lec 01 & lec 02 introduction to fm

Download Lec 01 & Lec 02 Introduction to Fm

Post on 13-Apr-2018

219 views

Category:

Documents

0 download

Embed Size (px)

TRANSCRIPT

  • 7/26/2019 Lec 01 & Lec 02 Introduction to Fm

    1/21

    FINANCIAL

    MANAGEMENT

  • 7/26/2019 Lec 01 & Lec 02 Introduction to Fm

    2/21

    Introduction: Defnition, Scope and Objective o

    Financia! Mana"e#ent$ %a&ic Financia! Concept&

    Lon" Ter# Source& O Finance

    Capita! %ud"etin" 'rincipa! Tec(ni)ue&

    Concept and Mea&ure#ent o Co&t o Capita!

    Ca&( F!o*& For Capita! %ud"etin"

    Financia! State#ent and Ana!+&i& Levera"e and Capita! Structure Deci&ion

    or-in" Capita! Deci&ion

    Dividend 'o!ic+

    S+!!abu&

  • 7/26/2019 Lec 01 & Lec 02 Introduction to Fm

    3/21

    FORMS OFFORMS OF

    BUSINESSBUSINESS

    ORGANIZATIONORGANIZATION

  • 7/26/2019 Lec 01 & Lec 02 Introduction to Fm

    4/21

    FO.MS OF %/SINESSO.GANI0ATION

    Three Organizational Forms

    developed by Business Owners

    Sole Proprietorship

    General Partnership

    Corporation

  • 7/26/2019 Lec 01 & Lec 02 Introduction to Fm

    5/21

    FO.MS OF %/SINESSO.GANI0ATION

    DEF!TO!S

    Sole

    Proprietorship

    General

    Partnership

    Corporation

    "ny BusinessOwned and

    Operated by anndividual

    Two or #orePersons

    Operating aBusiness $or a

    Pro$it

    %egislativelyCreated and&egulated

    Governan'e(Ownership and

    Finan'ialStru'ture

  • 7/26/2019 Lec 01 & Lec 02 Introduction to Fm

    6/21

    FO.MS OF %/SINESSO.GANI0ATION

    FO"TO!

    SoleProprietorship

    GeneralPartnership Corporation

    !o Formalities or%egal

    Do'umentation)#ay be mplied$rom Condu't or

    "'tions

    *ritten or Oral"greement or

    #ay be mplied$rom Condu't or

    "'tions

    Filing o$ "rti'leso$ n'orporation

    with Se'retary o$State andPayment o$

    Fees

  • 7/26/2019 Lec 01 & Lec 02 Introduction to Fm

    7/21

    FO.MS OF %/SINESSO.GANI0ATION

    GO+E&!!G DOC,#E!TS

    Sole

    Proprietorship

    General

    Partnership Corporation

    !one &e-uired

    !one &e-uired)#ost have

    "greementspe'i$ying &ights(

    Duties andObligations

    "rti'les o$n'orporation

    'reateCorporation)

    Bylaws pres'ribeits Operation

  • 7/26/2019 Lec 01 & Lec 02 Introduction to Fm

    8/21

    FO.MS OF %/SINESSO.GANI0ATION

    !"T,&E OF O*!E&S.P

    SoleProprietorsh

    ip

    General

    PartnershipCorporation

    *holly Owned

    by Singlendividual

    For Contribution(Partner re'eives

    Proportionate Shareo$ Pro$its/%ossesand Partnership

    Property

    &esidual Claim onCorporate E-uity

    and &ight to +ote$or Dire'tors andEssentialGovernan'e

  • 7/26/2019 Lec 01 & Lec 02 Introduction to Fm

    9/21

    FO.MS OF %/SINESSO.GANI0ATION

    %"B%T0

    SoleProprietors

    hip

    GeneralPartnership

    Corporation

    Sole Proprietor

    Personally%iable $or "llDebts and

    Obligations

    Partners are 1ointly

    and Severally %iable$or all PartnershipObligations( in

    Contra't and in Tort

    Shareholder2s

    %iability limited toE3tent o$ CapitalContribution4%imited %iability5

  • 7/26/2019 Lec 01 & Lec 02 Introduction to Fm

    10/21

    FO.MS OF %/SINESSO.GANI0ATION

    T"6"TO!

    SoleProprietors

    hip

    General

    PartnershipCorporation

    !ot a Ta3able

    Entity) n'ome7%oss8 passesthrough to Sole

    Proprietor

    Partnership not aTa3able Entity)

    "llo'ations o$n'ome and %oss

    allowed withinPartnership be$ore

    Pass9Through

    Corporation ta3edas Separate EntityandDividends/CapitalGains also Ta3ed4Double Ta3ation5

  • 7/26/2019 Lec 01 & Lec 02 Introduction to Fm

    11/21

    FO.MS OF %/SINESSO.GANI0ATION

    #"!"GE#E!T

    Sole

    Proprietorship

    GeneralPartnership Corporation

    Sole Proprietorhas Complete#anagement

    Control

    "ll Partners have

    E-ual &ights inPartnership2s

    #anagement andCondu't

    #anaged by Boardo$ Dire'tors ele'tedby Shareholders)Board may Delegate"uthority to

    "ppointed O$$i'ers

  • 7/26/2019 Lec 01 & Lec 02 Introduction to Fm

    12/21

    FO.MS OF %/SINESSO.GANI0ATION

    T&"!SFE& O*!E&S.P !TE&ESTS

    SoleProprietorshi

    p

    General

    Partnership

    Corporation

    SoleProprietorship not

    Trans$erable)Property andProdu'ts areTrans$erable

    %imited &ight o$

    Trans$er sub:e'tto Consent by all

    Partners

    FreelyTrans$erable

    through Formal7!0SE8 andn$ormal 7PrivateE-uity8 Capital

    #ar;ets

  • 7/26/2019 Lec 01 & Lec 02 Introduction to Fm

    13/21

    FO.MS OF %/SINESSO.GANI0ATION

    *T.D&"*"% OF O*!E&

    Sole

    Proprietorship

    GeneralPartnership Corporation

    Terminates SoleProprietorship

    Partner Death or*ithdrawal may

    TerminatePartnership

    Corporation has,nlimited %i$e

    I t t

  • 7/26/2019 Lec 01 & Lec 02 Introduction to Fm

    14/21

    De&pite o t(e variation& bet*eenbu&ine&&e& t(e ba&ic fnance i&&ue& t(e+

    ace are e&&entia!!+ t(e &a#e$ T(e #o&t i#portant activitie& o a bu&ine&&

    fr# are

    Intro uct on

    I t d ti

  • 7/26/2019 Lec 01 & Lec 02 Introduction to Fm

    15/21

    Financia! Mana"e#ent peror#& aci!itation,reconci!iation and contro!& unction& in an

    or"ani1ation$ A!! t(e deci&ion (avin" #onetar+ i#p!ication&

    co#e& under t(e purvie* o fnancia!#ana"e#ent$

    Financia! deci&ion #a-in" invo!ve& procure#ento und& and t(eir opti#a! uti!i1ation t(rou"(inve&t#ent, fnancin" dividend and *or-in"capita! deci&ion&$

    T(e -e+ i&&ue in fnance are

    (ere to rai&e fnancia! re&ource& ro#

    (ere to inve&t t(e re&ource&

    2o* to be&t #ana"e t(e production di&tribution

    Introduction

  • 7/26/2019 Lec 01 & Lec 02 Introduction to Fm

    16/21

    4$ Inve&t#ent or Lon" Ter# A&&et Mi5 Deci&ion Function o inve&tin" rai&ed und& in a&&et& are -no*n

    a& inve&t#ent deci&ion$ E5a#p!e& inc!ude E5pan&ion, Moderni1ation,

    .ep!ace#ent o Lon" Ter# A&&et&, . 6 D 7(avin" !on"

    ter# i#p!ication&8$

    T(e 9 i#portant a&pect o inve&t#ent deci&ion are7a8 Eva!uation o t(e pro&pective proftabi!it+ o

    ne* inve&t#ent&

    7b8 T(e #ea&ure#ent o a cuto; rate< a"ain&t t(at

    t(e pro&pective return o ne* inve&t#ent& cou!d

    be co#pared$ Deci&ion& are ta-en in t(e !i"(t o t(eir i#pact on t(e

    *ea!t( o &(are(o!der&$ T(e deci&ion invo!ve (u"e capita! out!a+, (ave !on"

    ter# i#p!ication&, and are u&ua!!+ irrever&ib!e$

    Finance Function&

    Fi F ti

  • 7/26/2019 Lec 01 & Lec 02 Introduction to Fm

    17/21

    9$ Financin" or Capita! Mi5 Deci&ion Financin" deci&ion& are #ain!+ concerned *it( t(e

    identifcation o potentia! &ource& o und& andtappin" o t(e&e &ource&$

    Main i&&ue invo!ved in &uc( deci&ion& are

    (ere ro# to procure t(e re)ui&ite und&=

    2o* #uc( &(ou!d be t(e proportion o &(ort ter#and !on" ter# und&=

    2o* do t(e e5pectation& o provider& o eac(&ource o capita! c(an"e *it( a!teration in capita!#i5=

    (at &(ou!d be t(e opti#a! #i5 o debt ande)uit+ in capita!=

    T(e #i5 o debt and e)uit+ i& -no*n a& t(e fr#>&capita! &tructure$

    T(e+ deter#ine t(e fnancia! ri&- prof!e o t(e

    Finance Function&

  • 7/26/2019 Lec 01 & Lec 02 Introduction to Fm

    18/21

    ?$ Dividend or 'roft A!!ocation Deci&ion Di&tributin" return& earned ro# a&&et& to

    &(are(o!der& are -no*n a& dividend deci&ion$ T(e fnancia! #ana"er #u&t decided *(et(er t(e fr#

    &(ou!d di&tribute a!! proft&, or retain t(e#, ordi&tribute a portion and retain t(e ba!ance$

    Suc( a deci&ion depend& on trade o; bet*een t(e

    uture fnancin" need& o t(e fr# and currentcon&u#ption re)uire#ent o &(are(o!der&$

    T(e proportion o proft& di&tributed a& dividend& i&ca!!ed t(e dividend pa+out ratio and t(e retained

    portion o proft& i& -no*n a& retention ratio$ Nor#a!!+ fr#& o!!o* a po!ic+ o &tab!e dividend, butfr#& *it( (i"( "ro*t( rate "enera!!+ o;er& a (i"(retention and !o* pa+out ratio$

    Dividend& are "enera!!+ paid in ca&(, but it can a!&obe "iven in or# o bonu& &(are&$

    nance unc on&

    F nance Funct on&

  • 7/26/2019 Lec 01 & Lec 02 Introduction to Fm

    19/21

    @$ or-in" Capita! Deci&ion Li)uidit+ Deci&ion or-in" Capita! deci&ion& are re!ated to t(e

    #ana"e#ent o current a&&et&$ T(e t*o -e+ deci&ion point& in *or-in" capita!

    #ana"e#ent are !eve! o inve&t#ent in current a&&et&

    and fnancin" o &uc( a&&et&$

    Current a&&et #ana"e#ent a;ect t(e fr#>& !i)uidit+$

    A fr# atte#pt& to ba!ance ca&( in3o*& and out3o*&

    *(i!e peror#in" t(e&e unction&$ T(e&e are ca!!ed

    !i)uidit+ deci&ion&$

    A con3ict e5i&t& bet*een proftabi!it+ and !i)uidit+*(i!e #ana"in" current a&&et&$ 2ence, a pro