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Ch 1 Learning GoalsCh 1 Learning Goals
What is finance?What do financial managers do?Relationships between finance &
economics/accountingWhat is the goal of financial decisions?
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What is finance?What is finance?
Finance studies the process of how organizations and individuals _________ ____________________________and ________________________________.
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FinanceFinance
Finance as a discipline can be broken down into:◦Managerial (Corporate) Finance◦Investments◦Financial Institutions◦Personal Finance◦Government (Public) Finance
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Finance 311Finance 311
Finance 311 is primarily about managerial finance, and to a lesser extent, personal finance.
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Managerial FinanceManagerial Finance
The financial manager manages the financial affairs of any organization.
Duties of financial managers:◦Financial _____________________◦Financial _____________________◦_____________________________ decisions◦_____________________________ decisions
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Duties of Financial ManagersDuties of Financial Managers
Financial analysis: evaluating financial ________________________________
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Duties of Financial ManagersDuties of Financial Managers
Financial planning: forecasting _______ _____________.
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Duties of Financial ManagersDuties of Financial Managers
Financing decisions: where __________ will come from
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Duties of Financial ManagersDuties of Financial Managers
Investment decisions: ◦how funds will be allocated◦what ________________ will be acquired
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Managerial Finance FunctionManagerial Finance Function
Relationship to Economics
The primary economic principal used in making financial decisions is marginal analysis: implement decisions if marginal __________________ exceed marginal ___________________.
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Managerial Finance FunctionManagerial Finance Function
Relationship to Accounting
The firm’s finance (treasurer) and accounting (controller) functions are closely related and overlapping.
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Managerial Finance FunctionManagerial Finance Function
Relationship to Accounting
In smaller firms, the financial manager generally functions as both treasurer & controller.
In bigger firms, the accounting function is under the Chief Financial Officer (CFO).
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Managerial Finance FunctionManagerial Finance Function
Relationship to Accounting
Much of the information relied on by financial managers is from accounting statements. However, accounting is based on the accrual method, while in finance the focus is on _____________________.
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Goal of the FirmGoal of the Firm
Goal of financial decisions: maximize shareholder wealth by maximizing the _______________________of the stock.
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Goal of the FirmGoal of the Firm
The market price of a firm’s stock reflects:◦Expected _______________________◦____________________ of the cash flows◦____________________ of the cash flows
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The Agency IssueThe Agency Issue
Do managers always act in shareholders’ best interests? Of course not.
(Why not?)
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The Agency IssueThe Agency Issue
The conflict of interest between managers and shareholders is an example of an agency conflict.
What keeps managers in line?
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