Financial management

Prof. Dr. Marc Deloof

E-mail: Marc.Deloof@uantwerpen.be
Contact: online, by appointment

Assistent:

Nina Marien
E-mail: Nina.Marien@uantwerpen.be
Contact: online, by appointment

Financial Management - M. Deloof 1

 Financial management
Book:
Marc Deloof, Sophie Manigart, Hubert Ooghe, Cynthia Van Hulle
Corporate Finance
Published by Intersentia - Bookshops Acco and Universitas

Teaching methods:
• Lectures
• Practice sessions

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 Financial management
Evaluation
• Closed book, ON COMPUTER
• Multiple choice questions and open questions

• There will be a ‘trial’ exam in early May

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 Contents of the course
1 Objectives and functions of financial management

PART 1: VALUATION PRINCIPLES

2 Basic valuation concepts
3 Valuation of (bond)loans and shares
4 The relationship between the required return and risk
5 Valuing options

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 Contents of the course
PART 2: INVESTMENT ANALYSIS AND COST
OF CAPITAL
6 Assessing investment projects
7 Further refinements in assessing the investment
8 Cost of capital

(The following for Financial Management but not for

Principles of Financial Management)

PART 3: FINANCING AND DIVIDEND

STRATEGY
9 Capital structure

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 Contents of the course
PART 4: MEDIUM AND LONG-TERM
FINANCING
13 Issuing shares
14 Medium-term and long-term debts

PART 5: WORKING CAPITAL

15 Working capital management and financial planning
17 Operational short-term financing

PART 6: SPECIAL TOPICS

19 Valution of companies

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 Chapter 1: objectives and functions
of financial management
• The role of the financial manager:
– In which assets should the firm invest?
• Investment decisions
– Hoe can/should the firm finance these assets?
• Financing decisions
– How should the financial flows be managed?
• Financial planning

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 What is the objective of financial
management?
• Maximalisation of
– revenues?
– profits?
– profits per share?
– Value per share?
• Example
– A company has a 20% profitability and a profit per
share of € 2 (no debts). The company can issue new
equity and invest the proceeds in 10% bonds

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Example: company 'The Max'

Equity No. of Profit Profitability Profit per

shares share
Before 100 10 20 20% 20/10 = 2

Increase + 100 + 10 + 10 10%

TOTAL 200 20 30 15% 30/20 = 1.5

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 Which objective?
• The creation of shareholder value
– Value is not determined by the current profit per
share, but by the expected future profits and the risk
associated with these profits!
– In an “efficient” market, the market price of a share
will reflect its value
• But is value maximalisation really the objective
of companies?
– Shouldn’t we also take into account the broader
societal context?

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Which objective?

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Objectives reported by companies themselves

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In a survey of 4296 global leaders by MIT Sloan
Management Review

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 Which objective?
• But do firms actually have an “objective”?

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 Corporate governance
• How can shareholders make sure that the
management of the company will maximise
shareholder value?
• Conflicts of interest between the management
and the shareholders of a company

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 “Corporate governance”
• The agency-theory
– The ‘agent’ (manager) acts in the interests of the
‘principal’ (shareholder)
– In reality, the interests of the agent can be different
from those of the principal
• The agent may care more about his own interests than
those of the principal
• The shareholder lacks the information to have a full
picture of what the manager is doing
– The manager can use the firm to pursue his own interests, at the
expense of shareholder value

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Financial Management - M. Deloof 17
 Party on, Dennis

“DANCING toga-clad ladies, gladiators and a naked-woman-with-

exploding-breasts birthday cake: the party that Dennis Kozlowski, the
former boss of Tyco, threw for his wife in June 2001 appears to
include all the essential features of a great night out. Such are the
times, however, that a censored video of the festivities, released by
prosecutors to the press this week, is now vital evidence in Mr
Kozlowski's trial for “enterprise corruption”. His alleged crime? Together
with other claimed acts of corporate looting, Mr Kozlowski split the
$2m bill with Tyco's shareholders” (Source: The Economist, 2003).

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 “Corporate governance”
• Other agency-relations in a company
– Controlling shareholders versus minority
shareholders
• Family firms listed on a stock exchange
– Shareholders versus debtholders
• Maximizing shareholder value may be at the expense of
the value of the debtholders
– Also customers, suppliers, employees and the state
have interests in the firm

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