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Introduction and overview to financial management - Coggle Diagram
Introduction and overview to financial management
Finance
determine value (current worth) -> make decisions
allocate resources: acquire, invest, manage (for future cash flows)
Government finance
Personal finance
Corporate finance
Capital budgeting
manage and plan long-term investments
Nature of business
size, timing, risk of future cash flows
Capital structure
long-term financing
operations
long-term investments
financing mix
risk
cost
firm valuation
Working capital management
day-to-day
cash collection
payments
ensures resources for operations and avoid costly interruptions
Working capital
CA (on hand, selling on credit)
CL (short-term financing)
Other main areas of Finance
Investments
eg. risk assessment, portfolio management
Firm as investment vehicle
: financial transactions from perspective of investors outside firm
Financial markets
where financial securities are bought
Primary (raise money)
public offering
Securities and Exchange Commission (SEC) registration
information disclosure
accounting, legal and selling costs, underwriters
private placement
avoid legal requirements, underwriters (investment banks that specialize in selling securities to public)
large financial institutions
Secondary (transfer ownership)
dealer market (OTC)
NASDAQ (NASD) - National Association of Securities Dealers
auction market
stock exchanges
ease of ownership transfer and raise money
Financial intermediaries
financial institution facilitating savers (eg. investors) -> demanders (eg. firms that need money)
eg. commercial banks, investment banks, insurance companies
Financial activity in a large firm
Controller
Tax manager
Cost accounting manager
Financial accounting manager
Data processing manager
management information system
BOD -> CEO -> COO -> CFO ->Treasurer, controller
Treasurer
Cash manager
Credit manager
Capital expediture
Financial planning
Business organisations
Sole proprietorship (1)
Partnership (2 or more)
General partnership
Limited partnership
Limited liability partnership
Corporation
Goal of financial management
maximize current share value
profitability + risk control
Problem with profitability goals
vague
may not be good for the company in the long run
Problem with risk control goals
may not be in shareholders' best interest
contradicts with profitablity
Conflict of interest (agency problem)
Stockholders and management
Costs
Direct
Corporate expenditure
Monitor management actions
Indirect
lost opportunity
Alignment of goals
Managerial compensation
Financial performance and share value
Job prospects
Illegal and unethical behaviour
Clawbacks
Deferred compensation
Control of firm
Proxy fight
Takeover