The-Goals-and-Functions-課件

1、The Goals and Functions of Financial Management1Chapter OutlineIntroduction to FinanceForms of OrganizationsRisk-Return TradeoffPrimary Goal of Financial ManagersRole of Financial Managers2Relationship between Finance, Economics and AccountingEconomics provides structure for decision making in many

2、important areasProvides a broad picture of economic environmentAccounting provides financial data in various formsIncome statementsBalance sheetsStatement of cash flowsFinance links economic theory with the numbers of accounting3Evolution of the Field of FinanceAt the turn of the century: Emerged as

3、 a field separate from economicsBy 1930s: Financial practices revolved around such topics as:Preservation of capitalMaintenance of liquidityReorganization of financially troubled corporationsBankruptcy process4Evolution of the Field of Finance (contd)By mid-1950s: Finance becomes more analyticalFina

4、ncial capital (money) was used to purchase real capital (long-term plant and equipment)Cash and inventory managementCapital structure theoryDividend policy5Modern Issues in FinanceFocus has been on:Risk-return relationshipsMaximization of return for a given level of riskPortfolio managementCapital s

5、tructure theoryNew financial products with a focus on hedging are being widely usedInflation a key variable in financial decisions6Modern Issues in Finance (contd)The following are significant to financial managers during decision making:Effects of inflation and disinflation on financial forecasting

6、Required rates of return for capital budgeting decisionsCost of capital7The Impact of the InternetInternet and its acceptance has enabled acceleration of e-commerce solutions for “old economy” companiesE-commerce solutions for existing companiesB2CB2BSpurt in new business models and companiesAeBay8T

7、he Impact of the Internet (contd)For a financial manager, e-commerce impacts financial management because it affects the pattern and field through which cash flows through the firmB2C model:Products are bought with credit cardsCredit card checks are performedSelling firms get the cash flow fasterB2B

8、 model can help companiesLower the cost of managing inventory, accounts receivable, and cash9Financial ManagementFinancial management or business finance is concerned with managing an entitys moneyFunctions:Allocate funds to current and fixed assetsObtain the best mix of financing alternativesDevelo

9、p an appropriate dividend policy within the context of the firms objectives10Functions of the Financial Manager11Risk-Return Trade-OffInfluences operational side (capital versus labor/Product A versus Product B)Influences financial mix (stocks versus bonds versus retained earnings)12Sole Proprietors

10、hipRepresents single-person ownership Advantages:Simplicity of decision-makingLow organizational and operational costsDrawbacksUnlimited liability to the ownerProfits and losses are taxed as though they belong to the individual owner13PartnershipSimilar to sole proprietorship except there are two or

11、 more ownersArticles of partnership specifies: The ownership interestThe methods for distributing profitsThe means of withdrawing from the partnershipCarries unlimited liability for the owners14Partnership (contd)Limited partnershipOne or more partners are designated general partners and have unlimi

12、ted liability for the debts of the firmOther partners designated limited partners and are liable only for their initial contributionNot all financial institutions will extend funds to a limited partnership15CorporationCorporationIs uniqueit is a legal entity unto itselfArticles of incorporationSpeci

13、fy the rights and limitations of the entityOwned by shareholders who enjoy the privilege of limited liabilityHas a continual lifeKey featureEasy divisibility of ownership interest by issuing shares of stock16Corporation (contd)Disadvantage:The potential of double taxation of earningsSubchapter S cor

14、porationIncome is taxed as direct income to stockholders and thus is taxed only once as normal income17Corporate GovernanceAgency theoryExamines the relationship between the owners and managers of the firmInstitutional investorsHave more to say about the way publicly owned companies are managed18Sar

15、banes-Oxley ActSet up a five-member Public Company Accounting Oversight Board (PCAOB) with responsibility for:Auditing standards within companiesControlling the quality of auditsSetting rules and standards for the independence of the auditorsMajor focus is to make sure that publicly-traded corporati

16、ons accurately present theirAssetsLiabilitiesEquity and income on their financial statements19Goals of Financial ManagementValuation approachMaximizing shareholder wealthManagement and stockholder wealthRetention of position of power in long run is by becoming sensitized to shareholder concernsSuffi

17、cient stock option incentives to motivate achievement of market value maximizationPowerful institutional investors are making management more responsive to shareholders20Social ResponsibilityAdopting policies that:Maximize values in the market Attracts capitalProvides employmentOffers benefits to th

18、e societyCertain cost-increasing activities may have to be mandatory rather than voluntary initially, to ensure burden falls equally over all business firms21Ethical BehaviorEthical behavior creates invaluable reputationInsider tradingProtected against by the Securities and Exchange Commission (SEC)

19、22The Role of Financial MarketsFinancial markets are indicators of maximization of shareholder value and the ethical or the unethical behavior that may influence the value of the companyParticipants in the financial market range over the public, private, and government institutionsPublic financial m

20、arketsCorporate financial markets23Structure and Functions of the Financial MarketsMoney marketsDeals with short-term securities that have a life of one year or lessSecurities in these markets include: Commercial paper sold by corporations to finance their daily operations, or certificates of deposi

21、t with maturities of less than 12 months sold by banks24Structure and Functions of the Financial Markets (contd)Capital marketsDefined as those where securities have a life of more than one yearLong-term marketsSecurities include: Common stockPreferred stockCorporate and government bonds25Allocation

22、 of CapitalPrimary marketWhen a corporation uses the financial markets to raise new funds, the sale of securities is made by way of a new issueSecondary marketWhen the securities are sold to the public (institutions and individuals)Financial managers are given feedback about their firms performance

23、26Return Maximization and Risk MinimizationInvestors can choose risk level that meets their objective and maximizes return for that given level of riskCompanies that are rewarded with high-priced securities can raise new funds in the money and capital markets at a lower cost compared to competitorsF

24、irms pay a penalty for failing to perform competitively27RestructuringRestructuring can result in:Changes in the capital structure (liabilities and equity on the balance sheet)Selling of low-profit-margin divisions with the proceeds of the sale reinvested in better investment opportunitiesRemoval of

25、 or large reductions in the current management team Has also included mergers and acquisitions28Internationalization of Financial MarketsAllocation of capital and the search for low-cost sources of financing in global marketThe impact of international affairs and technology has resulted in the need

26、for future financial managers to understand International capital flowsComputerized electronic funds transfer systemsForeign currency hedging strategies29Technological Impact on Capital MarketsConsolidation among major stock markets and mergers of brokerage firms with domestic and international part

27、nersElectronic markets have gained popularity as against traditional organized exchanges such as NASDAQResulted in the merger of NYSE with Archipelago, and NASDAQ bought out Instinet from Reuters30Review of Accounting2Chapter 2 - Outline What is Accounting?The Income Statement (I/S)The Price/Earning

28、s RatioThe Balance Sheet (B/S)Comparison of Market Value to Book ValueLimitations of Financial StatementsThe Statement of Cash Flows (CFs)Comparison of Accounting and Cash FlowsIncome Tax ConsiderationsSummary and ConclusionsPPT 2-232What is Accounting? Accounting provides financial information abou

29、t a businessOf interest to stakeholders in business: shareholders managers creditors governmentsInformation is used to make decisions about a businessFinancial statements summarize accounting informationMost important financial statements:Income StatementBalance SheetStatement of Cash FlowsPPT 2-333

30、Basic Financial StatementsIncome StatementBalance SheetStatement of Cash Flows34Income StatementDevice to measure the profitability of a firm over a period of timeIt covers a defined period of timeIt is presented in a stair-step or progressive fashion to examine profit or loss after each type of exp

31、ense item is deducted35Income Statement An Income Statement shows profitability for a period (ex.; 1 year). Can be prepared in steps: (1) Sales - Cost of Goods Sold (COGS) = Gross Profit (GP)(2) GP - Operating Expenses = Earnings Before Interest and Taxes (EBIT) or Operating Income (OI) (3) EBIT - I

32、nterest = Earnings Before Taxes (EBT) (4) EBT - Taxes = Earnings Aftertaxes (EAT) or Net Income (NI)36Income Statement (contd)37Return to CapitalThree primary sources of capital: BondholdersPreferred stockholdersCommon stockholdersEarnings per shareInterpreted in terms of number of outstanding share

33、sMay be paid out in dividends or retained by company for subsequent reinvestmentStatement of retained earnings Indicates disposition of earnings38Statement of Retained Earnings39Price-Earnings (P/E) RatioMultiplier applied to earnings per share to determine current value of common stockSome factors

34、that influence P/E:Earnings and sales growth of the firmRisk (volatility in performance) Debt-equity structure of the firmDividend payment policyQuality of management40Price-Earnings (P/E) Ratio (contd)Allows comparison of the relative market value of many companies based on $1 of earnings per share

35、Indicates expectations about the future of a companyPrice-earnings ratios can be confusing41Price-earnings Ratios for Selected US Companies42Limitations of income statement 1. Income Vs Real worth2. Income Vs Cash flow3. Income may vary with different accounting method employed by the accountant43Th

36、e Balance Sheet A Balance Sheet (B/S) shows what a firm owns and how it is financed at a point in time (ex.; December 31)Remember the ALOE!Assets = Liabilities + Owners EquityPPT 2-944Classifications on the Balance SheetAssets:what a business ownsCurrent AssetsEx: Accounts receivable, InventoryWill

37、be sold or used up within 1 yearCapital AssetsEx: Building Liabilities: what a business owesCurrent LiabilitiesEx: Accounts payableDue within 1 yearLong-term LiabilitiesDue some time after 1 yearEquity: what the owner(s) have invested in the businessShareholders EquityCapital stockRetained earningsP

38、PT 2-1045Statement of Financial Position (Balance Sheet)46Concept of Net Worth Net worth/book value = Stockholders equity preferred stock componentMarket value is of primary concern to the:Financial managerSecurity analystStockholders47Limitations of the Balance SheetMost of the values are based on

39、historical/original cost priceTroublesome when it comes to plant and equipment inventoryFASB ruling on disclosure of inflation adjustments no longer in force It is purely a voluntary act on the part of the company48Limitations of balance sheet1. Book value Vs Market value2. Contingent Liability , Of

40、f balance-sheet activities. 49Limitations of the Balance Sheet (contd)Differences between per share values may be due to:Asset valuationIndustry outlookGrowth prospectsQuality of managementRisk-return expectations50Comparison of Market Valueto Book Value per Share51Limitations of Financial Statement

41、sBased on past transactions rather than future forecastsMay not recognize important economic changes as they occurincrease in property valuesnew competitionVariety of accounting policies and methods are usedamortizationinventory valuationPPT 2-1452The Statement of Cash FlowsThe Statement of Cash Flo

42、ws (CFs) measures the flow of cash into and out of a firmCF from operating activities PLUSCF from financing activities PLUSCF from investing activities EQUALSNet increase (decrease) in cash PPT 2-1553Operations: cash paid and received from buying and selling of goods and servicesInvestments: cash pa

43、id and received from investment activities (bonds, stocks, property, equipment)Financing: cash paid and received from financing activities (dividends, borrowing or issuing stocks, repayment of borrowings)Sources (uses) of Cash 54Statement of Cash Flows (contd)Advantage of accrual methodAllows matchi

44、ng of revenues and expenses in the period in which they occur to appropriately measure profitsDisadvantage of accrual methodAdequate attention not directed to actual cash flow position of firm55Concepts Behind the Statement of Cash Flows56Determining Cash Flows from Operating ActivitiesTranslation o

45、f income from operations from an accrual to a cash basisDirect methodEvery item on the income statement is adjusted from accrual to cash accountingIndirect method Net income represents the starting pointRequired adjustments are made to convert net income to cash flows from operations57Indirect Metho

46、d58Comparative Balance Sheets59Cash Flows from Operating Activities60Determining Cash Flows from Investing ActivitiesInvesting activities:Long-term investment activities in mainly plant and equipmentIncreasing investments represent a use of fundsDecreasing investments represent a source of funds 61Determining Cash Flows from Financing ActivitiesFinancial activities apply to the sale/retirement of:BondsCommon stockPreferred stockOther corporate securitiesPayment of cash dividendsSale of firms securities is a source of fundsPayment of dividends a