The Scope and Nature of Financial Management

1
Chapter 1

• The Scope and Nature of Financial Management

2
Evolution of Finance Function

• From legalistic to fund raising to modern
  emphasis on financial decision-making
• CEOs increasingly rise up the finance side on
  corporations
• Periods of recession, high inflation and high
  interest rates increase importance of competent
  financial management.

3
Goals of Financial Management

• Maximize value of outstanding common stock
• Maximize earnings per share (EPS) not just
  earnings
• Timing of earnings is important
• Business risk and financial risk are important

4
Goals of Financial Management

• Business risk Risk imposed by business and
  economic environment
• Financial risk Risk imposed by choice of
  financing, i.e., risk of debt financing

5
Comprehensive Goal

• Maximize earnings per share subject to
  considerations of business and financial risk,
  timing of future earnings, and impact on dividend
  policy

6
Organization of Text

• Introduction
• Financial accounting fundamentals
• Financial analysis and control
• Working capital management
• Long-term investment decisions
• Long-term financing decisions