Finman

• Finance is the system that includes the circulation of money, granting of credit, making investments, and provision of banking facilities
• Areas of Finance:

  • Financial management focuses on decisions related to acquiring assets, raising capital, and managing the firm
  • Capital markets include money market (T-Bills, time deposits, foreign exchange) and capital market (primary and secondary markets for stocks and bonds)
  • Investments involve decisions about stocks and bonds, including security analysis, portfolio theory, market analysis, and behavioral finance
• Firm's goal is to maximize a stockholder's wealth through the value of their ordinary share
• Intrinsic value is the true value of a stock estimated by a marginal investor through security analysis
• Determinants of Intrinsic Values and Stock Prices:

  • Corporate actions, economic environment, political environment, international economic outlook
• Role of Financial Managers:

  • Investments involve outflow of resources with expectations of cash inflows
  • Financing involves finding ways to finance firm activities through debt or equity financing
  • Dividend policy involves distributing retained earnings to stockholders
• Risk-return trade-off: Increase in return is coupled with an increase in risk
• Forms of Business Organizations:

  • Sole Proprietorship (one owner)
  • Partnership (two or more owners)
  • Corporation (artificial being with right of succession and powers authorized by law)
  • Limited Liability Company (hybrid between partnership and corporation)
  • Limited Liability Partnership (used for professional firms, provides limited liability and taxed like partnerships)
• Agency Theory:

  • Potential conflict of interest between stockholders and managers
  • Primary agency relationships: Stockholder and Managers, Stockholders and Creditors
• Misconceptions of Financial Management:

  • Financial Management is not accounting, mathematics, or statistics