Académique Documents
Professionnel Documents
Culture Documents
FIN 501
Financial Management
By
Md Sajib Hossain, CFA, ACCA
Assistant Professor
Department of Finance
University of Dhaka
Chapter 1: Introduction to
corporate finance
Corporate Finance
Ross, Westerfield &
Jaffe
Outline
Current
Liabilities
Current
Assets Long-Term
Debt
Sole Proprietorship
Partnership (General vs Limited)
Corporation: a business created as a distinct legal
entity composed of one or more individuals or
entities, e.g., IBM.
– Separation of control (shareholders) and management (professionals).
– Ownership can be easily transferred.
– Limited liability.
– Double taxation.
– Rather expensive to form.
– Agency problems.
The Importance of Cash Flow
Survive
Beat the competition
Maximize sales
Maximize net income
Maximize market share
Minimize costs
The “appropriate” goal of financial
management
Agency relationship:
– Principals (citizens) hire an agent (the president) to
represent their interest.
– Principles (stockholders) hire agents (managers) to run the
company.
Agency problem:
– Conflict of interest between principals and agents.
– This occurs in a corporate setting whenever the agents do
not hold 100% of the firm’s shares.
– The source of agency problems is the separation of
(owners’) control and management.
Agency costs
Compensation:
– Incentives ($$$, options, threat of dismissal, etc.) used to
align management and stockholder interests.
Corporate control:
– Proxy Fights
– Managers may take the threat of a takeover seriously and
run the business in the interest of shareholders.
Financial Markets
Money Markets
Capital Markets
– Primary Market
– Secondary Market
Dealers Market
Auction Market
Sarbanes-Oxley Act (2002)