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Chapter 1 Introduction to Financial management - Coggle Diagram
Chapter 1
Introduction to Financial management
Financial management is principally concerned with making financial decision that influence and affect the worth of a firm
Types of financial decisions
Investment decision
Dividend policy
Financing decision
Importance of financial manager
Financing decisions
Monitoring and controlling
Investment decisions
Involvement in financial market
Financial analysis and planning
Goals of the firm
Profit Maximization
refers to how much dollar profit the company makes
Short term goals
Ignores the time value of money
Ignore the risk and uncertainty
Ignores the cost of capital
Profit maximisation is regarded as unrealistic, difficult, inappropriate and immoral
Wealth Maximization
means maximizing the total market value of the existing shareholders' common stock
Long term goals
Considers the time value of money
Ensures fair return to the shareholders, reserve fund for growth and expansion, promoting financial discipline in the management
Considers the risk and uncertainty
Taking into account the cost of capital
Principle of Finance
Money has a time value
Cash flows are the source of value
Market prices reflect information
There is a risk-return trade-off
Individuals respond to incentive