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Intro to Finance (Why Profit Maximisation as a goal fails (Cash flows…
Intro to Finance
Why Profit Maximisation as a goal fails
Cash flows available to shareholders
Shareholders receive returns through cash dividends/selling of shares at a higher price that what they paid for
Risk etc.
To compensate for higher risk, investment B should provide a higher return
Timing of cash flows
Prefer to receive cash sooner
Re-invested to generate more money
Major Areas
Financial Services
Design/Deliver financial advice and products
Managerial Finance
Manage financial affairs of businesses as the finance manager
Make investment decisions (Assets)
Determine type of assets to invest
Make financing decisions (Liabilities)
Determine sources of financing
Perform financial analysis and planning (Balance Sheet)
Monitor firm's financial health and requirements
Develop plans to ensure sufficient cash flow to achieve goals
Goal
Make decisions and take actions that will maximise shareholders' wealth by maximising share price
Definition
Acquisition and investment of funds to enhance value and wealth