Introduction to Financial Management PDF

Business Finance Module 1: Introduction to Financial Management FINANCIAL MANAGEMENT starts with a plan. This applies to both individuals and companies. It is not enough to have cash and other resources today. Such resources, if no...

Business Finance Module 1: Introduction to Financial Management FINANCIAL MANAGEMENT starts with a plan. This applies to both individuals and companies. It is not enough to have cash and other resources today. Such resources, if not managed properly, can be wiped out. Hence, financial management is a must. From the perspective of a corporation, financial management deals with decisions that are supposed to maximize the value of shareholders’ wealth. Thismeans maximizing the market value of the shares of stocks. Shares of stocks represent the form of ownership in a corporation. STAKEHOLDERS WEALTH MAXIMIZATION Stakeholders are not limited to the stockholders of the company. It also includes: Management Customers Employees Creditors Suppliers Regulatory Agencies Community Factors that influence the change for price of the stock: Profitable Operation: How well the Nature of the Business: What type of company is doing in making money. business it is (e.g., tech, retail). Gael & Drea 🎀 Business Finance Module 1: Introduction to Financial Management Business Prospects: How people think Dividend Policies: How much money the company will do in the future. the company decides to pay out to Projected Earnings: Estimates of how shareholders as dividends. much money the company will make in Investing Decisions: The choices the the future. company makes about where to invest Timeframe for Earnings: When those its money. future earnings are expected to happen. Management: How well the company is Ability to Meet Obligations: How well run by its leaders. the company can pay off its debts and Market Sentiment: How investors feel other financial responsibilities. about the company and the stock Capital Structure: The mix of debt and market in general. equity the company uses to finance its operations. A stock exchange is a marketplace where stocks, bonds, and other securities are bought and sold. It provides a platform for companies to raise capital by issuing shares and for investors to trade securities. A stock exchange is a market, while financial institutions are the stores within that market. FINANCIAL INSTITUTIONS - A financial institution is a business that deals with financial and monetary transactions (deposit, loans etc.). Banks are financial institutions that accept deposits from individuals and businesses, provide loans, and offer various financial services. They play a central role in the economy by facilitating transactions and providing credit. Examples are: - Commercial Banks: Focus on serving businesses and individuals with a range of financial services. - Investment Banks: Specialize in underwriting new securities, advising on mergers and acquisitions, and providing other investment-related services. Insurance companies provide financial protection against various risks by offering insurance policies. They collect premiums from policyholders and pay out claims based on the terms of the policies. Examples are: - Life Insurance Companies: Provide policies that pay out benefits upon the insured person’s death. - Property and Casualty Insurance Companies: Offer coverage for property damage, liability, and other types of risks. Gael & Drea 🎀 Business Finance Module 1: Introduction to Financial Management Stock brokerage firms act as intermediaries between investors and the stock market. They execute buy and sell orders for securities on behalf of clients and may provide additional financial services. Examples are: - Full-Service Brokers: Offer a wide range of services, including personalized advice and financial planning. - Discount Brokers: Provide lower-cost trading services with minimal additional advice or services. Mutual funds are investment vehicles that pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. They are managed by professional fund managers. Examples are: - Equity Mutual Funds: Invest primarily in stocks. - Bond Mutual Funds: Invest in bonds or other fixed-income securities. - Money Market Funds: Invest in short-term, low-risk securities Gael & Drea 🎀 Business Finance Module 1: Introduction to Financial Management Practice Activity: I. Choose the best answer 1. This is what you call on how well the company is run by its leaders a. Ability to Meet Obligations c. Management b. Capital Structure d. None of the above 2. The marketplace where stocks, bonds, and other securites are bought and sold. a. Banks. c. Investment Banks b. Market Sentiments d. None of the above 3. Funds invested primarily in stocks. a. Equity Mutual Funds c. Money Market Funds b. Bond Mutual Funds d. None of the above 4. Funds invested in short-term securities. a. Equity Mutual Funds c. Money Market Funds. b. Bond Mutual Funds d. None of the above 5. It deals with decisions that are supposed to maximize the value of shareholders’ wealth a. Management c. Financial Management b. Financing Decisions d. None of the above 6. Which of the following is NOT included in maximizing the stakeholders’ wealth a. Creditors c. Management b. Suppliers d. None of the above 7. This is what you call on how well the company is doing in making money. a. Profitable Operation c. Financial Management b. Projected Earnings d. None of the above 8. This is how well the company can pay off its debts and other financial responsibilities a. Ability to Meet Obligations c. Financing Decisions. b. Business Prospects D. None of the above 9. This is a business that deals with financial and monetary transactions a. Stock Exchange c. Insurance Companies b. Financial Institution d. None of the above 10. This is the mix of debt and equity the company uses to finance its operations a. Mutual Funds c. Discount Brokers Gael & Drea 🎀 Business Finance Module 1: Introduction to Financial Management b. Full-service Brokers d. None of the above II. True or False 1. Financial Management applies to individuals and companies 2. Stakeholders are not limited to the stakeholders of the company 3. Stock exchange are the stores within financial institutions 4. Creditors are included in maximizing stakeholders’ wealth 5. Projected Earnings is when those future earnings are expected to happen 🎀 Gael & Drea Business Finance Module 1: Introduction to Financial Management (ANSWER KEY) - MULTIPLE CHOICE - 1. c. Management 2. d. None of the above 3. a. Equity Mutual Funds 4. c. Money Market Funds 5. c. Financial Management 6. d. None of the above 7. a. Profitable Management 8. a. Ability to Meet Obligations 9. b. Financial Institutions 10. d. None of the above - TRUE OR FALSE - 1. True 2. True 3. False 4. True 5. False 🎀 Gael & Drea Business Finance Module 1: Introduction to Financial Management 🎀 Gael & Drea