WHAT IS FINANCE?

• FINANCE IS CONCERNED WITH THE

PROCESS, INSTITUTIONS, MARKETS
AND INSTRUMENTS INVOLVED IN THE
TRANSFER OF MONEY AMONG
INDIVIDUALS, BUSINESSES AND
GOVERNMENTS.
• PERSONAL FINANCIAL DECISIONS
• FINANCIAL JOBS
CAREER OPPORTUNITIES IN
FINANCE
• FINANCIAL SERVICES
• MANAGERIAL FINANCE
•FINANCIAL MANAGER
•FINANCIAL TASKS

•GLOBALIZATION OF
BUSINESS ACTIVITIES
 ROLE OF FINANCIAL
MANAGEMENT
• WHAT IS FINANCIAL
MANAGEMENT?
•CONCERNS WITH THE
ACQUISITION, FINANCING AND
MANAGEMENT OF ASSETS WITH
SOME OVERALL GOAL IN MIND
 ROLE OF FINANCIAL
MANAGEMENT

• INVESTMENT DECISION
• DETERMINATION OF TOTAL AMOUNT
OF ASSETS HELD BY THE FIRM
• SIZE OF THE FIRM
• ASSETS NEEDED TO BE REDUCED,
ELIMINATED OR REPLACED
 ROLE OF FINANCIAL
MANAGEMENT
FINANCING DECISION

• TYPE OF FINANCING
• MIX OF FINANCING FOR FIRMS
• TYPE OF DIVIDEND POLICY
• ACQUISITION OF FUNDS
 ROLE OF FINANCIAL
MANAGEMENT
• ASSET MANAGEMENT DECISION

• EFFICIENT ASSET MANAGEMENT

• OPERATING RESPONSIBILITY OVER
ASSETS
• EMPHASIS ON CURRENT ASSETS
THAN FIXED ASSETS
 ROLE OF FINANCIAL
MANAGEMENT
GOAL OF THE FIRM
• MAXIMIZATION OF
SHAREHOLDER WEALTH
VALUE CREATION OCCURS WHEN
WE MAXIMIZE THE SHARE PRICE
FOR CURRENT STOCKHOLDERS
 ROLE OF FINANCIAL
MANAGEMENT
VALUE CREATION
PROFIT MAXIMIZATION
• MAXIMIZING FIRM’S EARNINGS
AFTER TAXES
EARNING PER SHARE
EARNINGS AFTER TAXES DIVIDED BY
NUMBER OF SHARES OUTSTANDING
 ROLE OF FINANCIAL
MANAGEMENT
AGENCY PROBLEMS
AGENT
INDIVIDUAL AUTHORIZED BY ANOTHER PERSON
CALLED THE PRINCIPAL, TO ACT IN THE
LATTER’S BEHALF
AGENCY (THEORY OF FIRM)
A BRANCH OF ECONOMICS RELATING TO THE
BEHAVIOR OF PRINCIPALS (SUCH AS OWNERS)
AND THEIR AGENTS (SUCH AS MANGERS)
• INCENTIVES INCLUDE STOCK OPTIONS,
BONUSES AND PREQUISITES
 ROLE OF FINANCIAL
MANAGEMENT
SOCIAL RESPONSIBILITY
• WEALTH MAXIMIXATION DOES NOT
PRELUDE THE FIRM FROM BEING
SOCIALLY RESPONSIBLE
STAKEHOLDERS
ALL CONSTITUENCIES WITH STAKES IN
THE FORTUNES OF THE COMPANY
• SHAREHOLDER WELATH MAXIMIZATION
REMAINS THE ULTIMATE GOAL
 BOARD OF DIRECTORS

PRESIDENT (CEO)

VP
VP FINANCE VP
OPERATIONS (CHIEF FINANCIAL OFFICER) MARKETING
 VP OF FINANCE
TREASURER CONTROLLER
• CAPITAL BUDGETING • COST ACCOUNTING
• CASH MANAGEMENT • COST MANGEMENT’
• CREDIT MANGEMENT • DATA PROCESSING
• FINANCIAL ANALYSIS • GENERAL LEDGER
AND PLANNING • GOVERNMENT
• INVESTOR RELATIONS REPORTING
• TAX ANALYSIS AND
PLANNING