1、1,Corporate Financial Management 3e Emery Finnerty Stowe,Introduction and Overview,Learning Objectives,Define the field of finance and its areas. Describe major types of corporate financial management decisions. Compare three major types of business organizations. Compare and contrast three models o
2、f the firm. Understand the objective of the firm.,Chapter Outline,1.1 What Is Finance? 1.2 Ownership, Control, and Risk 1.3 Three Different Views of the Firm 1.4 The Role of the Corporation 1.5 The Evolution of Finance 1.6 A Few Words of Advice,What is Finance?,Determining value.Value = What somethi
3、ng is worth now.Making the best decision when that decision involves money. ,Finance is concerned with:,How do we use corporate resources efficiently to further the goals of the firm? Decisions are based on The Principles of Finance,Corporate Financial Management,The Science of Finance,Finance is a
4、science. Like other sciences, it has fundamental concepts, principles, and theories. In Chapter 2, we describe the Principles of Finance.,The Art of Finance,In some situations, precise models cannot be created. That does not mean that we cannot make decisions in these situations. People may refer to
5、 using intuition to make decisions. Decision makers are often using intuition from the Principles of Finance. They are using scientific valuation concepts, but not exact numbers.,Three Types of Decisions,Investment Decisions What assets should the firm invest in? Financing Decision How should the pu
6、rchase of assets be financed? Managerial Decisions How large should the firm be? How fast should it grow? Should the firm grant credit to a customer? How should the managers be compensated?,Financial Markets and Intermediaries,The study of markets where financial securities (such as stocks and bonds
7、) are bought and sold. The study of financial institutions (such as commercial banks, investment banking firms, and insurance companies) that help the flow of money from savers to demanders of money.,Investments,The study of financial transactions from the investors outside the firm. Examples includ
8、e: How do we place a dollar value on a share of stock or a bond issued by the corporation? How do we assess the risk of these financial securities? How do we manage a portfolio of financial securities to achieve a stated objective of the investor?,The Corporate Form of Organization,Ownership The sha
9、reholders (also known as stockholders or equityholders) are the owners of the corporation. Control Ultimate control rests with the shareholders, but the managers control the day-to-day operations. Risk Bearing While all parties associated with the corporation bear the risk, shareholders bear all res
10、idual risk.,Advantages of Corporate Form of Organization,Limited Liability Permanency Transferability of Ownership Better Access to Capital Markets,Rights of Ownership,Dividend Rights Voting Rights Majority voting one vote per share per director cannot combine votes Cumulative voting directors are v
11、oted on jointly can cast all votes for a single candidate,Rights of Ownership (continued),Liquidation Rights Owners have the right to a proportional share of the firms residual value in the event of liquidation, after other senior claims are paid. Preemptive Rights Owners have the right to subscribe
12、 proportionally to any new shares issued by the firm.,The Goal of the Firm,Between defined than profits Considers timing of profits Considers risk differences among alternative courses of action,“Maximize Shareholder Wealth”,Henry Fords Fictionalized Firm,Organized as a sole proprietorship. Henry Fo
13、rd is the sole owner of the firm. He has full control over the firm. He bears all of the risk.,Cash $C Raw Material $R Tools $T Garage $GTotal Assets $TA,Henrys Equity $HELiabilities & Owners Equity $TA,Henry Fords Fictionalized Firm,Henrys firm after the bank loan. Henry Ford is the sole owner of t
14、he firm. He has full control over the firm. Some risk is borne by the bank. He bears all of the remaining (residual) risk.,Cash $C Raw Material $R Tools $T Garage $GTotal Assets $TA,Bank Loan $B Henrys Equity $HELiabilities & Owners Equity $TA,Henry Fords Fictionalized Firm,Henrys firm after going p
15、ublic. Henry shares ownership with new (outside) shareholders. Henrys actions constrained by bank and other shareholders. Bank continues to bear some risk. All shareholders bear residual risk.,Cash $C” Raw Material $R” Tools $T” Garage $G”Total Assets $TA,Bank Loan $B” New Shareholders Equity $O” He
16、nrys Equity $HELiabilities & Owners Equity $TA,The Investment Vehicle Model of the Firm,Investors provide financing to the firm in exchange for financial securities. Firm invests these funds in assets. Income generated by the firm is distributed to the investors. Managers act in the best interest of
17、 the shareholders, and take actions to maximize shareholder wealth.,The Firm as an Investment Vehicle,Investments,Corporate Financial Management,Financial Markets and Intermediaries,Three Main Areas of Finance:,Investors,Financial Intermediaries,Financial Markets,Exchange of Money and Financial Asse
18、ts,The Accounting Model of the Firm,Balance sheet view of the firm. Investment decisions are represented on the asset (i.e. left hand) side of the balance sheet. Financing decisions are represented on the liabilities and equity (i.e. right hand) side of the balance sheet.,The Accounting Model of the
19、 Firm: A Balance Sheet,Set of Contracts Model of the Firm,The firm has contracts with a large number of stakeholders. These contracts may be explicit or implicit. Contracts may also be contingent on particular future outcomes. The model recognizes that conflicts of interest may exist between the var
20、ious stakeholders.,Set of Contracts Model of the Firm,The Firm,The Evolution of Finance,Globalization Every firm operates in a global marketplace. Financial markets transcend national boundaries. Technology Information can be readily obtained / disseminated. Need to use computing technology to maint
21、ain a competitive edge. Corporate Reorganization and Restructuring Your first job will not be the job you retire from.,A Few Words of Advice,If you understand the “first principles,” every problem and issue can be solved using these principles. Learn the principles not the specific solutions that you see along the way. Buy a financial calculator.,
