fm anthony sir
TRANSCRIPT
8/6/2019 FM Anthony Sir
http://slidepdf.com/reader/full/fm-anthony-sir 1/23
1.1 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
The Role of FinancialThe Role of FinancialManagementManagement
The Role of FinancialThe Role of FinancialManagementManagement
The Role of FinancialThe Role of FinancialManagementManagement
The Role of FinancialThe Role of FinancialManagementManagement
8/6/2019 FM Anthony Sir
http://slidepdf.com/reader/full/fm-anthony-sir 2/23
1.2 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Why should I care about Why should I care about
Financial Management ? Financial Management ?
� Pr epar e for the workplace of tomorr ow.
� Br oadening expectations of financialknowledge and skills.
� Use and under stand financial ter minology
and concepts in team communication.
� Developing cr oss-functional capabilities.
� Cr itical thinking.
8/6/2019 FM Anthony Sir
http://slidepdf.com/reader/full/fm-anthony-sir 3/23
1.3 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
T he Role of T he Role of
Financial Management Financial Management
� What is Financial Management?
� The Goal of the Fir m
� Cor por ate Gover nance
� Or ganization of the FinancialManagement Function
8/6/2019 FM Anthony Sir
http://slidepdf.com/reader/full/fm-anthony-sir 4/23
1.4 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
What is Financial What is Financial
Management? Management?
Concer ns the acquisition,
financing, and
management of assets
with some overall goal overall goal inmind.
8/6/2019 FM Anthony Sir
http://slidepdf.com/reader/full/fm-anthony-sir 5/23
1.5 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Investment DecisionsInvestment Decisions
� What is the optimal fir m size?
� What specific assets should be
acquir ed?� What assets (if any) should be
r educed or eliminated?
Most impor tant of the thr eeMost impor tant of the thr ee
decisions.decisions.
8/6/2019 FM Anthony Sir
http://slidepdf.com/reader/full/fm-anthony-sir 7/23
1.7 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Asset Management Asset Management
DecisionsDecisions� How do we manage existing assets
efficiently ?
� Financial Manager has var ying degr ees
of oper ating r esponsibility over assets.
� Gr eater emphasis on curr ent assetmanagement than fixed asset
management.
8/6/2019 FM Anthony Sir
http://slidepdf.com/reader/full/fm-anthony-sir 8/23
1.8 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
What is the Goal What is the Goal
of the Firm? of the Firm?
Maximization of Maximization of
Shareholder Wealth! Shareholder Wealth!
Value creation occurs whenwe maximize the share price
for current shareholders.
8/6/2019 FM Anthony Sir
http://slidepdf.com/reader/full/fm-anthony-sir 9/23
1.9 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
C orporate Social C orporate Social
Responsibility DiscussionResponsibility Discussion
C lass DiscussionC lass Discussion: What role should What role should
C SR and/or sustainability have onC SR and/or sustainability have on
living the ³goal of the firm´? living the ³goal of the firm´?
C orporate Social Responsibility ( C SR): A business
outlook that acknowledges a firm¶s responsibilities to
its stakeholders and the natural environment.
Sustainability : Meeting the needs of the present without
compromising the ability of future generations to meet
their own needs.
8/6/2019 FM Anthony Sir
http://slidepdf.com/reader/full/fm-anthony-sir 10/23
1.10 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
What Goals doWhat Goals do
some Firms have? some Firms have? � ³ C reating superior shareholder value is our top priority.´
Associated Banc-Corp 2006 Annual Report.
� ³ T he desire to increase shareholder value is what drives
our actions.´ Phillips 2006 Annual Report.
� ³FedEx¶s main responsibility is to create shareholder value.´ FedEx Corporation, SEC Form Def 14A for the periodending 9/25/2006.
� ³« the Board of Directors plays a central role in theC ompany¶s corporate governance system; it has the power (and the duty) to direct C ompany business, pursuing and fulfilling its primary and ultimate objective of creating shareholder value.´ Pirelli & C. S.p.A. Milan Annual Report2006.
8/6/2019 FM Anthony Sir
http://slidepdf.com/reader/full/fm-anthony-sir 11/23
1.11 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Shortcomings of Shortcomings of
Alternative Perspectives
Alternative Perspectives
� Could incr ease curr ent pr ofits while
har ming fi
r m (e.g., defe
r maintenance,issue common stock to buy T-bills, etc.).
� Ignor es changes in the r isk level of the
fir m.
Profit MaximizationProfit Maximization
� Maximizing a fir m¶s ear nings after taxes.
ProblemsProblems
8/6/2019 FM Anthony Sir
http://slidepdf.com/reader/full/fm-anthony-sir 12/23
1.12 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Shortcomings of Shortcomings of
Alternative Perspectives
Alternative Perspectives
� Does not specify timing or dur ation of
expected r etur ns.
� Ignor es changes in the r isk level of the fir m.
� Calls for a zer o payout dividend policy.
Earnings per Share MaximizationEarnings per Share Maximization
� Maximizing ear nings after taxes divided
by shar es outstanding.
ProblemsProblems
8/6/2019 FM Anthony Sir
http://slidepdf.com/reader/full/fm-anthony-sir 13/23
1.13 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Strengths of Shareholder Strengths of Shareholder
Wealth MaximizationWealth Maximization� Takes account of : curr ent and futur e
pr ofits and EPS; the timing, dur ation,
and r isk of pr ofits and EPS; dividend
policy; and all other r elevant factor s.
� Thus, share price ser ves as abar ometer for business per for mance.
8/6/2019 FM Anthony Sir
http://slidepdf.com/reader/full/fm-anthony-sir 14/23
1.14 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
T he Modern
C orporation
T he Modern
C orporation
Ther e exists a SEPARATION
between owner s and manager s.
Moder n Cor por ation
Shar eholder s Management
8/6/2019 FM Anthony Sir
http://slidepdf.com/reader/full/fm-anthony-sir 15/23
1.15 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Role of Management Role of Management
� An agent agent is an individual
author ized by another per son,called the pr incipal, to act inthe latter ¶s behalf.
Management acts as an agent agent
for the owner s (shar eholder s)
of the fir m.
8/6/2019 FM Anthony Sir
http://slidepdf.com/reader/full/fm-anthony-sir 16/23
1.16 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
A
gency T
heory A
gency T
heory
�� Agency T heory Agency T heory is a br anch of
economics r elating to thebehavior of pr incipals and their agents.
� Jensen and Meckling developed
a theor y of the fir m based onagency theory agency theory .
8/6/2019 FM Anthony Sir
http://slidepdf.com/reader/full/fm-anthony-sir 17/23
1.17 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Agency T heory Agency T heory
� Incentives include, stock optionsstock options,,per quisitesper quisites,, and bonusesbonuses.
� Pr incipals must pr ovide incentivesincentives
so that management acts in thepr incipals¶ best inter ests and then
monitor monitor r esults.
8/6/2019 FM Anthony Sir
http://slidepdf.com/reader/full/fm-anthony-sir 18/23
1.18 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
C orporateC orporate
Social Social Responsibility Responsibility � Wealth maximization does not
pr eclude the fir m f r om being sociallysocially
r esponsibler esponsible at the cor por ate level.
� Assume we view the fir m as pr oducing
both pr ivate and social goods.
� Then shareholder wealth maximizationshareholder wealth maximization
r emains the appr opr iate goal in
gover ning the fir m.
8/6/2019 FM Anthony Sir
http://slidepdf.com/reader/full/fm-anthony-sir 19/23
1.19 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
C orporate GovernanceC orporate Governance
� C orporate governance: represents the
system by which corporations are
managed and controlled .
� Includes shar eholder s, boar d of
dir ector s, and senior management.
� Then shareholder wealth maximizationshareholder wealth maximization
r emains the appr opr iate goal in
gover ning the fir m.
8/6/2019 FM Anthony Sir
http://slidepdf.com/reader/full/fm-anthony-sir 20/23
1.20 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Board of DirectorsBoard of Directors
� Typical r esponsibilities:
� Set company-wide policy;
�A
dvise the CEO and other
senior
executives;� Hir e, fir e, and set the compensation of the CEO;
� Review and appr ove str ategy, significantinvestments, and acquisitions; and
� Over see ope
r ating plans, capital budgets, andfinancial r epor ts to common shar eholder s.
� CEO/Chair man r oles commonly same per sonin US, but separ ate in Br itain (US moving inthis dir ection).
8/6/2019 FM Anthony Sir
http://slidepdf.com/reader/full/fm-anthony-sir 21/23
1.21 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
SarbanesSarbanes- -Oxley Act of 2002 Oxley Act of 2002
� Sarbanes-Oxley Act of 2002 (SOX): addressescorporate governance, auditing and accounting, executivecompensation, and enhanced and timely disclosure of
corporate information.� Imposes new penalties for violations of securities
laws.
� Established the Public Company Accounting
Oversight Board (PCAOB) to adopt auditing, qualitycontrol, ethics, disclosure standards for publiccompanies and their auditors, and policing authority.
� Generally increasing the standards for corporategovernance.
8/6/2019 FM Anthony Sir
http://slidepdf.com/reader/full/fm-anthony-sir 22/23
1.22 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Organization of the Financial Organization of the Financial
Management FunctionManagement Function
Boar d of Dir ector s
Pr esident
(Chief Executive Officer )
Executive Vice
Pr esident
(Oper ations)
Executive Vice
Pr esident
(Marketing)
Executive Vice
Pr esident
(Finance - CFO)
8/6/2019 FM Anthony Sir
http://slidepdf.com/reader/full/fm-anthony-sir 23/23
1.23 Van Horne and Wachowicz, Fundamentals of Financial Management, 13th edition. © Pearson Education Limited 2009. Created by Gregory Kuhlemeyer.
Vice President ( T reasurer)
�Capital Investment�Cash Management
�Commer cial/investment
banking r elationships
�Cr edit Management
�Dividend Disbur sement
�FinancialAnalysis/Planning� Investor Relations
�Mer ger s and Acquisitions
�Pension Management
� Insur ance/Risk Management
�TaxA
nalysis/P
lanning
Organization of the Financial Organization of the Financial
Management FunctionManagement FunctionEVP of Finance
C ontroller
� CostA
ccounting� Cost Management
� Data Pr ocessing
� Gener al Ledger
� Gover nment Repor ting
� Inter nal Contr ol
�Pr epar ing Financial Statements�Pr epar ing Budgets
�Pr epar ing For ecasts