Lecture 1(students') - Introduction to Financial Management...

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Introduction to Financial Management Lecture 1
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Objectives 1. The basic types of financial management decisions and the role of the financial management 2. The goal of financial management 3. The financial implications of the different forms of business organization 4. The conflicts of interest that can arise between managers and owners
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What is Finance? Finance is primarily concerned with determining value. The question “What is something worth?” Finance is also concerned with how to make the best decisions? The decision rule in finance says you should buy an asset if it is worth more than it costs? For example: Google took over YouTube
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Finance and Accounting The fundamental difference between finance and accounting is the viewpoint. Accounting generally has a historical outlook. Its major purpose is to account for past activities. Finance’s emphasis on determining value and making decisions focuses solidly on the future .
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Main areas of Finance 1. Corporate financial management Focuses on how a corporation can create and maintain value. 1. Investments Studies financial transactions from the viewpoint of investors outside the firm. Bonds, stocks and other financial assets. 1. Financial Institutions Deal primarily in financial matters. Banks and insurance companies. 1. International Finance Corporate finance, investments or financial institutions are all involve internationally.
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Why study Finance? Our course focuses on corporate financial management. However, you can apply the principles and theories of finance to any area.
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Why Study Finance? Marketing Budgets, marketing research, marketing financial products Accounting Dual accounting and finance function, preparation of financial statements Management Strategic thinking, job performance, profitability Personal finance Budgeting, retirement planning, college planning, day- to-day cash flow issues
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What is Corporate Financial Management? Focuses on how a corporation can create and maintain value. The amounts of money at stake can be huge. For example: Microsoft invested more than $1 billion developing and marketing Windows Vista. More generally , financial management decisions are based on the fundamental concepts.
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What is Corporate finance? Eg. Suppose you decide to start a video game company. To do this, you hire people to design games, and you hire a manger to sale the games to the market. In the language of finance, you make an investment in assets such as computers, office and labor. The amount of cash you invest in assets must be matched by an equal amount of cash raised by financing (you may not have such a large amount of cash)
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What is Corporate Finance? (cont) When you begin to sell the video games, your firm generate cash. This is the basis of value creation .
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