Financial Management and Investment Analysis

Study Notes

Financial management involves planning, organizing, and controlling financial resources to achieve business objectives
Key responsibilities:
- Raising capital (equity and debt)
- Allocating resources (capital budgeting)
- Managing cash flow
- Managing risk (financial risk management)
- Monitoring and controlling financial performance

Investment analysis involves evaluating investment opportunities to determine their potential return and risk
Key concepts:
- Time value of money (present value, future value, net present value)
- Risk and return tradeoff
- Diversification and portfolio management
- Security analysis (fundamental and technical analysis)
- Investment valuation models (e.g. dividend discount model, capital asset pricing model)

Corporate finance involves making financial decisions to maximize shareholder value
Key areas:
- Capital structure (debt and equity financing)
- Capital budgeting (evaluating investment projects)
- Dividend policy (distributing profits to shareholders)
- Working capital management (managing current assets and liabilities)
- Mergers and acquisitions (buying and selling companies)

Financial markets facilitate the exchange of financial assets between buyers and sellers
Key types:
- Money markets (short-term debt securities)
- Capital markets (long-term debt and equity securities)
- Foreign exchange markets (currencies)
- Derivatives markets (options, futures, etc.)
- Over-the-counter (OTC) markets (private transactions)

Risk management involves identifying, assessing, and mitigating potential risks to a business
Key types of risk:
- Financial risk (market, credit, liquidity, operational risk)
- Operational risk (process, systems, people, external events)
- Strategic risk (business, industry, competitor risk)
- Compliance risk (regulatory, legal, reputational risk)
- Steps in risk management process:
  1. Identify and assess risks
  2. Develop risk mitigation strategies
  3. Implement and monitor risk management plans
  4. Review and update risk management process

Financial management's primary objective is to achieve business objectives through planning, organizing, and controlling financial resources
Key responsibilities include:
- Raising capital through equity and debt
- Allocating resources through capital budgeting
- Managing cash flow to ensure liquidity
- Managing risk through financial risk management
- Monitoring and controlling financial performance to achieve objectives

Investment analysis evaluates investment opportunities to determine potential return and risk
Key concepts in investment analysis:
- Time value of money (present value, future value, and net present value)
- Risk and return tradeoff, where higher returns often mean higher risk
- Diversification and portfolio management to minimize risk
- Security analysis using fundamental and technical analysis
- Investment valuation models, such as dividend discount model and capital asset pricing model

Corporate finance involves making financial decisions to maximize shareholder value
Key areas in corporate finance:
- Capital structure decisions, balancing debt and equity financing
- Capital budgeting, evaluating investment projects for value creation
- Dividend policy, determining whether to distribute profits to shareholders
- Working capital management, managing current assets and liabilities
- Mergers and acquisitions, buying and selling companies to create value

Financial markets facilitate the exchange of financial assets between buyers and sellers
Key types of financial markets:
- Money markets, for short-term debt securities
- Capital markets, for long-term debt and equity securities
- Foreign exchange markets, for currency exchange
- Derivatives markets, for options, futures, and other derivatives
- Over-the-counter (OTC) markets, for private transactions

Risk management identifies, assesses, and mitigates potential risks to a business
Key types of risk:
- Financial risk, including market, credit, liquidity, and operational risk
- Operational risk, including process, systems, people, and external events
- Strategic risk, including business, industry, and competitor risk
- Compliance risk, including regulatory, legal, and reputational risk
Steps in the risk management process:
- Identify and assess risks
- Develop risk mitigation strategies
- Implement and monitor risk management plans
- Review and update the risk management process