FinMa 2 Flashcards
Decisions of Financial
Manager
Investment Decisions (Capital Budgeting)
Financing Decisions (Capital Structure)
Asset Management Decisions
(Working Capital Management Decisions)
how, when, where and how much
money will be spent on
investment opportunities
Investment Decisions
What specific assets should be
acquired?
What assets (if any) should be
reduced or eliminated?
Investment Decisions
A company can raise finance from various sources such as by issue of shares, debentures or by taking loan and advances.
These sources of finance can be divided into two categories: owners fund (no risk involve)
and borrowers fund (risk involve).
Financing Decisions
How do we manage existing assets efficiently?
Financial Manager has varying degrees of operating responsibility over assets.
Greater emphasis on current asset management than fixed asset management.
Asset Management
Decisions
What are the Goals of the Firm?
Survival
Avoid financial distress and bankruptcy
Beat the competition
Maximize sales or market share
Minimize costs
Maximize profits
Maintain steady earnings growth.
The Real Goal of
the Firm
Maximization of
Shareholder Wealth!
Takes account of: current and future profits and EPS; the timing, duration, and risk of profits; dividend
policy; and all other relevant factors.
Thus, share price serves as a
barometer for business performance.
Strengths of Shareholder
Wealth Maximization
The Modern Organization
Shareholders
Management
Management acts as an agent
for the owners (shareholders)
of the firm
Role of Management
individual
authorized by another person,
called the principal, to act in
the latter’s behalf.
agent
is a branch of
economics relating to the
behavior of principals and their
agents.
Agency Theory
