Introduction to Financial

Management
Jess Cornaggia
Kelley School of Business
Intermediate Corporate Finance
Assignment
 Today
 RWJaffe Chapter 1
 Overview of Financial Management
 Next Class
 RWJordan Chapter 6
 Time Value of Money – Review
 PV, FV, Compounding
 Annuities and Perpetuities
 Inflation
What is Financial Management?
 What is the role of a financial manager in a
corporation?
What is Financial Management?
 What is the role of a financial manager in a
corporation?
 What real investment should the firm make
(Capital Budgeting)
 How should the firm pay for the real investments?
(Capital Structure)
 How and when should money be returned to
investors (Payout Policy)
 How should the firm manage the day to day
financing activities (Working Capital
Management)
Corporate Forms
 Sole proprietorship
 Partnership
 General
 Limited
 Corporation
 S-Corp
 Limited liability company
Goal Of Financial Management
 What should be the goal of a corporation?
Goal Of Financial Management
 What should be the goal of a corporation?
 Maximize profit?
 Minimize costs?
 Maximize market share?
 Maximize the value of the company’s stock?
 Today’s value or long run?? Is there a difference?
 Does this mean we should do anything and
everything to maximize owner wealth?
Valuation
 What is the appropriate cash flow?
 When will the cash flow occur (timing)?
 What is the risk associated with the cash
flow?
 How do we value a project (or firm, or stock,
or bond) today given the timing and risk of
the cash flows?
Agency Problem
 What is an agency relationship?
 Why might this be a problem?
 What can be done to mitigate this problem?
The Agency Problem
 Agency relationship
 Principal hires an agent to represent his/her
interest
 Stockholders (principals) hire managers (agents)
to run the company
 Agency problem
 Conflict of interest between principal and agent
 Management goals and agency costs
 What are the goals (or might the goals be) of
managers?