Introduction to FinMa Flashcards
(19 cards)
Basic Areas Of Finance
Corporate finance = Business Finance
Investments
Financial institutions
International finance
An area of specialization within each of the areas discussed so far
May allow you to work in other countries or at least travel on a regular basis
Need to be familiar with exchange rates and political risk
Need to understand the customs of other countries; speaking a foreign language fluently is also helpful
International Finance
Work with financial assets such as stocks and bonds
Value of financial assets, risk versus return, and asset allocation
Job opportunities:
Stockbroker or financial advisor
Portfolio manager
Security analyst
Investments
Companies that specialize in financial matters
Banks – commercial and investment, credit unions, savings and loans
Insurance companies
Brokerage firms
Financial Institutions
Why Study Finance?
Marketing
Accounting
Management
Personal Finance
Some important questions that are answered using finance
What long-term investments should the firm take on?
Where will we get the long-term financing to pay for the investments?
How will we manage the everyday financial activities of the firm?
Financial managers try to answer some, or all, of these questions
The top financial manager within a firm is usually the Chief Financial Officer (CFO)
Treasurer – oversees cash management, credit management, capital expenditures, and financial planning
Controller – oversees taxes, cost accounting, financial accounting, and data processing
Financial Manager
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?
Forms of Business Organization
Sole proprietorship
Partnership
General
Limited
Corporation
S-Corp
Limited liability company
Business owned by one person
Sole Proprietorship
Business owned by two or more persons
Partnership
A legal “person” distinct from owners and a resident of a state
Corporation
International Corporate Forms
Joint stock companies
Public limited companies
Limited liability companies
All share:
Public ownership
Limited liability
What should be the goal of a corporation?
Maximize profit?
Minimize costs?
Maximize market share?
Maximize the current value per share of the company’s existing stock
Maximize the market value of the existing owners’ equity
Agency relationship
Principal hires an agent to represent its interests
Stockholders (principals) hire managers (agents) to run the company
Agency problem
Conflict of interest between principal and agent
Management goals and agency costs
The Agency Problem
Do Managers Act in the Shareholders’ Interests?
Managerial compensation
Incentives can be used to align management and stockholder interests
Incentives need to be carefully structured to insure that they achieve their goal
Corporate control
Threat of a takeover may result in better management
Other stakeholders
Cash flows to the firm
Primary vs. secondary markets
Dealer vs. auction markets
Listed vs. over-the-counter securities
NYSE
NASDAQ
Financial Markets
means planning, organizing, directing and controlling the financial activities of the organization.
It refers the efficient and effective management of
money (funds) in such a manner as to achieve the
goals of the organization.
Financial Management
It is necessary to understand
these principles in order to
understand finance.
Ten Principles of
Financial Management
