stated objective of the
investor?

Area
of finance

the study of markets where

3.financial
Financial Markets and Intermediaries
securities (such as stocks and bonds)
are bought and sold.
The study of financial institutions
(such as commercial banks,
investment banking firms, and
insurance companies) that help
the flow of money from savers to
demanders of money.

Economics, finance and accounting

economic
s

finance

accountin
g

Economics- finance accounting

Question
s in
finance

What do Where
do we
we do
go
now?
next?

Ownership, control, risks

Start-up

Debt

employees

Multiple equity
holders

Separating
ownership from
control

What is the Goal of

the Firm?

Maximization of
Shareholder Wealth!
Value creation occurs when we maximize the
share price for current shareholders.

Shortcomings of Alternative
Perspectives

Profit Maximization
Maximizing a firms earnings after
taxes.

Problems

Could increase current profits while

harming firm (e.g., defer maintenance, issue
common stock to buy T-bills, etc.).
Ignores changes in the risk level of the firm.

Shortcomings of Alternative
Perspectives
Earnings per Share Maximization
Maximizing earnings after taxes divided by shares
outstanding.

Problems
Does not specify timing or duration of expected
returns.
Ignores changes in the risk level of the firm.
Calls for a zero payout dividend policy.

Strengths of Shareholder Wealth

Maximization

Takes account of: current and

future profits and EPS; the
timing, duration, and risk of
profits and EPS; dividend policy;
and all other relevant factors.
Thus, share price serves as a
barometer for business
performance.

What companies say about

their corporate goal*
Cadbury Schweppes: governing objective is
growth in shareowner value
Credit Suisse Group: achieve high customer
satisfaction, maximize shareholder value and be
an employer of choice
Dow Chemical Company: maximize long-term
shareholder value
ExxonMobil: long-term, sustainable shareholder
value

What companies say about

their corporate goal*
San Miguels goal is to help people enjoy and make
progress in their lives through the many products
and services that our company offers. We want to
give every customer and consumer we touch access
to the best we can offerwhether in terms of
quality, or affordability or choice.

What companies say about

their corporate goal*
Jollibee Foods Corp
To serve great tasting food, bringing the joy of
eating to everyone.
Petron
To be the leading provider of total customer
solutions in the energy sector and its derivative
businesses.

What companies say about

their corporate goal*
Universal Robina Corp
URC's vision is to be the best Philippine food and
beverage company, with a powerful presence
throughout the ASEAN region, carrying a wide
portfolio of delightful brands of exceptional quality
and value, equipped with efficient systems and
motivated people. We are committed in making
lives a truly fun experience.

The Modern Corporation

Modern Corporation
Shareholders

Management

There exists a SEPARATION between owners

and managers.

Role of Management

Management acts as an
agent for the owners
(shareholders) of the
firm.
An agent is an
individual authorized
by another person,
called the principal,
to act in the latters
behalf.

Agency Theory

Jensen and Meckling developed

a theory of the firm based on
agency theory.
Agency Theory is a branch of
economics relating to the behavior of
principals and their agents.

Agency Theory
Principals must provide
incentives so that
management acts in the
principals best interests
and then monitor results.

Incentives include,
stock options,
allowances, and
bonuses.

Social Responsibility

Wealth maximization does not preclude

the firm from being socially
responsible.
Assume we view the firm as producing
both private and social goods.
Then shareholder wealth maximization
remains the appropriate goal in
governing the firm.

Corporate Governance

Corporate governance: represents the

system by which corporations are
managed and controlled.
Includes shareholders, board of
directors, and senior management.
Then shareholder wealth
maximization remains the appropriate
goal in governing the firm.

Board of Directors
Typical responsibilities:
Set company-wide policy;
Advise the CEO and other senior executives;
Hire, fire, and set the compensation of the CEO;
Review and approve strategy, significant investments, and
acquisitions; and
Oversee operating plans, capital budgets, and financial
reports to common shareholders.

CEO/Chairman roles commonly same

Organization of the Financial

Management Function
Board of Directors
President
(Chief Executive Officer)
Vice President
Operations

VP of
Finance

Vice President
Marketing

Organization of the Financial

Management Function

VP of Finance
Treasurer

Controller

Capital Budgeting
Cash Management
Credit Management
Dividend Disbursement
Fin Analysis/Planning
Pension Management
Insurance/Risk Mngmt
Tax Analysis/Planning

Cost Accounting
Cost Management
Data Processing
General Ledger
Government Reporting
Internal Control
Preparing Fin Stmts
Preparing Budgets
Preparing Forecasts

The evolution of finance

Legalistic and
descriptive:
Focused on
bankruptcies and
reorganizations

Pricing or
risky assets:
Financial
contracting

Contemporary trends

Globalization

Every firm operates in the global

markets
Financial market transcend national
boundaries

Contemporary trends
Computerization and
Telecommunications

Contemporary trends
Corporate reorganization and Re-structuring

think and say something about these...

How have the trends in globalization,
computerization and telecommunications
and corporate reorganization affected the
business world?

think and say something about these...

How have the trends in globalization,

computerization and telecommunications
and corporate reorganization affected the
business world?
Regardless of what status you have in your
company, would you advise new employees
not to spend their entire career with a
single company?

07/

think and say something about these...

How have the trends in globalization,

computerization and telecommunications
and corporate reorganization affected the
business world?
Regardless of what status you have in your
company, would you advise new employees
not to spend their entire career with a
single company?
How can sound training in financial
management affect your career?

07/