Report on Financial Management: FIN 320 Chapter 1 Introduction

This report provides an overview of financial management, covering key concepts such as maximizing shareholder wealth, investment decisions, and the roles of financial markets. It discusses the goal of financial managers to make decisions that benefit shareholders and the importance of considering the time value of money. The report examines the functions of a financial manager, including forecasting, planning, investment, financing, and dividend policy. Furthermore, it explores the financial sector of the economy, including money and capital markets, and differentiates between primary and secondary markets. The report uses the context of the FIN 320 course to analyze these concepts, including maximizing profit, time horizon, timing of return, distribution of return, and risk assessment.

FINANCIAL ANALYSIS
FIN 320
CHAPTER 1
INTRODUCTION
1

Learning objectives
At the end of this chapter, you should be able
to:
– Understand the meaning and nature of financial
management
– Describe the goal and functions of the financial
manager
2

Overview of Financial Management
• Finance is the science of management of
investment structure and financial structure.
• Finance is a tool for financial decision making.
• The study of finance involves the knowledge
of various disciplines.
3

Definition of Financial Management
An attempt to obtain and allocate financial
resources effectively and efficiently to achieve
the firm’s objective; that is to maximize the
shareholders’ wealth by maximizing share
price.
4

Goal of the firm
“To make and execute decisions that provides
maximum benefits to the owners or
shareholders by maximizing owners’ wealth
through share price maximization”
5

• Maximizing owner’s wealth is for the long
term target for the firm
• Maximizing profit will not ensure the firm will
able to sustain in the market.
• WHY?
6

View from maximizing of profit
• Time horizon: it focuses on short term benefits
and tries to gain as much profit as possible
• Timing of return: it does not consider timing of
return and thus time value of money
• Distribution of return: it tends to ignore owners
wish to receive a portion of earnings
• Risk: it give less consideration to the risk to
maximize their profit, as higher their risk will
associate with higher return.
7

Other Goals of the firm
In order to achive weatlh maximiztion, company
should:
– Maximize profit
– Maximize sales
– Minimize cost
– Maximize share price
8

• Factors which influence to maximize the share
price are:
– External environments
– Strategic policy decision
– Expected pofitability and degree of risk
9

Functions of Financial Manager
• Forecasting and planning
• Investment Decisions
• Financing Decisions
• Dealing with financial market
• Dividend policy
10

Financial sector of the economy
• Involved 3 types of markat
– Factors market
• Labour
• Managerial skill and etc
– Product market
• Goods
• Services
– Financial market
• Provide liquidity, credit and payments services.
11

• Financial system play major role in modern
societies
• It helps to allocate financial resources
• HOW?
12