Tài chính doanh nghiệp - Chapter 1: An overview of financial management

CHAPTER 1An Overview of Financial ManagementCareer OpportunitiesIssues of the New MillenniumForms of BusinessesGoals of the CorporationAgency RelationshipsCareer Opportunities in FinanceMoney and capital marketsInvestmentsFinancial managementResponsibility of the Financial StaffMaximize stock value by:Forecasting and planningInvestment and financing decisionsCoordination and controlTransactions in the financial marketsManaging riskRole of Finance in a Typical Business OrganizationFinancial Management Issues of the New MillenniumThe effect of changing technologyThe globalization of businessPercentage of Revenue and Net Income from Overseas Operations for 10 Well-Known Corporations, 2001Company% of Revenue from overseas% of Net Income from overseasCoca-Cola60.835.9Exxon Mobil69.460.2General Electric32.625.2General Motors26.160.6IBM57.948.4JP Morgan Chase & Co.35.551.7McDonald’s63.161.7Merck18.358.13M52.947.0Sears, Roebuck10.57.8Alternative Forms of Business OrganizationSole proprietorshipPartnershipCorporationSole proprietorships & PartnershipsAdvantagesEase of formationSubject to few regulationsNo corporate income taxesDisadvantagesDifficult to raise capitalUnlimited liabilityLimited lifeCorporationAdvantagesUnlimited lifeEasy transfer of ownershipLimited liabilityEase of raising capitalDisadvantagesDouble taxationCost of set-up and report filingFinancial Goals of the CorporationThe primary financial goal is shareholder wealth maximization, which translates to maximizing stock price.Do firms have any responsibilities to society at large?Is stock price maximization good or bad for society?Should firms behave ethically?Is stock price maximization the same as profit maximization?No, despite a generally high correlation amongst stock price, EPS, and cash flow.Current stock price relies upon current earnings, as well as future earnings and cash flow.Some actions may cause an increase in earnings, yet cause the stock price to decrease (and vice versa).Agency relationshipsAn agency relationship exists whenever a principal hires an agent to act on their behalf.Within a corporation, agency relationships exist between:Shareholders and managersShareholders and creditorsShareholders versus ManagersManagers are naturally inclined to act in their own best interests.But the following factors affect managerial behavior:Managerial compensation plansDirect intervention by shareholdersThe threat of firingThe threat of takeoverShareholders versus CreditorsShareholders (through managers) could take actions to maximize stock price that are detrimental to creditors.In the long run, such actions will raise the cost of debt and ultimately lower stock price.Factors that affect stock priceProjected cash flows to shareholdersTiming of the cash flow streamRiskiness of the cash flowsBasic Valuation ModelTo estimate an asset’s value, one estimates the cash flow for each period t (CFt), the life of the asset (n), and the appropriate discount rate (k)Throughout the course, we discuss how to estimate the inputs and how financial management is used to improve them and thus maximize a firm’s value.Factors that Affect the Level and Riskiness of Cash FlowsDecisions made by financial managers:Investment decisionsFinancing decisions (the relative use of debt financing)Dividend policy decisionsThe external environment