Introduction to Financial Management

• choosing ‘best’ dividend policy


• choosing ‘best’ mix of financing sources


• choosing ‘best’ organizational structure: flat vs. hierarchy
  o Other basic assumptions used are:
  a) Investors prefer more return to less
  b) Investors prefer less risk to more risk
  c) Investors prefer to receive a given amount sooner rather than later

o A Financial manager needs to understand:

• How capital markets work, especially if you need to raise capital


• Use tools to compare your company's performance with others in the same industry


• Relationship between risk & return
  o How much risk must you accept?
  o What is the minimum acceptable return on a risky project?


• Valuation models & techniques
  o What is a Le1 worth 10 years from today (Future Value)?
  o What is a Le1 to be received in 10 years worth today (Present Value)?

o Role of Financial Managers
i) Raise funds from external sources
ii) Allocate funds among different users
iii) Manage flow of funds from operations
iv) Estimates benefits and returns to source of funding.
In general, financial managers obtain, control and distribute funds.

What are some problems, from a financial manager’s perspective, with financial

statements?

o Timing of cash flows (CFs) are irrelevant in accounting

o Book values not market values are used in accounting

o Accounting numbers can be manipulated

o Some "semantics": sources & uses of cash

o Taxes: corporate schedule; marginal vs. average tax rate

Traditional corporate financial theory breaks down when