Chapter 1 Overview of Financial Management  Introduction  Class Structure - Syllabus  Text – Preliminary Draft of Fin. Mgmt.  Exams – Open Book and Open Notes  Expectations  Attendance  Preparation for Class

BA Finance  Keys to success  Reading Ahead of Lectures  Trying Assigned Problems  Asking Questions  Staying on Task  Getting Help Early  Philosophy - this course is basic intuition but with a new language…

Chapter One – Financial Management Overview  Primary Function – Cycle of Money  Finance Areas  Financial Manager  Financial Management Decisions  Goal of Finance  Players  Forms of Business  Agency Model

Cycle of Money  Moving Money  From lenders to borrowers  Returning Money from borrowers to lenders  Institutions  Banks – Financial Intermediaries  Takes on risk of nonpayment for a fee  Advantage of Using Institution  For lender – ready partner with known rates  For lender – reduction or elimination of default risk  For borrower – ready partner with known rates  For both – reduction of search time

Finance Areas  Corporate Finance  Activities that support business operations  Long and short term activities  Investments  Buying and Selling Securities  Trading Rules and Regulations  Financial Institutions – Banks, Insurance, Etc.  International Finance  Companies with operations in multiple countries  Foreign governments and currency issues

Financial Manager  Who is the Financial Manager?

Financial Management Decisions  Capital Budgeting  allocation of funds to projects  Capital Structure  portfolio of borrowing  Working Capital Management  handling cash  accounts payable/accounts receivable  inventories

Goal of Finance  Profit Maximization  Net income?  Cash flow?  Maximize Current Stock Price  Trade-offs  Safe and Happy Work Place  Customers Happy  Good Relationship with Surrounding Community  Broad Definition of Stock Price Impact  Social Welfare  Job Security  Ethical and Legal Actions

The Financial Manager in the Organization (Players) CEO Marketing Manager Finance Manager TreasurerController Investor Relations Manufacturing Manager Information Manager Human Resource Manager.

Forms of Business  Sole Proprietorships  Simple and Most Common  Personal Assets Co-mingled w/ Company  Partnership  Added capital and people  Ownership Transfer difficult  Corporation  Legal Separate Entity  Limited Liability of Owners (Stockholders)

Agency Model  Agency Theory  Principal and Agent  Agent works for and in the interest of the Principal  Agent has personal interests as well  Company and personal interests are not always aligned  Principal (Owner) influences Agent  Reward good behavior  Punish bad behavior  Problems with Observing Behavior (Effort)  Adding costs to ensure appropriate behavior (effort)  Agency costs

Corporate Control  Who owns the company?  Equity holders -- Shareholders  Who runs the company?  Managers elected by the owners  Government Regulations  Rules and requirements to run the business  Other Stakeholders  Employees, Suppliers, Customers, Community

Questions  Question #2 – Example of Cycle of Money  Question #7 – Community and Stock Price  Question # 9 – Parent – Child Conflict  Question #10 – Jackson Hole Employees  Current agency cost  Possible Solutions  Possible Costs to each Solution  Direct and Indirect  Best choice?