Samenvatting Financial Management

Samenvatting Financial Management

Babette Huisman

2013

CHAPTER 1: FUNDAMENTAL CONCEPTS AND BASIC TOOLS FOR FINANCE

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Cycle of money consist of the movement of money from lender to borrower and back again.

Intermediaries can be used. Goal is to improve each participant’s wealth.

Four finance areas:

Financial markets:

Equity market

Stocks

1. Corporate finance (activities supporting all operations, use of money and

decisions that might affect the wealth of owners)

2. Investments (distinguish between real and financial assets)

3. Financial institution and markets (financial intermediaries)

4. International finance (multinationals aspects)

Debt market

Bonds

Derivatives market

Contracts & options

Foreign exchange market

Currencies

Money market

Short-term loan

Capital market

Long-term loan

Primary market

First owner

Secondary market

Not first owner

Dealer market

Single buyer

Auction market

Many buyers

Financial management:

1. Capital budgeting: ‘where do we want to be in a few years?’

2. Capital structure: ‘where do we raise the money for this goal?’

3. Working capital management: ‘How do we act to get there?’

Primary goal of a financial manager: to maximize the current stock price (in a broader sense: to

maximize the current market value of equity of the company).

Forms of businesses:

pro’s

con’s

1. Sole proprietorship + owner makes decisions

+ quick decisions

+ owner keeps profits

- owner pays all bills

- personally liable

- limited to owners life span

2. Partnership

+ involves more individuals

+ more capital available

+ more talent and skills

+ silent/limited partners not liable

- general partners are liable

- partners pay higher taxes

- limited to owners life span

- difficult transferring ownership

3. Corporations

+ limited liability

+ easy transfer of ownership

+ ability to borrowing

- double taxation

- many legalities involved

- reporting requirements

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