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1、Foundations of Financial Management,2,Part 1 Introduction,Chapter 1 The Goals And Functions of Financial Management,3,Summary,This chapter traces the evolution and interrelationships of finance as a field of study and the role of the financial manager in a dynamic economy.,4,Learning Objectives,1. T
2、he field of finance integrates concepts from economics, accounting, and a number of other areas. 2. The relationship of risk to return is a central focus of finance. 3. The primary goal of financial managers is to maximize the wealth of the shareholders.,5,Learning Objectives,4. Financial managers a
3、ttempt to achieve wealth maximization through daily activities such as credit and inventory management and through longer-term decisions related to raising funds.,6,Learning Objectives,5. Financial managers must carefully consider domestic and international business conditions in carrying out their
4、responsibilities. 6. Daily price changes in the financial markets provide feedback about a companys performance and help investors allocate their capital between firms.,7,1. The field of Finance.,A. The field of finance is closely related to economics and accounting. 1. Economics provides a structur
5、e for decision-making in such areas as: a. Risk analysis. b. Price theory. c. Comparative return analysis.,8,1. The field of Finance.,2. Economics provides the broad picture of the economic environment including the: a. Institutional structure of the Federal Reserve System. b. Commercial banking sys
6、tem. c. Interrelationships between various economic sectors.,9,1. The field of Finance.,3. Accounting, sometimes said to be the language of finance, provides financial data through income statements, balance sheets, and the statement of cash flows. 4. Finance links economic theory with accounting da
7、ta. All corporate managers must be familiar with such data in order to assess the financial performance of the firm.,10,1. The field of Finance.,B. The demand for financial management skills exists in many sectors of a global society including corporate management, financial institutions, and consul
8、ting.,11,2. Finance as a field of study has evolved over time in response to changing business management needs.,A. Finance achieved recognition as a separate field of study in response to the creation of giant corporations at the turn of the century. B. The worst depression in United States history
9、 caused a shift in emphasis from rapid merger growth to preservation of capital, liquidity, reorganization, and the bankruptcy process.,12,2. Finance as a field of study has evolved over time in response to changing business management needs.,C. The most significant step in the evolution of contempo
10、rary financial management began in the mid-1950s.Emphasis was placed on the analytically determined employment of resources within the firm. The decision-making nature of financial management was manifested in the enthusiasm for the study of:,13,2. Finance as a field of study has evolved over time i
11、n response to changing business management needs.,1. Allocation of financial capital for the purchase of real capital (plant and equipment). 2. Efficient utilization of current assets. 3. Capital structure theory. 4. Dividend policy.,14,2. Finance as a field of study has evolved over time in respons
12、e to changing business management needs.,D. The analytical orientation of financial management focused on risk-return relationships and the desire to maximize return at a given level of risk. E. The rapid inflation experienced in the economy in the 1970s and early 1980s followed by a lengthy period
13、of disinflation has impacted all areas of financial decision-making.,15,2. Finance as a field of study has evolved over time in response to changing business management needs.,F. The technological changes in the 1990s rapidly impacted the financial management functions of business firms. E-commerce
14、accelerated cash flows and significantly affected the management of inventory and accounts receivable. Financial managers must remain sensitive to the impacts of e-commerce and the internet on finance functions in the 21st century.,16,3. Functions of Financial Management: A financial manager is resp
15、onsible for financing an efficient level and composition of assets by obtaining financing through the most appropriate means.,A. Daily financial management activities. 1. Credit management. 2. Inventory control. 3. Receipt and disbursement of funds. B. Less-routine activities. 1. Sale of stocks and
16、bonds. 2. Capital budgeting. 3. Dividend decisions.,17,3. Functions of Financial Management: A financial manager is responsible for financing an efficient level and composition of assets by obtaining financing through the most appropriate means.,C. Forms of organization: The finance function may be carried out within a number of different forms of organizations: 1. Sole proprietorship. a. Single ownership. b. Simplicity of decision making. c. Low organizational and operating costs. d. Unlimit