Libyan International University
Faculty of Business Administration
Financial Management
Presenter: Mr. Ahmed.Alfaitory 1
[email protected] 30/ March/ 2021
1-1 1
Chapter 1
An Overview of Financial Management
1-2
Expectations
1-3
Content
Definition and Goal of financial management.
Functions of Financial Management.
Importance of financial management.
Career Opportunities.
Forms of Businesses.
Goals of the Corporation.
Agency Relationships.
1-4
ILOs
At the end of this class students will be able to understand:
The concept of the Financial Management.
The basic types of financial management decisions and the role of
the financial manager
The goal of financial management
The Differences between an Accounting and Financial Manager
The financial implications of the different forms of business
organization
The conflicts of interest that can arise between owners and managers
1-5
What is financial management
Financial management means planning, directing,
controlling the financial activities and resources of
the institution in order to achieve its goals,
especially in the long-term.
Goal of Financial Management
Minimize Costs?
Maximize Profit?
Minimize Risk?
1-7
How to Fund Borrowing loan
my Project
Issuing Securities
Stocks
Bonds
NGOs
How Firms Issue Securities
Primary
Market
(IPO)
Company to Investors Secondary
Market
1-9
Difference Between
Accounting and Finance
The difference between finance and accounting is that accounting focuses on the
day-to-day flow of money in and out of a company or institution,
whereas finance is a broader term for the management of
assets and liabilities and the planning of future growth and investment opportunity
appraisal.
Functions of Financial Management
Three Major Functions:
Dividends Payout Investment Decision Financing Decision
Decision
Financial Management Decisions
Capital Budgeting
What long-term investments or projects should the
business take on?
Capital Structure
How should we pay for our assets?
Should we use debt or equity?
Working Capital Management
How do we manage the day-to-day finances of the
firm? 1-12
Importance of Good Financial
Management
Important in economic growth and development
Improves standard of living
Allows better financial decision
Alleviation of poverty and creates job
Provide long range financial planning
Analyze the risk and profitability of a firm
1-13
Career Opportunities in Finance
Investment or commercial Bank
Financial institutions ( Insurance Company)
Financial Analyst
Finance Advisor – Planner
Financial Controller (Auditor )
Accountant
1-14
Responsibility of the Financial
Staff
Maximize stock value by:
Forecasting and planning
Investment and financing decisions
Coordination and control
Transactions in the financial markets
Managing risk
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Alternative Forms of Business
Organization
Sole ownership
Partnership
Corporation
1-16
Sole ownership
Business owned by one person
Advantages Disadvantages
Easiest to start Equity capital limited
Least regulated
to owner’s personal
Single owner keeps all of wealth
the profits Unlimited liability
Difficult to sell
ownership interest
Partnership
Business owned by two or more persons
Advantages Disadvantages
Two or more owners Unlimited liability
More capital Difficult to transfer
available ownership (when one
Relatively easy to partner wants to sell).
start.
1-18
Corporation
Advantages Disadvantages
Limited liability
Separation of ownership and
management (agency
Unlimited life
problem).
Separation of ownership and
management
Double taxation (income taxed
Transfer of ownership is easy
at the corporate rate and then
Easier to raise capital dividends taxed at personal
rate, while dividends paid are
not tax deductible)
Agency Relationships
An agency relationship exists whenever a principal
hires an agent to act on their behalf.
Within a corporation, agency relationships exist
between:
Shareholders and Managers
Shareholders and Creditors
Shareholders versus Managers
Managers have tendency to act in their own interests.
But the following factors affect managerial behavior:
Managerial compensation plans
Direct intervention by shareholders
The threat of firing
The threat of takeover
1-21
Shareholders versus Creditors
Managers could borrow money to repurchase shares to
decrease the number of shares and increase stockholders
return. However, creditors will concern about the increase
in debt that would affect future cash flow and increase the
cost of debt.
1-22
Factors that affect stock price
Projected cash flows to
shareholders
Timing of the cash flow
stream
Riskiness of the cash
flows
1-23
Factors that Affect the Level and
Riskiness of Cash Flows
Decisions made by financial managers:
Investment decisions
Financing decisions (the relative use of debt financing)
Dividend policy decisions
The external environment
1-24
Example: Work the Web
The Internet provides a wealth of information
about individual companies
“finance.yahoo.com” is an excellent site
Example:
Southwest Airlines (LUV)
Apple Inc. (AAPL)
American Express (AXP)
1-25
Cash Flows Between the Firm and the
Financial Markets
1-26
Cash Flows Between the Firm and
the Financial Markets
1-27
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