INTRODUCTION
TO FINANCIAL
MANAGEMENT
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1.
DEFINITION OF
FINANCE
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Finance
“art and science of managing money”
A part of it is budgeting, an act of estimating revenue and
expenses over a period of time.
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FINANCIAL MANAGEMENT
“deals with the decisions that are supposed
to maximize the value of shareholders’
wealth”
Shareholders’ wealth is Market Price is the current
measured based on the price at which an asset or
current market market price service can be bought or sold
of the corporation’s stock and can be influence by
factors that can or can not be
controlled by the
management
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The Decisions made will affect the markets
perception of the company and influence
the share price.
The goal of Financial management is to
maximize the value of shares of stocks.
Managers of a corporation are responsible
for making the decisions for the company
that would lead towards shareholders’
wealth maximization.
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2.
THE FINANCIAL
MANAGER
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FOUR FUNCTIONS OF A FINANCIAL
MANAGER (VP for Finance)
1. Financing 2. Investing
Determine the Investments may
appropriate capital be:
structure, which a. Short term - when
refers to how much the company is in
of your total assets excess of cash
is financed by: position.
a. Debt b. Long term - should
b. Equity be supported by
capital budgeting.
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FOUR FUNCTIONS OF A FINANCIAL
MANAGER (VP for Finance)
3. Operating 4. Dividend Policies
Determine how To determine when
to finance working the company should
capital needs, declare dividends
whether by long
term or short term
sources.
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3.
THE FINANCIAL
INSTRUMENTS
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FINANCIAL INSTRUMENTS
Is a real or a virtual document representing
a legal agreement involving some sort-of
monetary value.
When a financial instrument is issued, it gives
rise to a financial asset on one hand and a
financial liability or equity instrument on the
other.
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When the companies in need of funding, they
either sell debt securities (bonds) or issue equity
instruments.
Suppliers of Funds
- Holders of financial asset
- The one who bought the financial
instrument
Users of Funds
- Makers of Financial Liabilities and Equity
Instruments
- The one who sold a financial instrument.
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EXAMPLES (DEBT INSTRUMENT)
1. Treasury bonds and Treasury
Bills
2. Corporate Bonds
EXAMPLES ( EQUITY INSTRUMENT)
1. Preferred Stock
2. Common Stock
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4.
FINANCIAL
INSTITUTIONS
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FINANCIAL INSTITUTIONS
intermediaries that channel the savings of
individuals, businesses, and governments
into loans or investments
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EXAMPLE OF FINANCIAL
INSTITUTIONS
1. Commercial Banks
2. Insurance companies
3. Mutual funds
4. Pension Funds
5. Other Financial Institutions
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5.
FINANCIAL MARKETS
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FINANCIAL MARKETS
organized forums in which the suppliers
and users of various types of funds can
make transactions directly
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CLASSIFICATION (COMPARATIVE
GROUPS) - PRIMARY VS.
SECONDARY
PRIMARY MARKET SECONDARY MARKET
- Where securities - In which pre-owned
are initially issued. securities are
- Issuer is directly traded.
involved.
- Can be:
a. Public Offering
b. Private
Placement
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CLASSIFICATION (COMPARATIVE
GROUPS) - MONEY & CAPITAL
MONEY MARKET CAPITAL MARKET
- Wherein securities - Securities with
with short-term long-term
maturities ( 1 yr or maturities.
less) are sold. - Bonds and both
- Those with idle common and
funds to Invest in a preferred stock.
safe, interest
bearing asset.
- Seasonal or
temporary
financing.
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6.
FINANCIAL SYSTEM
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FINANCIAL SYSTEM
A system that allows the exchange of
funds between lenders, investors, and
borrowers.
Financial systems operate at national
or global level.
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